Why publicly listed companies need to invest in business storytelling
Publicly-listed enterprises need to invest in business storytelling, strengthening both their media relations and investor communications if they wish to build and sustain investor interest — both retail, professional and institutional — as well as liquidity in their companies.
A compelling business story is crucial and has a reported return of 28.06X, serving to connect your customers and investors to your brand, as well as potentially driving earnings performance.
It is about explaining the value of your company/brand; establishing a rapport and common language with investors in a market governed by algorithms and irrational sentiment; and providing a human element to your company that can attract and retain investor interest.
Standing out in the market means possessing qualities that differentiate you from your competition and highlight your broader value to them and the market.
It also means building a common language within your organization and with your clients —it contributes to building alignment among the corporate workforce and aligns staff with the organisation— as well as assists in evolving a corporate persona with themes and values that can resonate with investors and customers.
The story your corporation tells to itself and its staff determines the culture factor — which is a key factor in building and sustaining a robust, high-performance working culture in the contemporary corporation — as well as influences its financial performance. This applies to privately-held and publicly-listed firms alike.
Media & research visibility drives liquidity
In an age of growing automation, particularly automated reporting in financial journalism, one study that highlights this importance is a 2017 report by the Stanford Graduate School of Business, “Robo-Journalism and Capital Markets”.
Robo-journalism (algorithmic journalism) sees automated systems synthesize information from firms’ press releases, analyst reports, and stock performance, before being widely disseminated by news outlets within a few hours of a corporate earnings release. Thousands of listed enterprises publish their corporate earnings on a half-yearly or quarterly basis, and the use of automated journalism by the Associated Press (AP) in this media synthesis and dissemination increased firms’ trading volume and liquidity.
The Stanford study looked at 2,433 firms with a median market cap of $250 million and found that automated coverage of a company spurred its trading by an average of 11% within two days of an earnings announcement. The reported generated greater trading volume and liquidity (i.e. market depth), enabling greater turnover velocity of traded shares.
Blankespoor, one of the researchers, explained: “The more shares you can trade at a given price, the deeper the market is said to be. It makes trading less expensive, so people are more willing to invest in that company.”
Meanwhile, in a 2018 commentary by David Gerald, founder and President/CEO of the Securities Investor Association of Singapore (SIAS), observed: “In “When security analysts talk, who listens?” by Mikhail, Walther & Willis, published in The Accounting Review in October 2007, the writers found that large investors tended to trade based on the information contained in analyst recommendations, but small investors tend to simply react to the fact that a recommendation has been released, regardless of the information in the report.”
Small investors traded more than large investors following upgrade and buy recommendations than they did following downgrade and hold/sell recommendations. With large investors “being more sophisticated processors of information”, this highlighted regulatory concerns of retail investors being misled by analysts.
In this case, building and sustaining media visibility through relationships with journalists and media brands, coupled with the development and maintenance of relationships with equity analysts, has a long-term benefit for listed enterprises.
The news consumption habit of investors demonstrably impact stock prices spur market reactions, and when coupled with automated reporting of corporate earnings, this can grow liquidity or drive share prices down, depending on the news content.
But such algorithmic journalism is limited in the depth it can provide. Where it excels is in factual reporting and the provision of financial content. What is cannot provide is the context of in-depth interviews, investigative features and well-researched opinion pieces.
Editorial depth, qualitative strengths
Developing editorial depth across different media and building an overarching story surrounding your corporate brand is crucial. There is a critical need for simple, unifying themes that can be communicated to both investors and customers, given the rise of trans-media storytelling. Successful storytellers often attention on core element(s) and play a role in the search for truth.
This is where engaging with business journalists, as well as equity analysts, comes into play. At its core, it should not be about manipulation but building trust with different stakeholders in the ecosystem.
Stories, business or otherwise, have a compelling power as an instrument of communication. They provide a way to engage and connect with audiences, as well as communicate schema and paradigms (i.e. perspectives of the world), as well as provide a certainty and narrative structure.
They can arouse emotion and presence, creating sentiments in the right brain of investors and triggering their imagination, so as to become participants in a larger narrative.
This is why it is critical that businesses build a cogent story, particularly in building and managing a relationship with the capital markets ecosystem. In the course of her research, Anastassia Fedyk of Harvard University discovered inconsistent responses to financial news by the larger market.
She noted: “These pitfalls of news consumption emerge predictably from human psychology. A sizable literature documents the role that distraction plays: When faced with multiple competing cues, people have difficulty focusing their attention on the relevant information.”
“The more complex the network of signals, the more difficult it is to extract pertinent information. For example, professors David Hirshleifer, Sonya Lim, and Siew Teoh of the University of California and DePaul University show that the market is less efficient in processing earnings announcements when a large number of releases occur at the same time.”
Similarly, reactions to reprints of older news content is driven by complexity. Market participants can mistake old news for new content, especially in the case of older information originating from multiple sources, rather than when it is directly republished.
Overall, capital markets can display an array of biases when processing financial news development. Different media brands perceive the same development differently. Similarly, not all financial professionals consume news in a unified manner.
Overarching theme in business storytelling
Navigating these biases and complexity is why storytelling is a strategic business tool. When unified with an overarching theme, this can help cut through the complex signals that multiple stories might communicate about a brand.
Shakespearean plays are structured along an axis of five acts — an exposition, rising action, climax, falling action, and a dénouement — a final outcome. In aggregate, these elements can be used to great effect.
The research of neuroeconomist Paul Zak highlights how storytelling can elicit strong neurological responses. Brains produce the stress hormone cortisol during the tense moments in a story, which enhances focus, while positive elements can cut the release of oxytocin, a neurochemical that promotes connection and empathy. Happy endings in a story trigger the limbic system to release dopamine, which correlates to emotions of optimism and hope and plays a crucial role in emotional memory.
Strategic storytelling can change attitudes and behaviors, and a strong overarching narrative can mediate the reaction of investors and the broader market to negative developments, which every company experiences in their life cycle.
When investors identify an overarching theme of a corporate story that resonates with them and build a connection, they are more likely to underwrite the company during times of business difficulty, as long as there is a degree of alignment with their investment thesis or mandate.
A business story enables the development of a narrative that contributes to the qualitative analysis of a business, complementing any quantitative analysis and facts. While information can persuade people, it does not necessarily inspire action.
Business owners and chief executives (CXOs) of publicly listed firms need to learn how to meld facts, analysis and qualitative information into a single story with an overarching theme. When developed and sustained in a manner that can generate emotional resonance, this will ultimately help augment their liquidity and value, benefiting both the corporation and their shareholders in the long-term.
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