Concerns about excessive executive
compensation, backdated stock options and earnings restatements have sent shockwaves of new regulation and
compliance requirements, like Sarbanes-Oxley, crashing into companies.
Yet, despite the strong performance of
many CEOs in the past two years, the pendulum has swung away from a “let my
numbers speak for me” mindset to a new
environment where CEOs must play the
role of chief corporate communicator.
CEOs may be able to benefit from this
new role by delivering truthful, consistent
messages to all constituents, a practice
that will restore trust in the C suite and
bring control back in house, says Rick
Beal, managing consultant for Watson
Wyatt Worldwide. “Nobody likes surprises,” says Beal. “Communication transparency takes away the surprises and
brings control back to the CEO. In fact,
there’s a huge opportunity for CEOs to tell
the story behind their numbers hidden
within the compliance requirements.”
Smart Business spoke with Beal about
how CEOs can use transparency in their
communications to win back trust and
control from stakeholders.
What are the best practices for communicating executive compensation compliance?
The Securities and Exchange Commission (SEC) mandated a new format for disclosing compensation information for public companies. It says that compliance is
meeting the letter of the rules but not the
spirit of the intent. Although companies
have made good-faith attempts to provide
data, many company disclosures fail to
provide the ‘how’ and the ‘why’ questions
and merely articulate the ‘who, what,
where and when.’
We recommend that CEOs take the disclosure issues completely off the table by
using an executive summary to tell the story
of the executive compensation program.
This executive summary should include pay
strategy, the company’s labor market for
executive talent, and pay and performance
levels relative to peer companies.
Wherever possible, without making disclosures that would cause true competitive
harm, CEOs should disclose incentive plan
goals and their link to incentive payments.
They should quantitatively evaluate and
describe the difficulty of achieving incentive performance goals.
What are the best practices for communicating with investors and shareholders?
In public companies, the primary constituents are major shareholders, but too
often CEO communication is limited to
presentations to board members and stock
analysts rather than building personal relationships with key shareholders. There is
ample room for building a shared understanding of business objectives and governing principles with key investors without divulging insider information through
one-on-one meetings.
The key is having consistency and accuracy in your message, and not letting your
advisers dissuade you by advocating a no-risk position to the point that not enough
information is shared. There is a middle
ground, and you can utilize a good media
relations team to help develop your talking
points and messaging that will tell the
broader story of your company’s strategy
and goals.
Should CEOs be more transparent when communicating with employees?
Yes. There are huge benefits for letting
employees know what’s going on in the
company. Utilizing internal resources to
establish a direct line of communication to
employees about the philosophy, business
strategy and desired culture is critical to
success. More engaged employees who
understand their role in achieving organizational objectives drive a 20 percent
increase in performance as measured by
increases in total shareholder returns.
Senior management needs to communicate at least monthly via messages that are
aligned with corporate strategy — and that
information should be available in multiple
formats, including print, electronic and
face-to-face communications.
Are you advising CEOs to increase their
transparency in customer communications?
CEOs have a real opportunity to carry
their message and to differentiate their
brand and their company with customers
by letting their customers know what the
company’s mission and vision is all about.
You can also lead by example by demonstrating the importance of customer commitments, and you can enhance the expectation that all employees carry the organizational messages to the customer.
How does community involvement potentially reduce bureaucratic compliance for CEOs?
A positive company image can be transmitted through a good solid community
relations program and through community
involvement by CEOs. Getting beyond
compliance requirements to build an environment of trust with all stakeholders is
critical to reducing bureaucratic costs. The
real opportunity begins when the improved
conversation yields unexpected opportunities and raises the level of engagement
among all of the constituents.
RICK BEAL is the managing consultant for Watson Wyatt
Worldwide in San Francisco. Reach him at (415) 733-4100 or
[email protected].