The Power of Narrative and CEO Role Models
The Power of the Proper Narrative
A narrative is (among other things) a logical and convincing story behind the firm’s activities – existing and proposed. Many investors in their investment decisions do it because this “feels right”, not because they can pinpoint the precise narratives justifying these decisions.
Asking a number of qualitative questions helps acknowledge the actual narrative and spot a narrative shift earlier than others do, before this is priced into the security by the market.
o What narrative is getting priced into the stock? Is it the right one?
o What kind of narrative (optimistic, realistic) is management pushing? Is it already priced in the stock?
o What will be the impact of the narrative change?
o How can one sell this narrative to their investors?
“Friendly activist” investors can work with the Board/management not only on the governance improvements, but also on changing/shaping the narrative for the market.
Good communication is not just a good thing to have to please paranoid investors, it’s a powerful tool to present the narrative to the market and unlock shareholder value.
(unrelated, but useful) Markets tend to be slow fully pricing in major capital allocation changes (good and bad), i.e. there’s a window of opportunity to make/quit and investment before others figure out what’s going on.
Do you really want a CEO to be a role model?
What we’re led to believe: the people at the top must be role models for their employees.
However, deficiencies of character invariably get copied, too.
Also, copying just the observable behaviour of a boss leaves her internal motivations and deeply rooted beliefs hidden, so the value of imitating someone is limited if not outright negative [MK: lots of assholes I know tried copying Steve Jobs thus reinforcing their terrible behaviours].
The example above is of a role model; copying a reference individual includes the understanding of the behaviour.
Executives should be aware that their behaviours are copied, so they have a responsibility to at least disguise the unwanted behaviours.