Two facts from the Today programme shocked me this morning. Both facts were about companies and their share prices. Both were about those prices falling dramatically. Both involved a lack of transparency on the part of the companies concerned, BT and Pearson.
My first thought was that the falls were particularly dramatic: 19% in the case of BT and 30% in the case of Pearson. I’m no stock market expert, but these seemed like extreme amounts to me. Digging around suggests these swings are large for such well-established, large organisations with a track record of stability. Large enough to make the news. But not unheard of.
My next question: were these swings evidence of a wider trend across the stock market towards greater volatility? It doesn’t appear so, as this Motley Fool analysis shows. I confess I was disappointed: this would be a nice evidence point for the increased frequency of change. But it seems rapid change is in the very nature of the stock market.
So what caused such dramatic swings? This is where it gets really interesting. Both companies appear to have been penalised by the market for a lack of transparency.
In BT’s case, you could also argue it’s a lack of honesty. Years of apparent fraud in its Italian unit is going to cost the company £530m to address. This is bad enough, but the company initially estimated the cost at £145m. The markets were understandably spooked by the rise, as well as the slowdown in its core business.
Pearson was already under fire, by all accounts. The CEO gave an upbeat message to investors in November, only to have to reverse his position soon after. The damage was done not just by poor results but by the CEO over-selling and under-delivering on the company’s performance.
When explaining technology-driven change to people, I use five ‘vectors of change’. One of these I call ‘performance’, meaning that information flows faster now. This puts the onus on organisations to be able to analyse and act on information more quickly. But it also creates a demand for people to share information more openly. People want current, accurate answers on demand.
In BT’s case, the wrong answers were being given to people for a long time. And even when the issues were uncovered, the market was fed with intermittent, inaccurate information. You can’t know all the answers, all the time, but you have to wonder whether a running commentary on the state of the investigation would have been less damaging than a last minute warning. It would have demonstrated true transparency.
With Pearson it appears the company was failing to gather good information and analyse it properly. Otherwise the poor December would have come as less of a surprise. Note that disruptions to good information flow often happen inside the organisation: it’s amazing how much information can be changed by people trying to cover their own arse.
Lessons for Tomorrow
The takeaway from this, is that even if there isn’t greater volatility now, there is absolutely an appetite for greater transparency. Companies and their leaders need to be better at gathering, analysing and acting on inbound information, ensuring that its meaning doesn’t get corrupted as it flows through the organisation. As I’ve suggested before, artificial intelligences, at board level or below, may be employed to spot patterns that people may not.
Companies also need to accept that it’s time to be more open with the information they have. Some local councils have adopted the policy that everything should be shared unless there’s a really good reason to do otherwise. It might be wise for companies to consider something equally radical as they try to build trust with their customers and investors.