Framing the future: The importance of managing shareholder expectations

Learning to work with uncertainty

All this tells us that a turbulent market will eventually catch up with unwary CEOs. With the war in Ukraine and a growing sense of urgency surrounding monkeypox, not to mention rising political instability in the UK and uncertainty in relation to the forthcoming US midterms, it is difficult to chart a certain course.

In the face of such uncertainty, investors are looking to the CEO for reassurance, firstly that management is in control and planning ahead. Management of earnings announcements plays a key role in this; investors need to understand that the fundamentals of a company’s business remains healthy, despite the external environment and is, therefore, in safe hands, and will be resilient to future shocks. It is also vital to demonstrate the ability to grow in adverse market conditions.

One thing CEOs must avoid is talking big in terms of execution and scaling and then failing to back that up with action. The pandemic illustrated that those firms who scale their capabilities can pivot much more easily under pressure than those who do not. The biggest danger for CEOs when it comes to managing expectations and influencing share price in such times is adopting a mindset of, “We need to retrench; we need to protect ourselves.” When such thinking sets in, CEOs stop R&D and capability building. Rather than protecting them, this makes them much more vulnerable.

Keep an eye on the horizon

It goes without saying that it’s critical to consider the long-term outlook for managing and influencing shareholder expectations. It is worthwhile regularly reviewing and, if necessary, revising the organization’s KPIs, reframing business objectives in terms of what will have greater value in the future market, such as ESG and DEI considerations.

One organization that does an excellent job of influencing investor expectations is Microsoft. CEO Satya Nadella is known for pushing his team to rethink KPIs in order to engage actively in the transformation of the organization in line with his vision for it. Nadella builds Microsoft’s shareholder messaging around those KPIs, and highlights evidence that the firm is on track.

Neither is Nadella afraid to learn from Microsoft’s peers. One example is the subscription model, which, in tech, was pioneered by Adobe in 2012. CEOs looking to manage investor expectations in the long term shouldn’t be afraid of studying and learning from other business models.

As part of this, you need to be comfortable to push your organization to build capabilities, scale new capabilities and redefine KPIs around those capabilities. If both internal and external shareholders are fully aware of the ongoing investment by the business in building these capabilities, they can feel secure in the future of their own investments in the business itself.