https://hbr.org/2002/09/taking-the-mystery-out-of-
Post# of 22465
Posted On: 12/04/2016 8:15:08 PM
https://hbr.org/2002/09/taking-the-mystery-ou...r-behavior
f you were asked how well your company knows its investors, you’d probably answer, without hesitation, “Very well. ” After all, you’d point out, your top executives including your CEO spend a lot of time talking with big investors and influential analysts in conferences, conference calls, or one-on-one meetings, and you have an active investor relations team that stays in close touch with the investment community. But what if you were asked how, exactly, investors would react to any particular strategic decision your company might make? If you’re like most executives, your answer is unlikely to be very illuminating.
Consider this. We recently asked the CEO of one McKinsey client how he thought investors would respond to the upcoming sale of a major operating division. Although he claimed to spend twice as much time with investors as his competitors’ CEOs did and employed both in-house investor relations (IR) staff and IR consultants, the CEO couldn’t quantify the value that his company’s major investors ascribed to the division or even identify the synergies that they assumed existed between it and other divisions. It was impossible, therefore, to do more than guess at the market’s reaction to the announcement of the forthcoming sale. And even when CEOs do understand fairly precisely what their largest ten or 20 investors think, they often mistakenly take the views of the large shareholders as guides to the opinions of smaller ones. That thinking caused trouble for another of our clients when three investors—which were not among the 20 largest or most influential ones—unexpectedly sold all their shares following an announcement, driving the stock price down 15%.
f you were asked how well your company knows its investors, you’d probably answer, without hesitation, “Very well. ” After all, you’d point out, your top executives including your CEO spend a lot of time talking with big investors and influential analysts in conferences, conference calls, or one-on-one meetings, and you have an active investor relations team that stays in close touch with the investment community. But what if you were asked how, exactly, investors would react to any particular strategic decision your company might make? If you’re like most executives, your answer is unlikely to be very illuminating.
Consider this. We recently asked the CEO of one McKinsey client how he thought investors would respond to the upcoming sale of a major operating division. Although he claimed to spend twice as much time with investors as his competitors’ CEOs did and employed both in-house investor relations (IR) staff and IR consultants, the CEO couldn’t quantify the value that his company’s major investors ascribed to the division or even identify the synergies that they assumed existed between it and other divisions. It was impossible, therefore, to do more than guess at the market’s reaction to the announcement of the forthcoming sale. And even when CEOs do understand fairly precisely what their largest ten or 20 investors think, they often mistakenly take the views of the large shareholders as guides to the opinions of smaller ones. That thinking caused trouble for another of our clients when three investors—which were not among the 20 largest or most influential ones—unexpectedly sold all their shares following an announcement, driving the stock price down 15%.
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