The phenomena of economic disparity in this country is captured neatly in this recent headline from Forbes.com: “The Disconnect Between Stock Performance and The Economy.” It also perfectly summarizes the communications challenge of any publicly traded company looking to satisfy its full range of stakeholders—what ‘the Street’ is looking for, and what customers, communities, and even employees are demanding have perhaps never been less aligned – or at least not for many years. As in past ‘corrections,’ there will be turmoil and trouble, so it will serve corporate communicators and their advisors well to start thinking now about how best to prepare for what is inevitably coming.
It might help to first take a couple steps back and understand this disconnect and the drivers that create it. In the midst of what is described by economists as the weakest U.S. economy since the Great Depression, the stock prices of U.S. publicly traded companies are, using the ratio of all traded stocks to GDP, over-valued by more than 55%. The all-time high for that ratio was 58% – and that was in February of 2020, just before COVID-19 came ashore. How can it be that the over-heated stock market continues to soar while suffering spreads throughout our economy? The full answer is complicated, of course, but according to Goldman Sachs, less than 40% of stock price movements have anything to do with economic activity: the stock market is a sophisticated game, best played by savvy and well-financed risk-takers. For however long the market continues to defy gravity, investors will be mollified. If we continue the slide into sustained recession, stock prices will fall and there will be terrible news to deliver. But even in the short-term, bold decision-making and sophisticated messaging is needed.
Communications Challenge #1
Explaining the financial performance of many publicly traded companies is going to be fascinating. There are many large corporations that have seen strong revenue growth in the face of the pandemic—think Amazon, Walmart, UPS—but they have also had to work through dramatic increases in their cost of doing business (think PPE, disruption of global supply chains and labor premiums). Others, like health insurance companies, have experienced dramatic increases in profitability as their premiums are paid while reimbursement costs plummet because people aren’t going to doctors or undergoing non-essential procedures due to COVID-19. How to project these kinds of ‘success stories’ into a marketplace mired in misery?
Communications Challenge #2
It remains to be seen how the federal government will respond to the continuing erosion of the economy, but for states and municipalities the costs of supporting people are starting to exceed those governmental entities’ capacity to fund. One way or another, sooner or later, revenue needs to be raised to meet the bills that will come due. Philanthropy is not going to be a sufficient response. And while no corporations look for the opportunity to pay more taxes, those companies that benefitted from the payroll protection program or other emergency funding over the past six months will be vulnerable to criticism if they take the position that the recovery is not something they have a responsibility to help fund, either through individual or corporate taxation.
Communications Challenge #3
The reality that much of corporate executive compensation in U.S.-based companies has become aligned with stock performance has created an increasingly awkward paradigm for times like these: How can senior management be seen as supporting their employees and communities when their economic realities are moving in the opposite directions?
For many in the United States, the disconnect between Wall Street and economic vitality has never been as glaring or damning as it is at this challenging moment in 2020. Lifting people out of the quagmire of a pandemic-induced recession is going to require both courageous government action and enlightened corporate commitment. Reputation managers in corporate America have important roles to play in helping their organizations rise to the occasion. Not easy work, but essential, and hopefully, deeply rewarding. Godspeed.