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CEOs May Be Worth More Than the Businesses They Lead—And Communicators Play a Big Valuation Role

Corporate Executive Counting MoneyAccording to a new international poll of analysts, city editors and correspondents, exceptional CEOs, in the view of more than a third of respondents, represent 50% or more of the value of the businesses they lead.

In December 2015 and January 2016, London-based Houston PR canvassed the views of editors, correspondents, analysts and in-house communications professionals in the UK and the U.S. on the role of the CEO as communicator.

In Houston’s discussions with external opinion-formers, the near-consensus was that communications, analyst and media relations and PR are no longer purely exercises in the distribution of facts. Data is simply a snapshot. The poll found that editors, analysts and correspondents expect better and more frequent communication (within the constraints of disclosure rules) at a time when social media means that transparency is a given rather than a choice.

What businesses need is a communications plan every bit as detailed as a screenplay, with the CEO as the lead performer. The relationship with the audience is vital.

Taking a face-value reading of the views of more than a third of analysts and editors polled, Houston extrapolated a 50% valuation for the ten exceptional leaders most frequently cited in the poll. Houston PR then calculated the CEOs’ individual value based on multiples of their weight in gold (making some assumptions about their weight).

Tidjane Thiam Credit Suisse 6915.504425
Carolyn McCall EasyJet 1790.769495
Sebastian James Dixons Carphone 1310.609743
Sir Martin Sorrell WPP 3651.83533
David Lewis Tesco PLC 2337.651197
Sergio Marchionne Fiat Chrysler 1756.557474
Jeremy Darroch Sky 3380.620635
Brian Cornell Target 7812.983561
Elon Musk Tesla / SpaceX 4514.665092
Tim Cook Apple 99990.08455

Clearly, value creation is a long-term exercise and involves the contribution of a large workforce, but exceptional leadership does play a crucial role. Most exceptional CEOs have a long-term symbiotic relationship with the businesses that they lead, with departures a rare event and generally coinciding with performance issues that impact their market value. Value erosion post-departure is not a given—Tim Cook, for instance, would not walk through the exit door with 100,000 gold effigies.

The analysis does, though, illustrate the importance and value of perceptions. Perception defines the difference between two similar businesses that might carry wildly different valuations. Put simply, perception minus reality equals enterprise value—and the CEO is fundamentally responsible for perception.

  • A CEO’s ability to articulate a compelling story is increasingly central to the fortunes of a business. The firm argues that this is even more the case today as companies are becoming more transparent and porous. Exceptional leaders carry a huge perception premium.
  • Companies need to be prepared for a new type of relationship between the CEO and the business. The poll found that most opinion formers and in-house communications heads believe that businesses have become more transparent in the last five years.
  • An exceptional CEO needs to be treated as a more formal asset. The relationship between his or her ‘market value’ and the value of the enterprise is something that needs careful management and contingency planning.

Companies have succession plans, of course, but there is a question about whether the plans are sufficiently robust at a time when external stakeholders expect a more continuous stream of news from leadership than formulaic financial reporting calendar has previously dictated. A visible CEO is essential—and the better the performer, the more integral he or she is to the value of the company.

The value that many opinion formers place on an exceptional CEO should be a salutary message for boards. If an exceptional CEO represents 50 percent or more of the value of a business, arguably this renders the business a subsidiary of the exceptional CEO’s reputation.

This raises the communications stakes enormously. It cedes more power to the CEO than most boards might consider comfortable. It also makes the case for more sophisticated succession planning—as detailed perhaps as a plan to IPO a subsidiary.

Source: Houston PR; edited by Richard Carufel

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