Corporate communication is a very broad area of firm activity where a great deal of business value can be created or lost. It is the dynamic medium through which firm goals are set forth, relationships throughout the firm are established, work is carried out and challenges and opportunities are met. Despite its importance, many firms do not view corporate communication as a key value driver, which often results in firms missing opportunities, operating significantly below their potential and allowing them to be placed at a strategic disadvantage. This article provides an overview of corporate communication and discusses its relationship to firm value.
Corporate Communication
Corporate value is not only comprised of performance indicators that can be readily expressed in a firm’s financial reports, such as the number of products sold, price and operating costs. While these are of course key components of firm economic results and value, and many firm characteristics can be implied from them, these indicators are the product of a larger and interrelated set of factors that influence a company’s actual and potential economic performance, including work environment, firm procedures and processes, customer relationships and the firm’s reputation.
The interrelationship of these factors often leads to counterintuitive valuation conclusions. While it would ordinarily be expected that a firm with a high EBITDA would be worth more than one whose EBITDA is lower, in fact the lower EBITDA firm might be more valuable if the firm with the higher EBITDA has, for example, a negative workplace culture that soon may cause key value-generating team members to leave. Current financial performance, positive or negative, can be a prelude to a very different future financial reality.
Businesses are a set of economic pieces that are held together by the glue of communication.
In the multifaceted prism of the corporate value equation, corporate communication plays an extremely important role. To start with a definition, corporate communication can be thought of in simple terms as the process through which firm values, goals, directives and information are transmitted inside or outside the organization. Corporate communication is carried out in an extremely broad set of contexts and business conditions, ranging from distributing marketing materials to interpreting business results to conducting reviews of employee performance.
The channels, directions, media and extent of corporate communication are highly varied. This transmission can occur vertically (from senior management to employees or employees to senior management) or horizontally (between different department or individuals) in a wide range of ways, including through formal statements issued by firm management, periodic updates, meetings or informal conversations. Corporate communication may be a well thought program of systematically delivering a corporate message or a very hastily improvised response to some type of firm or market event.
The Corporate Communication Audience
While the audience of corporate communication is highly varied, dynamic and comprised of overlapping lines, for most firms it is comprised of five key groups.
Internal Firm Communications. The first important forum for firm communications is the firm itself, including members of management and all of the firm’s employees. These people need to constantly exchange different types of information and views and channel that information to appropriate firm departments and individuals. Within the firm, key subjects of internal communication are typically setting forth firm objectives, such as in a business plan, distributing those goals to all firm departments, executing tasks and reviewing results.
Five key members of the audience for corporate communication are the firm, shareholders, business partners, clients and the general market.
Firm Shareholders. The second key audience for firm communications is the company’s shareholders. How active firm shareholders are in the day-to-day business of a company varies from firm to firm, with some firms having shareholders that are largely passive and others having shareholders that play a key role in setting strategy and running the business. Key areas of communication with shareholders are providing and explaining business plans and budgets, quarterly and annual reports, discussing matters that require shareholder approval and describing extraordinary events that affect firm operations. The quality of these communications has a significant impact on shareholder view of firm management.
Firm Business Partners. The third key audience for firm communications is firm business partners. Very few firms carry out businesses entirely by themselves and must rely in some fashion on third parties to make and deliver their products and services. Key areas of communication with firm business partners are defining the scope of work, setting forth the timing for delivery, ensuring appropriate execution of support to be provided and reviewing work done.
Firm Clients. A fourth key audience for firm communications is firm clients. The nature of client communication depends on the product or service provided and how many clients a firm has. For some firms, companies may have little day to day interaction with clients while in other cases firm may work with clients on a daily basis over a long period of time. Key areas of communication with clients include discussing products and services, agreeing pricing terms and addressing issues that arising during the client relationship. This communication often has a very large impact on client product and service choices and company loyalty.
Marketplace Communications. The fifth key audience for firm communications is the general public, the wide group of people that can potentially become clients or partners and disseminate positive or negative views about the company’s people, products and services. This is an extremely important element of firm communications due to not only the large number of people that receive these communications but also the ability to transmit information to and within the market very rapidly. Key areas of communication with the market include general information about the firm, announcements regarding firm products and services and commentary regarding issues that are of importance to the firm.
Corporate Communication and Business Value
Given both the scope of corporate communications and the size of the corporate communication audience, it easy to see how dramatically communication can affect corporate value. Essentially every firm value increase or loss can be directly traced to effective or ineffective communication.
Communication has a multiplier impact on the value of firm resources: effective communication can cause resources to generate significantly more than their typical value; poor communication can cause ostensibly valuable resources to generate a fraction of their value.
Message Delivery. Regardless of how strong a company value, strategy or tactic is, if a message is not clearly delivered to the right people it will likely not have the intended impact. This often requires firms to expend additional resources, which can be significant, in correcting misunderstandings, backtracking from paths that have mistakenly taken and redelivering the message.
Task Implementation. Even if a corporate message is clear, all communications unavoidably meet the reality of a changing world. While implementing a task, individuals and teams almost always run into some type of obstacle, internal or external, which requires the coordinated efforts of various people to surmount. Overcoming or being forced to unsuccessfully retreat from these obstacles means value created or lost.
Reaction to Events. Thirdly, firms are constantly affected by internal and external developments and often these developments simultaneously present opportunities and threats. Taking advantage of these opportunities and avoiding threats often requires a quick decision based a consideration of the advantages and disadvantages of different courses of action and how a potential action fits into the larger context of the firm’s operations and how its resources are allocated. These are challenging steps to take, particularly for large firm with complicated business agendas, and striking the right balance between reacting and carrying on the original course can only be done through effective communication.
Strengthening Corporate Communication
There are a number of steps firms can take to strengthen corporate communication.
Developing a Corporate Communications Policy. The first step in strengthening corporate communications is to have a formal communications policy which sets forth the person ultimately responsible for corporate communications to each of the corporate communication audience groups. The policy should set forth the steps for preparing and issuing communications.
Corporate Communication Records. There should be clear rules in place for storing corporate communications and how they are stored. Many highly important communications are in the hands of few people and if these persons leave the firm, important information may be lost and make it difficult to reconstruct what was in fact communicated. Apart from the lost of valuable firm history, this can put firms at a severe disadvantage in the event of litigation.
Developing Communication Loops. Corporate communication policies that assume that messages, once issued, will be perfectly understood and applied are doomed to crash against the reality of misinterpretation and changing conditions that can drastically impact the usefulness of the communication. For this reason, companies should assume as a starting point that there will be significant amount of noise on the path of message issuance and reaffirmation and adjustment will be necessary.
Corporate communication policy should view communication not as a single event but rather a loop of message issuance, reaffirmation and adjustment.
Evaluating Communication Results. Just as other areas of firm operations, corporation communication should have objective goals and be subjected to continuing analysis of how it can be improved. There is good reason to ensure that some portion of the firm’s budget should be dedicated to evaluating and strengthening the company’s communication infrastructure and processes.
Conclusion
Corporation communication stretches across every element of firm operations and is a vital part of the firm value creation process. Based on a clear understanding of the corporate communication audience and the factors that can cause communication to break down, firms should put in place specific corporate communication policies which maximize the likelihood that the firm will be able to effectively take advantage of opportunities and avoid or minimize the impact of risks. This helps firms significantly increase their resilience, a powerful asset in markets constantly beset by unexpected shocks.