Managing Analysts Perceptions of your CEO
An analyst’s impressions of a CEO are some of the most influential pieces of qualitative data to evaluate a company’s prospects — and yet few companies have a systematic, research-based understanding of what drives analysts’ perceptions of CEO’s.
Based on the results of our most recent panel study of prominent sell-side analysts, this memo highlights ten CEO actions that raise “red-flags” for analysts, and provides a short summary of what CEO’s should do in order to send positive signals to the analyst community.
Red Flags: Ten CEO actions that raise the most concern to analysts
1. Failure to communicate a compelling, thoughtful rationale for strategic decisions.
For analysts, the CEO’s decision process is almost as influential in their evaluation of a company’s prospects as the decision outcome.
2. Failure to acknowledge and discuss their own company’s challenges and vulnerabilities.
Analysts are always on the lookout for potential hazards for any company they cover; a CEO who does not appear to be similarly vigilant is viewed with suspicion.
3. Failure to acknowledge the strengths of competitors.
Analysts are less optimistic about the prospects for a company led by a CEO who does not have a clear respect for the competition.
4. Real (or perceived) disconnect between a CEO’s statements and the company’s actions.
Analysts expect there to be a strong correlation between a CEO’s strategy and company performance.
5. Failure to engage in unscripted “give and take” with analysts.
CEO’s who rely primarily on earnings calls to communicate with analysts display a fundamental misunderstanding of the analyst community – they require firsthand, personal access to the CEO.
6. Failure to articulate a vision about the prospects for the industry at-large.
Analysts have less confidence in a company led by a CEO who is not positioned as a thought leader with a prescient view of the big picture.
7. Inappropriate focus (either real or perceived) on the company’s stock price.
Analysts are extremely sensitive to any indication that a CEO is engaging in short-term earnings management.
8. Hiding behind the CFO.
CEO’s who don’t demonstrate that they have a full, working understanding of the numbers lack credibility among analysts.
9. Vanishing when times are tough.
If the company is having problems or in the middle of a transition, analysts want (and expect) more, not less firsthand access to a CEO.
10. Message discipline.
If analysts don’t see the CEO’s strategic message explicitly echoed throughout the company and across the senior leadership team, the CEO’s credibility is undermined.
Avoiding the Red-flags: How CEOs Can Send Positive Signals to the Analyst Community
1. Display what analysts call “a firm grasp on reality,” one characterized by:
• Transparency: A ready willingness to acknowledge shortcomings and challenges; Cautious optimism when outlook is good; Clear and unequivocal respect for the competition.
• Sophistication: The ability to express a clear, strong articulation of company strategy; An easy familiarity with the numbers; A focus on the long-term performance and value of the company.
2. Demonstrate a deliberate personal decision-making style characterized by:
• The ability to consider (and clearly articulate) the upside and downside of all reasonable strategic options for their company, including one(s) that are ultimately rejected.
• An informed, fact-based view of the prospects for their own company, as well as the competition and the industry at-large.
3. Provide analysts with a window into “how they think” via:
• Unscripted, open discussions that give analysts the opportunity to hear a CEO “think aloud” about their approach to the business, their vision for their company, and their assessment of the industry/competition.
More on the Gotham Financial Analyst Panel
The Gotham Financial Analyst Panel is a quarterly study designed to produce actionable strategy for improving our clients’ standing in the analyst community. The Panel itself is a rotating panel of prominent sell-side financial analysts representing a broad range of industries, including: airlines, beverages, computer software, financial services, food consumer products, household and personal products, insurance, pharmaceuticals, retail and merchandising, and telecommunications. Each quarter, our panel members participate in an hour-long, in-depth interview designed to capture their perceptions of the industry they cover, as well as their assessment of specific Fortune 500 companies and their CEO’s/senior management teams.
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