In an article for CFO Dive, the CEO of AC client Steel City Re writes about the need for CFOs to take a hands-on approach to managing their company’s reputational value, especially in the COVID-19 era. Doing so sends market signals that lead to improved equity and debt pricing.
CFOs have been responding to the slowdown by talking about cash flow, net earnings, and how long of a shutdown they can handle. What they should be talking about is fear.
Consumers reined in first quarter spending faster than many analysis predicted. Households, apparently, engaged in social distancing well ahead of stay-at-home orders.
As a result, consumer spending-based projections were flawed, and will remain flawed if financial models fail to consider the role of behaviors like fear in driving the economy. In their next round of earnings calls, CFOs might consider leading a different discussion — on behavioral and informational economics.
In the next quarter, fear, anger and disappointment management will be the x-factor shaping companies’ equity and debt prices. That x-factor has a name: reputation risk management.