Strategic Disclosure:

Corporate Reputation and the Communication of Strategy

Richard Whittington
(richard.whittington@sbs.ox.ac.uk)
Basak Yakis-Douglas
(Basak.yakis-douglas@sbs.ox.ac.uk)
Version 1 September 2010
Please do not quote without referring back to the authors.

Introduction

This chapter considers the impact of companies' external communications about strategy on their
reputations. Such strategy communications can take many forms, including material in
companies' own annual reports and the media, and the impact may be felt in various ways,
including consumer loyalty and managerial rankings such as the Fortune Most Admired list. In
this chapter, however, the empirical focus is on the growing phenomenon of companies' own
forward-looking communications about their strategies, and reputational impact is considered in
terms of consequences in the financial markets. Specifically we address the spread of such
strategy communications, abnormal stock returns due to these communications, and the nature of
these communications in terms of their language, themes and strategies involved.

These strategy communications typically take the form of 'strategy meetings', 'strategy
presentations', 'strategy reviews', or 'strategy updates', carried out with external audiences. Two
prominent examples illustrate their nature and the impact they can have. In February 2008, the
Chairman and Chief Executive of Kodak, the world's foremost imaging company, held a 'strategy
meeting' with financial analysts and institutional shareholders, made available more widely by
live webcast (M2 PressWire, 7 February, 2008). Kodak's proposed strategy focused on plans for
the declining traditional film business and innovations in digital imaging. The strategy was wellreceived: on the same day, Kodak's stock-price increased by nearly 4 per cent. Less wellreceived was Time Warner's 'business strategy update' of August 2006. Here the company's top
management communicated to analysts a strategy that included a shift for AOL, its broadband
internet business, towards free rather than paid access, with advertising as the new main source
of revenues (Voxant FD Wire, 2 August, 2006). Time Warner's stock price fell by more than 4
per cent the same day, costing shareholders about $2bn. While most such strategy
communications do not evoke such strong reactions, it is clear that a company's ability to convey
a positive and plausible strategy matters to shareholders.

In focusing on shareholder responses to external strategy communications, we connect directly to

the corporate reputation literature's central concern for how stakeholders regard a firm's potential
to deliver value (Rindova, Pollock and Hayward, 2006). Within that broad literature, we take a
specific position in three respects. First of all, of course, we are interested in reputation as
perceived by shareholders, rather than by stakeholders in general (Pfarrer, Pollock and Rindova,
2010). Second, the kind of value at stake is directly financial, rather than the value implicit in
more conventional measures such as product or service quality (Rindova et al, 2005). Finally,

unlike concrete market signals of reputation based on actual conduct (Basdeo et al, 2006),
strategy communications are a form of signalling concerned primarily with promises and claims
about the future value of the firm. The focus is not on particular moves that have already
occurred, such as pricing, investment or new products, but on what Fombrun and Rindova (1999)
have called 'strategic projections': in other words, information about intentions placed within
interpretive and symbolic frames designed to impress audiences favourably. In this chapter,
therefore, strategy communications involve broad claims about the value of a firm's future
activities, typically assessed by shareholders in terms of upside potential and plausibility.

Our purpose in this chapter is to establish such strategy communications as an important form of
reputation management. Apart from some pioneering work by Pietro Mazzola and colleagues on
Italian companies (e.g. Mazzola et al, 2006), the strategy communications that we are concerned
with have attracted very little research attention. Accordingly we shall introduce two kinds of
preliminary data: first, data on the use of strategy communications amongst Fortune Global 100
companies between 1995 and 2009; second, data on the performance impacts of such strategy
communications amongst a set of American corporations in the period 2005-2009. Our aim is
with these data is to show the growth of strategy communications amongst large global
corporations and their potential significance for shareholders. However, as well as establishing
the broad outlines of our phenomenon, we shall draw on a variety of literatures that, while
typically not addressing strategy communications directly, none the less do point to possible
lines of inquiry regarding their spread, characteristics and performance impact. Particularly
useful here will be the finance and accounting literature, concerned with the potential
information asymmetries between corporate managers and shareholders and analysts in the

financial markets (Bassen et al, 2010). The critical importance of these asymmetries, for both
corporations and policy-makers, has attracted a large volume of research on voluntary disclosure,
especially of forward-looking information, that is highly relevant to strategy communications in
particular. However, we shall also draw on institutionalist accounts of new practice adoption,
strategy theories on the role of signalling in competitive interaction, and various insights into
potentially significant characteristics of strategy communications stemming from discourse
analysis broadly conceived.

The chapter continues with three substantive sections. First, we identify the growth of strategy
communications amongst large firms globally, and exploring financial market and other
institutional pressures accounting for this. Here we propose avenues for further research building
on the wider finance and accounting literature on disclosure and on insights from both strategy
and institutionalist theory. We continue by considering the impacts that these strategy
communications may have, positive and negative, and suggest how existing research in the
finance and strategy literatures might help to explain these. The third substantive section
addresses the characteristics of these strategy communications, and indicates the potential of
strategy theory and discourse analysis for understanding these better, including performance
implications. Our final discussion highlights research opportunities in the area of strategy
communications generally, and then picks up on the significance of strategy communications for
public policy and the support of long-term investment in market economies.

Who Communicates?

While companies are typically obliged to say something about their strategy in their annual
reports and stock exchange filings, the more extensive and specialised strategy communications
with which we are concerned come within the broad category of 'voluntary disclosures' that also
includes such phenomena as earnings forecasts, business segment reporting and new product
announcements (Bassen et al, 2010: 63). There is considerable variability in the willingness of
large corporations to make these kinds of strategy disclosures. A Factiva search suggests that
exactly a quarter of Fortune Global Top 100 corporations made external strategy
communications during 2009: included are consumer companies such as Procter & Gamble,
Vodafone and Nokia, financial companies such as Barclays and DeutscheBank, and BRIC and
Asian companies such as Lukoil and Toshiba.1 As Figure 1 suggests, the proportion of Fortune
Global Top 100 corporations choosing to make these strategy communications has risen
substantially since the 1990s, with a peak of 29 in 2005 and a fairly steady pattern since then. For
these large global corporations, therefore, strategy communications seem to be an increasingly
common but still far from universal form of reputation management. This growth of strategy
communication, and the variability in take-up, needs to be explained. Potential explanatory
approaches fall into three main camps: voluntary disclosure theory from the finance and
accounting literature; insights into competitive interaction from strategy and economics; and
broadly institutionalist accounts taking a sociological perspective.

[Figure 1 about here]

Search terms: 'strategy meeting', 'strategy presentation', 'strategy review', 'strategy update', and 'strategy
announcement', excluding internal events and reviewed for relevance.

The finance and accounting literature has discussed voluntary disclosures in general (particularly
earnings forecasts and business segment information), but paid very little attention to strategy
communications in particular. Partial exceptions here are Eng and Mak (2001) and Mazzola et al
(2006), but neither focuses on the choice of strategy communications as distinct phenomena.
None the less, the finance and accounting literature has identified pros and cons to voluntary
disclosures broadly conceived. On the one hand, this literature highlights the benefits of
disclosure in mitigating the agency problem existing between corporate managements and
shareholders: the reduction in uncertainty attendant on reducing information asymmetries
increases the willingness of shareholders to pay more for the company's stock (Bassen et al,
2010; Healy and Palepu, 2001). Ambitious and innovative strategies are especially liable to be
undervalued if firms are unable to persuade shareholders and analysts to give their support
(Healy and Palepu, 1995). On the other hand, there are also potential 'proprietary costs' to
disclosing private information (Wagenhofer, 1990; Prencipe, 2005). First there are the direct
proprietary costs involved simply in preparing the appropriate information and presenting it
effectively. The analysts and institutional shareholders that make up the audience for strategy
meetings are both informed and influential. They are highly demanding in terms of appropriate
information and chief executive officers and their teams must invest heavily in preparing their
presentations to them (Demons and Marston, 2008; Roberts et al, 2006). Then there are the
potential proprietary costs imposed by the reactions of competitor and other actors to the
information released. For example, information concerning the high potential profits of a
particular strategy is liable to encourage competitors to attempt imitation and regulators to

investigate potential abuses of market power (Wagenhofer, 1990). Strategy communications

regarding good prospects can actually be self-defeating.

Given the pros and cons of voluntary disclosure, the finance and accounting literature has
explored various factors that are likely to favour greater openness. First, there are a number of
firm-specific structural factors that may promote disclosures. Large size may reduce proprietary
costs, by spreading the cost of information management and, perhaps, by reducing the threat of
competitor reaction (Bassen et al, 2010). Complex and diversified businesses that are hard for
outsiders to understand have a greater incentive to reduce information asymmetries through
disclosure, as do those companies with a high market-to-book value (reflecting for instance high
expenditures on marketing or research and development) whose assets analysts may perceive as
uncertain (Hutton, 2005; Barth et al, 2001). Ownership and board structure also influence
patterns of disclosure, with large proportions of institutional ownership, government ownership
and low managerial ownership for example increasing the propensity to disclose (Eng and Mak,
2001; Hutton, 2005). Firms that have a large analyst following are more likely to disclose,
though the relationship goes in the opposite direction as well, with disclosure encouraging
increased analyst following too (Hutton, 2005; Barth et al, 2001). As well as these structural
reasons for favouring disclosure, the literature identifies more contingent ones. These include
prospective or recent transactions requiring shareholder support, for example acquisitions,
security offerings or debt offerings (Healy and Palepu, 2001). Poor performance, a contest for
corporate control and CEO turnover can also increase the likelihood of voluntary disclosure
(Skinner, 1994). These types of urgent contingencies may help explain the number of financial
institutions (six) amongst the 25 Fortune Global 100 making strategy communications during the

financial crisis of 2009. In any case, it seems that findings from the finance and accounting
literature on voluntary disclosures generally may offer a number of avenues for researching the
decision to communicate about strategy in particular.

The strategy literature too proposes a number of factors that may encourage strategy
communications specifically. Wagenhofer's (1990) warning about the danger of prompting
competitor entry into attractive markets finds counter-arguments in the literature on strategic
interactions. Here strategy communications may actually diminish competitive rivalry. Thus
incumbents trying to defend their position in an industry can signal commitment in order to deter
new entry, for example by announcing ambitions with regard to market share or future capacity
increments or by affirming the importance of that industry with regard to the strategy of the firm
as a whole (Porter, 1985). In industries where there are large sunk costs (because of R&D or
initial capital investments), there are incentives to signal intentions clearly to competitors in
order to discourage new entrants (Farrell, 1987). Similarly, in capital intensive industries such as
paper and pulp, announcements of plans for new capacity help to manage aggregate investment
in the industry, holding back more marginal projects, especially in competitive sub-sectors
(Christensen and Caves, 1997). Strategy communications can thus work to reduce competitive
rivalry in an industry, and are particularly likely where large investments are required. Some
initial support for such industry effects is provided by the fact that eight of the 25 Fortune Global
100 corporations communicating strategy in 2009 were oil companies, working in an industry
characterised by substantial and interdependent investments.

The literatures on voluntary disclosure and strategy dynamics help account for the relative
propensity to communicate about strategy cross-sectionally, but are less able to explain the
general increase in such communications since the 1990s. Here broadly institutionalist
perspectives may be more helpful. The institutional context in which at least American large
firms have evolved in the last two decades has seen a growing emphasis on shareholder value as
the guiding norm of business, associated with the rise of large institutional shareholders such as
mutual funds and an accompanying increase in the numbers of financial analysts hungry for
information (Fligstein, 2001; Davis, 2009). In this institutional environment, there are substantial
penalties to corporations that are unable to 'sell' strategic visions that fit the preconceptions of the
analyst and shareholder community, the discount suffered by conglomerates being a case in point
(Zuckerman, 2000). The result has been a parallel rise within large corporations of investor
relations professionals, responsible for supplying information to shareholders and analysts (Kelly
et al, 2010; Sandhu, 2009). Taking an institutionalist perspective, Rao and Sivikumar (1999) find
that the creation of investor relations departments by Fortune 500 firms is significantly
associated with the number of financial analysis following the company, as well as the existence
of board interlocks with other companies that had already instituted investor relations
departments. Similar institutional factors may be at play in the decision to communicate about
strategy.

None the less, the implications of an institutional shift towards shareholder value are still
somewhat ambiguous with regards for strategy communications. On the one hand, the
institutional prioritisation of shareholder value has increased the availability of financial
information, and this commodification of quantitative data may have placed a premium on more

qualitative inputs, such as strategy communications, that are more likely to provide analysts with
an edge (Rogers, 2005). On the other hand, investor relations departments still struggle to get
analysts to look beyond their focus on quarterly earnings in order to consider prospects for the
long-term (Laskin, 2009). Internally too, finance and strategy can be awkward partners. Zorn
(2004) finds that the creation of the 'chief finance officer' position in large corporations, linked to
the rise of shareholder value concerns, is negatively associated with the presence of a strategic
planning VP. Thus, there is a suggestive parallel between the general growth of strategy
communications and the institutional shift to norms of shareholder value, but the exact links
between these trends are not unproblematic and remain to be teased out.

Institutions may also help explain international differences in strategy communications. Again,
the relationship with American-style shareholder value appears complex. Amongst the 25
Fortune Global 100 corporations making strategy communications in 2009 (Figure 1), it is
striking that only three are American: Exxon Mobil, Marathon and Procter & Gamble. At 12.0
percent, this contrasts strikingly with the 31 percent share of the Fortune Global 100 held by
American companies. Here institutionally-sensitive research into patterns of international
voluntary disclosure may be informative. It has been found that companies based in common-law
countries (such as the United Kingdom, Australia and the United States) are generally more
likely to voluntarily disclose (Hope, 2003), and the same might be expected of strategy
communications in particular. On the other hand, companies coming from civil-law or other
traditions have an increased propensity to disclose as they become more global in scope:
participation in the global market-place increases the incentives to conforming to the standards
of common-law institutions as well (Webb et al, 2007). This emergence onto the international

10

arena may explain the readiness of new BRIC multinationals such as Lukoil to communicate
about its strategy.

In sum, strategy communications have become a widely-used tool of reputational management

amongst large corporations internationally. Although there has been very little research on the
adoption of strategy communications specifically, the literatures on voluntary disclosure,
competitive interaction and institutional change all suggest paths for further research. The
propensity for strategy communications is likely to be influenced by institutional environment,
industry effects such as the nature of strategic investments and rivalry, firm-specific structural
factors such as ownership, complexity and analyst following, and more contingent firm factors
such as performance problems, CEO turnover or the proximity of large financial transactions.

The Impact of Strategy Communication

The discussion so far has pointed already to a number of potential impacts of strategy
communications, for example on competitors and regulators and the extent of coverage by
financial analysts. In this section, however, we shall concentrate on firm performance, relating
directly to the corporate reputation literature's central concern for how stakeholders regard a
firm's potential to deliver value (Rindova et al, 2006). In general, corporate reputations do indeed
impact performance, with historically good reputations predicting superior performance going
forward (Roberts and Dowling, 2003). However, despite their increasing role in the reputation
management of many corporations, strategy communications specifically are not so predictable
in terms of performance effects. The strategy literature is ambivalent about the value of the kind

11

of formal, explicit strategic plans on which external strategy communications typically draw:
such plans are liable to hamstring managers in dynamic conditions and the evidence of
performance benefits to strategic planning generally is far from conclusive (Brews and Hunt,
1999; Slater et al, 2006). The only study of the external communication of strategic plans,
although recording some positive impacts, remains unpublished (Mazzola et al, 2007). Again, it
is necessary to turn to the finance and accounting literatures both for clues as to likely
performance impacts and for guidance as to directions for further research.

Given the regulatory constraints on quoted companies, external strategy communications are
typically events whose precise timings are well-publicised and whose contents quickly reach the
financial markets at large (Mazzola et al, 2006). Accordingly, the impacts of such
communications lend themselves to the event study methods long-used in the finance and
accounting literature and applied increasingly elsewhere (MacKinlay, 1997). Indeed, event
methods have been applied specifically to strategy issues, for example tracking the abnormal
stock market returns following the announcement of different kinds of acquisition or joint
venture (Capron and Pistre, 2002; Gulati et al, 2009). They have also been applied to the release
of strategically-significant pieces of information, such as the winning of large new customer
contracts (Gietzmann and Ireland, 2003). However, our interest here is broader, concerned not
with particular moves or incidents but the impact of strategic projections regarding the future of
the firm overall. The event here is the publication of the future strategy, rather than any of the
concrete steps entailed in the realisation of this strategy.

12

The finance and accounting literature on the voluntary disclosure of forward-looking information
sets low expectations regarding impact. There are two fundamental checks on the value of
strategy communications: 'cheap talk' and 'soft talk'. One advantage to strategy communications
in handling strategic interactions within an industry is how cheap they are, at least relative to the
likely cost of a competitor entering an attractive market (Farrell, 1987). They are just warning
shots to competitors. However, the paradox of such 'cheap talk' is that investors are likely to
discount it precisely because of its cheapness: firms are not putting serious money behind their
claims. Consistent with this 'cheap talk' hypothesis, Brooks et al (1997) have found that Chief
Executive Officer presentations to analysts, which often include strategy alongside a range of
other kinds of information, have very little impact on market measures such as stock trading
volumes and bid-ask pricing spreads. Then there is the 'soft talk' problem. Soft talk is qualitative
information from companies, for example with regard to factors influencing performance or
long-term prospects (Hutton et al, 2003). In these terms, strategy is clearly soft talk. But the
problem of such soft talk for analysts is how difficult it is to evaluate, relative at least to the 'hard
talk' of financial data and forecasts. Analysts are liable to under-utilise this kind of information.
Thus Hutton et al (2003) finds that the addition of soft talk to earnings forecasts makes no
significant difference to stock market reactions. Similarly, Bagnoli et al (2005 a; 2005b) find that
quantitative earnings guidance from companies elicited much larger market responses than the
release of 'strategic' information (ranging from corporate presentations to joint venture or M&A
announcements), and that the markets took significantly longer to absorb such strategic
information than the more quantitative information. The prediction from theory, therefore, is that
strategy communications are both too cheap and too soft to make much difference.

13

The Mazzola et al (2007) study of the release of strategic plans on the Milan Stock Exchange is
partly consistent with these low expectations of impact. The average abnormal return due to
publication is not significantly different for firms that are large and with significant analyst
following. The exceptions are smaller firms and those without significant analyst following: here
strategy communications are associated with significant, and positive, average abnormal returns.
For the markets, it seems, strategic plans offer more new and promising information for the
obscure rather than the well-known.

The Milan Stock Exchange is smaller than the London and New York Stock Exchanges on
which most finance and accounting research has been done: in this context, it is possible that the
information contained in formal announcements may have leaked out much earlier. Accordingly,
we report our own pilot-study on NYSE-listed companies that carried out external strategy
communications in the period from 1 January 2005 to 30 December 2009. In all, there were 284
events, twice the number in the Mazzola et al (2006) paper. Because we expect that strategic
plans will vary in quality, we do not calculate average abnormal returns. Instead, we follow
McWilliams and Siegel (1997) while setting up the event study and MacKinlay (1997) in
designing the event study in a way that allows classifying abnormal returns into positive,
negative, and neutral abnormal returns. We examined SEC files, Lexis/Nexis, and Factiva using
the search terms strategy announcement, strategy review, strategy presentation, strategy
meeting, and strategy update (again reviewed to exclude internal or bogus events). We
calculated abnormal returns using a market model for each firm with an estimation window of
260 days prior to the event window (see MacKinlay, 1997). We used the S&P 500 as the index
of market portfolio. We also used the same 21-day event window (t= -10 to +10) event window

14

as Mazzola et al (2006), an extended window in order to allow time for the markets to digest this
'soft talk' (Bagnoli et al, 2005b). We categorized abnormal returns into positive and negative if
they were in excess of 2.5% above or below the market return for the given period (MacKinlay,
1997).

Figure 2 shows the abnormal returns due to strategy communications amongst these NYSE
firms. Because 108 (38.1 percent) of the strategy events coincided with an earnings
announcement (cf. Francis, Hanna and Philbrick, 1997), we present the abnormal returns for both
all strategy events and for simple strategy events, i.e. those not associated with coinciding
earnings announcement. The abnormal returns of 69.3 percent of the simple strategy events were
neutral, in other words not significantly different from the market. Somewhat surprisingly in
view of cheap and soft talk perspectives, even more (81.0 percent) of the strategy plus earnings
events were neutral too. In any case, the large majority of strategy communications events were
neutral. These neutral events might be considered in the same way as the majority of CEO
presentations, useful for the long-term understanding of the firm but not impactful in the shortterm (Brooks et al, 1997).

[Figure 2 about here]

However, 15.9 percent of the simple strategy events (13.7 percent of all events) earned
significantly positive returns during the short 5 day window and 14.8 percent of the simple
strategy events (13.4 percent of all events) earned significantly negative returns in this shortened
window. In other words, there is a substantial minority of strategy communications that do move

15

the market. As expected, the simple strategy events have less impact than those combined with
earnings announcements: none the less the announcement day negative group suffered on
average a -3.3 percent abnormal return, while the positive group enjoyed an announcement day
gain of 2.5 percent. Significant differences in returns did not continue beyond day +2 for any
group, including those with coinciding earnings announcements. Consistent with expectations
regarding 'soft talk' (Bagnoli et al, 2005b), the later impact of the pure strategy communication
events compared to all events suggests that strategy information is less quickly digested in the
market (indeed, the simple events seem to have a longer lingering effect than all events, though
the effects are not significantly different from neutral after day +2). As in other studies, bad news
appears to have a greater information effect than good (Rowchowdhury and Sletten, 2010).

If we look below the averages, therefore, there is plenty at stake in strategy communications. Just
as for the opening illustrations of Kodak and Time Warner, a few firms do gain, while a few get
it badly wrong. It is critical, therefore, to understand the factors associated with significant gains
or losses. The remainder of this section examines firm-specific factors likely to have significant
effects. The characteristics of these strategy communications, and their implications for
performance, will be considered in the next section.

With regard to firm-specific influences on impact, the dearth of research on strategy

communications means that we shall have again to rely on the broader studies of information
effects in the finance and accounting literature. Mazzola et al (2006) is the exception of course,
and their findings find echoes in the broader literature as well. Thus Mazzola et al's (2006)
finding that smaller companies are likely to enjoy a greater benefit than larger companies is

16

consistent with the larger information effects found for smaller companies more widely (e.g.
Griffin, 2003; cf Ball and Shivakumar, 2010). The same is true of coverage by analysts, where
the finance literature too tends to suggest somewhat greater impacts of disclosures for firms with
low rather than high coverage (Mazzola et al, 2006; Merton, 1987; Griffin, 2003). The finance
literature also suggests that the degree to which a firm's stock is owned by institutions (Griffin,
2003) or the stock is perceived as under-priced (Francis, 1997) is likely to increase the market's
sensitivity to information in general, and by extension to strategy communications in particular.
In sum, strategy communications are likely to have the greatest impact where there are
information failures of one kind or another.

To sum up this section, theory and research so far have offered little by way of performance
rationale for the general increase in strategy communications identified earlier in this chapter.
Strategy communications are liable to the cheap and soft talk problems, encouraging analysts to
dismiss the information rather than incorporate it directly in their stock valuations. Our own pilot
study of NYSE firms confirms that on average strategy communications have little impact on
stock prices. However, a substantial minority of strategy communications - about 30 percent in
all - do prompt statistically significant market reactions, either positive or negative. Strategy
communications can make a difference. The pioneering work by Mazzola and his colleagues,
combined with the general finance and accounting literature, suggest some firm-specific factors
likely to be associated with significant reactions and set an agenda for further research. The next
section will explore characteristics of strategy communications that may also help account for
significant performance impacts, as well as illuminating other issues in the practice of strategy
more generally.

17

Characteristics of Strategy Communications

The strategy communications on which we focus are a form of discourse. They involve formal
speeches by the Chairman, Chief Executive Officer and other supporting senior managers. These
speeches are usually based tightly on written scripts and transcripts of the whole communication
are often made available after the event, along with PowerPoints, podcasts or vodcasts. As such,
these strategy communications lend themselves to the burgeoning techniques of discourse
analysis, the study of written and spoken language (Barry and Elmes, 1997; Schriffin et al,
2003). These techniques are already being applied to other kinds of top management and strategy
discourse, for example new Chief Executive letters to shareholders (Fanelli et al, 2000), the
documentation surrounding Initial Public Offerings (Martins, Jennings and Jennings, 2007) and
actual strategic plans (Vaara et al, 2010). The team around Mazzola has also begun some content
analysis of Italian strategy communications (Bazzolan et al, 2007; Mazzola et al, 2006).
Discourse analysis has already been used to uncover issues such as Chief Executive charisma
(Fanelli et al, 2009) or the organization's use of formal strategy tools (Vaara et al, 2010). Our
concern here, however, is principally with the impact on shareholders.

In analysing the performance implications of different kinds of strategy communications, we go

a step beyond the preceding discussion of the firm-specific characteristics associated with above
or below average returns. Whereas firm characteristics are hard to manipulate in the short-term,
the characteristics of the strategy communications themselves can be managed more directly.
Indeed, Rindova and Fombrum (1999) describe the minute (but ultimately self-defeating) care
with which IBM managed its strategic projections through a number of media during the 1980s

18

and early 1990s. Discourse analysis may be able to reveal characteristics of strategy
communications associated with greater or lesser success. Indeed, the discourse associated with
chief executive letters and IPO documentation has already been shown to influence material
outcomes such as financial analysts recommendations and the capacity to raise money (Fanelli
et al, 2009; Martins and Jennings, 2007). We shall propose three kinds of discourse analysis that
offer dimensions potentially relevant to strategy communications: language, themes and strategy
content.

The language used in chief executive and strategy discourse in general has already been studied
at both lexical and grammatical levels, in ways that are suggestive for strategy communications
in particular. At the grammatical level, Rogers (2000) has pointed to how chief executives may
use active and passive constructions in their presentations in order to claim or distance
themselves from responsibility. A preponderance of passive constructions, suggestive of
fatalism, is unlikely to be well-received by market actors interested in backing exceptional
performance. Similarly, Vaara et al (2010) suggest the potential significance of the balance
between declarative and imperative grammars in strategic plans, with the use of imperative
formulae intended to give plans more authority. The grammar of strategic planns can also show
different degrees of what Vaara et al (2010) call self-authorizing, in other words the attribution
of a kind of natural agency to the strategy in its own right (as in the strategy requires this or
that). Again, the grammars of the imperative and self-authorizing are likely to strike analysts
and markets in particular ways.

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Turning to the lexical level, Rogers (2000) proposes the potential significance of positive and
negative words, the negative likely to exert a baleful influence on market confidence. More
subtle is the use of words that index more widely legitimate (or illegitimate) forms of strategy
discourse (Barry and Elmes, 1997). Means of constructing legitimate discourse might include
invoking words associated with established 'language games' such as competition as a form of
warfare (Rindova et al, 2004); endowing charismatic authority on the strategic leader through the
choice of emotional and inclusive words (e.g. 'our passion') (Fanelli et al, 2009); or referencing
seemingly authoritative concepts in the strategic management discipline such as SWOT analysis
(Vaara et al, 2010). As Fanelli et al (2009) propose in particular for chief executive letters, such
putatively legitimate forms of strategy discourse may be expected to win greater support in the
financial markets.

The discourse of strategy communications can also be analysed in terms of underlying themes.
Barry and Elmes (1997) identify a fundamental tension in strategy discourse between the
credible and the unfamiliar: strategies need to be distinctive and innovative, yet not so outlandish
as to be unbelievable. Discursive approaches have therefore considered both the degree of
continuity in 'plot' in corporate communications (Rindova and Fombrun, 1999) and the extent of
'discursive innovation' in strategic plans (Vaara et al, 2010), the introduction of new buzzwords
and concepts. Continuity in plot may enhance credibility, while discursive innovation introduces
the unfamiliar. This tension between continuity and innovation implies also the importance of
time as a theme in strategy communications. Thus Bazzolan et al (2007) analyse the simple
planning horizons (three years, five years and so on) used in their Italian strategy
communications, while both Fanelli et al (2009) and Martins, Jennings and Jennings (2007)

20

consider the balance of references to the past, present and future in their documents. In relation
to credibility directly, Martins, Jennings and Jennings (2007) point to the importance of clearlyelaborated rationales for IPO strategies, while Mazzola et al (2006) develop criteria for assessing
the causal texture of their Italian strategy communications. Mazzola et al (2006) also consider
that the provision of detail on strategy implementation and measures of progress is likely to
enhance credibility. Other themes that are proposed to enhance analyst and shareholder support
are the reliance on quantitative data, especially the provision of long time series (Bazzolan et al,
2006; Ramneth, 2008), and the provision of detailed disaggregated data, for example on business
segments (Rogers, 2000; Ramneth, 2008).

Beyond the linguistic and thematic levels of discourse, there is the fundamental nature of the
strategies being referenced in strategy communications. The pioneering study here is Woolridge
and Snow's (1990) study of abnormal returns to the announcements of corporate strategic
investment decisions, such as joint venture formations or new capital projects. These are more
specific than the broad projections with which we are concerned, but none the less indicate that
financial markets are likely to respond differently to the intensity with which various kinds of
strategy are referenced in strategy communications: thus greater abnormal returns were
associated with R&D and joint venture announcements rather than diversification and capital
expenditures. The strategy literature has continued to explore the different market responses to
various strategies such as acquisitions and joint ventures: for example, Capron and Pistre (2002)
find that acquiring firms are most likely to earn abnormal returns when transferring resources to
their targets, rather than the other way round, while Gulati et al (2009) report higher abnormal
returns to joint venture announcements where the partners have had earlier joint venture

21

experience together. The accumulated findings of this literature should furnish further
dimensions for analysing the performance effects of strategy communications, as well as
providing pointers for managers about what features of their strategies to emphasise.

Insert 1: The Discourse of Strategy Communications

Kodak Strategy Meeting, 2008
"It is with great pride that I introduce the new Kodak, a company with a new
spirit and winning attitude. While completing a difficult and unprecedented
business transformation, we also created breakthrough products and services that
feature Kodak's hallmark innovation, winning customer acceptance and critical
praise for a brand renowned for its smart use of technology. In 2008 and beyond,
we will leverage the innovative thinking of Kodak people to deliver on our
commitments to shareholders and increase the value of this great company."
Antonio M. Perez, Chairman and Chief Executive Officer, Eastman Kodak
Company.

Time Warner, Business Strategy Update, 2006

"I believe the strategy we are about to take you through is quite sound. By giving
AOL's valuable members the opportunity to stay with us free of charge as they
shift to broadband, we will significantly accelerate AOL's transition to an
advertiser-supported business model, and better position AOL to fully take
advantage of compelling online trends. The last thing I would note is that we have
carefully reviewed this plan with our Board, and they join me in giving it their full
endorsement."
Dick Parsons, Chairman and Chief Executive Officer, Time Warner

Sources: M2 PressWire, 7 February, 2008; Voxant FD Wire, 2 August, 2006

The three dimensions of language, themes and strategy can be seen in the opening statements of
Kodak's well-received strategy meeting of 2008 and Time Warner's less successful business
strategy update of 2006 (see insert). The extracts are short and intended merely to illustrate.
Kodak uses positive language - ' a new spirit and winning attitude' and a 'great company'. More

22

cautious language is seen in Time Warner's talk of careful review, while Kodak portrays its
'difficult' transformation as complete. Thematically, Kodak directly addresses the dilemma
between credibility and unfamiliarity (Barry and Elmes, 1997): it unites change and continuity
by linking its breakthrough products to the company's traditional renown for technology. At the
same time, Kodak reinforces credibility by appealing to critical praise for its new products. Time
Warner's transition to an advertiser-supported model appears a more radical break, signalling a
thematic discontinuity that did indeed discomfort shareholders. In terms of strategy content, both
companies are referring to innovations, but Kodak's are more closely aligned to the kinds of
R&D expenditures that Wooldridge and Snow (1990) associate with particularly positive
shareholder reactions.

This section, therefore, has highlighted the potential of discourse analysis for exploring the
characteristics of strategy communications in terms of discursive content. By comparison with
firm-specific characteristics, the elements of discourse are likely to be particularly amenable to
management by corporations. While the discourse of strategy communications specifically not
yet been extensively analysed - the exception being the work of Mazzola and his colleagues studies of closely related phenomena do suggest various dimensions that may be associated with
superior market reactions. In terms of language, strategy communications may be examined both
lexically and grammatically, with particular attention to the balance of legitimate and positive
words and to grammars of agency, imperative and self-authoring. Thematically, the balance
between credibility and unfamiliarity is likely to be important, with the extent of timescales,
quantitative information and disaggregation amongst the potentially useful measures. Finally, the
strategy literature provides some guidance about various strategies associated with positive or

23

negative market reactions, and strategy communications lend themselves to analysis in terms of
the intensity of their reference to such favoured or unfavoured strategies.

Conclusions

This chapter has introduced the topic of external strategy communications and argued its
relevance to the study of corporate reputation generally. These strategy communications are
influential factors in how stakeholders value a firm's potential (Rindova et al, 2006), with about
30 per cent having a significant impact, positive or negative, on firms' stock prices. Through the
late 2000s, something around a quarter of all Fortune Global 100 corporations were releasing
these kinds of communications in each year. Despite this widespread usage, and potential for
substantial impacts, there is very little published research available on these strategy
communications.

This chapter has therefore proposed three broad avenues for further research, drawing on various
related literatures. In the first place, there is the question of adoption. Strategy communications
are relatively new (taking off in the 1990s) and there is still wide variation in adoption: some
industries (most notably oil) are much more likely to use strategy communications than others,
while in any one year the large majority of large corporations choose not to communicate. We
have identified three main literatures relevant to explaining this pattern of adoption: the finance
and accounting literature on voluntary disclosure generally; the strategy literature on strategic
interaction within industries; and the institutionalist literature on new practice adoption,
particularly within the new shareholder value regime of Western capitalism. The second avenue

24

is exploring the impacts of these communications and here we have proposed the relevance of
event study methodologies related to voluntary disclosures. Bearing in mind the ambivalent
nature of strategic plans in general, and the diffusion of information in markets, we suggest
differentiating strategy communications into the positive, negative and neutral, while focusing
particularly on those kinds of firms and situations where substantial information asymmetries are
likely. Our third avenue of research addresses the characteristics of these communications. Here
we propose discourse analysis at the levels of language, themes and strategy content and suggest
that these too can influence the impact of strategy communications on shareholders. Growing
appreciation of the influence of discourse at these three levels should enhance the capability of
investor relations professionals to manipulate the characteristics of their communications in
favour of their firms. Further research on external strategy communications has, therefore,
considerable promise of practical implications for corporate management.

However, there is more at stake than manipulating the immediate share price. The openness or
opacity of strategy has public policy implications. We have already referred to the difficulties
that firms may have in persuading the markets to value ambitious and innovative strategies
(Healy and Palepu, 1995) and it seems that investor relations departments struggle to persuade
analysts to look beyond quarterly earnings (Laskin, 2009). Financial markets, especially AngloSaxon ones, are frequently accused of a pernicious short-termism, one that militates against longterm strategies (Marginson and Mcaulay, 2008; Black et al, 2002). The consequence is an
unwillingness on the part of quoted firms to invest in long-term capacity building, training or
research and development, with significant implications for the sustained performance of both
individual firms and the economies in which they are embedded.

25

As a sign of large firms own resentment of these short-term pressures from the financial
markets, a handful of companies such as Unilever and GlaxoSmithKlein have recently
abandoned their previous practices of producing short-run earnings forecasts. Paul Polman, chief
executive of Unilever, explained this shift from short-run earnings forecasts: 'I needed to create
an environment where we were not chasing 20 targets for the short-term, but we were able to do
the right thing for the long term' (Financial Times, 5 April, 2010). Meanwhile, the chief
executive of the Financial Services Authority, a United Kingdom regulator, Hector Sants, placed
some of the blame for the recent financial crisis on poor oversight by financial analysts and
investors of the strategies of the major financial institutions. Sants enjoined financial analysts
and institutional shareholders to pay more attention to strategy: 'as investors you should
challenge management to ensure their plans are credible' (Financial Services Authority, 11
March, 2009). In short, there is a concern that the long-term strategies of firms are not being
adequately understood in order to serve the long-term interests of both firms and economies
more widely. There is a case, therefore, for strategy communications shifting from the domain of
voluntary disclosure towards more mandatory disclosure. In the light of recent theoretical
understanding of sustainable competitive advantage as built on unique and inimitable resources
(Barney and Clark, 2007), the threat of competitor exploitation of strategic disclosure is not
necessarily severe. Societies delegate huge economic power to such large corporations as
Barclays, Google, Microsoft or the Chinese National Oil Corporation; the quid pro quo should be
a greater transparency for their strategies.

26

To conclude, this chapter has proposed strategy communication as a neglected concern in the
corporate reputation literature and an important topic practically for corporations, for investors
and for the public interest at large. We need to understand more about why firms adopt strategy
communications and the performance consequences of their doing so. Greater disclosure of
strategy has the promise of reducing information asymmetries between investors and
corporations, increasing both stock prices and the willingness of markets to fund long-term and
innovative strategies. Beyond the immediate interests of firms and shareholders, therefore, there
is a compelling public interest in conducting more research on strategy communications and
testing the case for more public enforcement of such disclosures.

27

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Figure 1: External Strategy Communications:

Fortune Global Top 100 Corporations

35
30
25
20

Fortune Global Top 100

15
10
5
0
1995

1996

1997

1998

1999

2000

2001

2002

36

2003

2004

2005

2006

2007

2008

2009

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