Why do some CEOs remain silent as the share price tanks?

There’s often reasons you are not party to — and nobody wants to be kept in the dark. On the other hand, some boards are clearly a bit lazy.

We’ve all been there. Your investment has — in your eyes — finally done it. The nature of ‘it,’ of course, varies. But whether signing a revolutionary Joint Venture that puts funding issues to bed, releasing clinical trial data that shows you likely have beaten those 10% CoS odds, released assays that would make Midas’s eyes bleed…

Or whatever. The point is that the company has reached an inflection point, and investors feel (often strongly) that management should be singing from the rooftops. But instead, they go quiet, and after the initial euphoria dies down, the share price goes with it.

Rocketed from 1p to 3p? Back down you go — 2,7p, 2.3p, 1.9p, 1.4p, 1.1p…surely not? 0.9p then 0.85p…

What are management doing? Why are they not getting onto StockBox, talking to ShareTalk, sitting down with UK Investor Magazine, recording a Roast podcast? Something. Anything. There’s more than one service out there — pick your PR partner and explain the investment case.

But they don’t — and here’s why. Before we start, I would advise this is just my opinion — I am not in the minds of any corporate leaders. However, I do talk to CEOs almost every day and what may feel like frustrating silence is often implemented for a good reason.

Let’s dive in.

Reasons for silence

1. I think the first point to consider is this: marketing is relatively expensive. Different services charge varying amounts, but when you are a small cap with limited cash at hand, then marketing costs are typically the first thing to get the chop. Indeed, look at all the job cuts in the economy right now — they are weighted towards marketing, which is a very welcome, but non-core aspect of running a business.
2. The second point is that sometimes the share price (market capitalisation) has become irrelevant to the company’s long-term goals. Keeping the share price up is, from a business point of view, only useful for two things: when you need to issue shares to raise capital, or to keep management/investors happy. If you don’t plan to issue any shares in the near future, then the short-term share price is largely irrelevant to eventual success. And management/investors will reap the rewards regardless.
3. You have a long-term timeline with sparse news in-between. If you engage in marketing the assets you have, the share price will briefly spike and thereafter fall back once you stop. This is fairly pointless; you need consistent news flow and simply repeating the same things across multiple outlets is not going to change market dynamics. If you have nothing to say or add, you may not wish to. All this does is encourage day traders to use your ticker as a means to make profit while leaving long-term investors holding the bag.
4. Let’s say that drilling is now being funded through a JV, for example, then keeping the share price up becomes less important. Where is your incentive to market the company? As long as there’s already enough cash for working capital, then propping up the share price is not particularly important — someone else is already footing the bill. Arc Minerals *cough*
5. You are completely at the mercy of external factors outside of your control. Will there be a JV? Depends on appetite of the majors. Will you get good assays? Depends on the drill bit. Will Phase II of your clinical trial candidate work? We hope so, but that’s the point of the trial. Will your asset be bought out? Depends on 101 socio-economic-political factors… You get the idea. In many cases, there is no point in conducting interviews with CEOs who are simply at a dangerous inflection point where the junior actually has limited control over what happens next. They can’t give concrete answers, so the interview sees the share price drop. This is sub-optimal.
6. Non-disclosure agreements (NDAs) are signed, and the company is not free to expand on negotiations/grant applications/legal issues or whatever. They may not even be able to say that negotiations are ongoing. This is far more common than many investors realise and any investor engagement at this point will either be severely limited or feel a bit dishonest.
7. The management are lazy and cannot be bothered. They don’t care about investors or the company as long as they get paid. They run a lifestyle company which never has any concrete results and is always promising jam tomorrow. Note that it can be difficult to distinguish between a company making solid business progress in spite of slow share price movement, and another doing nothing at all.
8. Management has seen traders short the company into oblivion and want to enjoy watching them burn. A significant period of silence followed by one quality RNS can have the very satisfying effect of sending shorters into oblivion while simultaneously sending shareholders higher. An intraday RNS is even better for added effect.

The bottom line

Management teams often have a good reason for keeping quiet, even if investors don’t like the share price movement that results. Marketing only works at the right points in an investment timeline — and sometimes for reasons investors are not privy to, it’s best to keep quiet.

Even if the silent treatment is psychological torture.

This article has been prepared for information purposes only by Charles Archer. It does not constitute advice, and no party accepts any liability for either accuracy or for investing decisions made using the information provided.

Further, it is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.