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The Hidden (High) Cost of Corporate Announcements

Corporate announcements provide the market with the information needed to properly assess the corporation’s stock price.

Some of these announcements include information that may indicate a change in the organization itself, like a reorganization, merger, pursuit of a new strategy or technology, right-sizing, or investment in CRM or SAP.

These “Change Announcements” are sometimes issued with the intention of improving the stock price. Many receive lukewarm receptions from the market, and often no more than an “Oh well, nothing ventured, nothing gained” from an executive suite unaware of the costly shop-floor effect of Change Announcements, which can be large enough to offset even the benefits of announcements that do result in increases in stock price.

Change Announcements scare employees.

All employees become concerned for their jobs, even though announced changes often result in job changes for fewer than 5% of employees. This concern results in a significant drop in productivity, especially among knowledge workers, at the time workload increases as employees continue to do their old jobs while also helping to implement changes.

This shop-floor effect puts unnecessary pressure on successive levels of managers, creating a “crack-the-whip” effect – a minute announcement at the top, results in a small response among those with the most seniority at the next level and magnifies as the information works its way down the chain-of-command to the lowest-paid employees who are most vulnerable.

This loss in real productivity makes managers’ and employees’ jobs harder, and puts long-term downward pressure on stock price that outweighs the benefits of all but the most successful short-term increases.

There are several ways to resolve this.

Let’s talk.

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