The Price of Trust

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Beyond Guidance

“Sunlight is said to be the best of disinfectants.” — Louis Brandeis

In our white paper on owner operators, one of the most pronounced divergences between owner managed firms and their agent-managed peers was a striking lack of guidance given by the owners. But that doesn’t necessarily mean that these firms are opaque, or hard to read.

In fact, in our experience, many of them have gone well beyond guidance to help investors understand their decision-making processes.

And this is where information transparency goes from an investor communications process to really becoming a major governance issue. In our last post on ownership and governance, we talked about the importance of a plurality of views prevailing in the board room — not just one view. It also works with other stakeholders — the very ones that build the movement.

We showed substantial evidence that the more viewpoints that are taken under consideration in setting firm strategy, the better performing the underlying business becomes.

But the only way for a plurality to function well is for information to flow. Transparency is not only useful — but mandatory. Without clear information flow, dissent is simply noise and capital will often become impatient.

And that’s one reason we believe the lack of guidance at so many large-cap owner oriented firms isn’t a hindrance to investor trust, but rather even more helpful than an actual guidance.

Guidance is simply a goal. In some cases, it’s been reduced down to a game.

The level of information that guidance conveys is extremely limited.

It reduces conversations down to modeling excel-driven questions — those same questions we hear CEOs complain about all the time. But the reasons why the questions often aren’t strategic or even revelatory, is the game is focused around the reliability of a single goal — not a judgement about where the firm is nor where it is going.

The Italian Job

“Plato is my friend, but truth is a better friend.” — Latin maxim paraphrasing Aristotle, Nicomachean Ethics

One of the most refreshing takes on transparency came from our experience on the board of Leonardo from 2023-2026, when Roberto Cingolani was the CEO.

The striking part of Roberto was that he never had multiple versions of the goal. He vehemently rejected the very commonplace practice of having an internal budget that was higher than the external budget disclosures he gave.

At first, it made me pause. What were the risks?

The same exact answers that he would give his board, he would give analysts and external investors.

There was no hidden story, no “reservoirs of success,” as he would frame it. In a zoom we hosted with him and investors, he briefly touched on this radical philosophy.

While to a layperson, Roberto’s philosophy doesn’t sound at all novel — his approach was insanely novel among large publicly traded companies.

Nearly all other managers would keep information to specific parties, customers, investors or labor stakeholders on a “need-to-know” basis. There would be different narratives and different framing for each audience, depending on their interests and sensitivities.

Roberto didn’t conform. He had the same message and same goal for every audience.

And yes, he did radically improve the transparency of the guidance of the company — going well beyond any peers. He would give 5-year projections of revenue, profitability and orders for every single year, and every single division.

No one does this.

There was no padding the numbers.

There was ambition, there was transparency, but more importantly, it was the back & forth, questions and answers where Roberto built the most trust. He would never dodge a question, and would sometimes even go further in public settings than he was willing to go in private conversations.

The results were pretty spectacular.

Leonardo went from cheapest-in-class, the lowest valuation multiple in the industry, and off the radar screen for most investors, to sporting a valuation that towards the end of Roberto’s run surpassed Thales and BAE’s valuations.

That was unthinkable in 2021 when we started our SPV for the engagement to begin.

There were surprises along the way. Perhaps the biggest one was his radical transparency which seemingly butted heads with certain government interests. Roberto wouldn’t change his stripes, and perhaps it cost him his job.

Another major surprise was the umpteenth Boeing crisis which derailed aero-structures plan to breakeven, a mere month after Roberto presented his first ultra-detailed plan.

While it was a new crisis that needed to be addressed, and Roberto would a year later fully downgrade the plan from his prior plan (something that few other executives would even dare to publicly admit), he fully would embrace the crisis by reaching for a completely novel and discontinuous path.

His judgement was spot on.

Investors aren’t toddlers that need to be managed.

You can tell them the truth, and more importantly, tell them what you’re doing to solve the problems.

Trust continued to compound.

Earnings to IR to ESG

“Long-term commitment to new learning and new philosophy is required…” — W. Edwards Deming

It wasn’t until recently, when we examined transparency impacts in academic literature, that we started to understand that what Roberto was intuitively and organically doing, can be replicated.

While literature from the 1990s pointed to clear and direct positive benefits from companies holding regular earnings calls, in splicing the data from our owner operator set  we found a surprising twist in the data. We believe the surprise is driven by types of transparency.

Indeed, in the 2017 white paper entitled “Straight Talkers and Vague Talkers,” researchers Dzielinkski, Wagner, and Zeckhauser even analyzed earnings call transcripts for vague responses to questions as opposed to clear and transparent responses. Unsurprisingly, CEOs that exhibited more candid language and avoided vague and uncertain responses had companies that were more highly valued by investors (as measured by Tobin’s Q ratio).

While the results are unsurprising, they build on the prior work, written when earnings calls were more novel, that showed consistent earnings calls led to increased trading liquidity, increased valuations, greater institutional ownership, and greater analyst coverage. Much of that work was done in the 1990s by seminal papers by Lang & Lundholm (1996), Frankel, Johnson, and Skinner (1999),  Healy, Hutton, and Palepu (1999), Bushee, Matsumoto, and Miller (2003).

More modern related works have expanded areas of focus, such as Kashyap, Menisy, Caiazzo, and Samuel, (2020) which focused on the role of CSR communications in impacting firm valuations. They looked at ESG factors, which in Indonesia has experienced dramatic increases in systemic disclosures.

They found that neither environment nor social factors had a statistically significant impact on firm valuation — however high metrics on governance were the most impactful in determining firm valuations.

Lastly, another key interesting work showed that transparency components within cultural surveys explain over half the trust that employees share with their managers (see “Measuring the relationship between organizational transparency and employee trust,” Rawlins, 2008). Transparency of information and decision-making were keys to building trust in an organization, and researchers noted that it was more powerful than inclusiveness in decisions.

Owners & Transparency

“Confront the brutal facts.” — Jim Collins, Good to Great

As we previously noted, there is a notable scarcity of Owners that give earnings guidance. When we re-examined the dataset, we looked at corporate events like earnings calls and investor days to understand the impact of transparency within the owner dataset.

Firms that exhibited only annual earnings calls demonstrated consistently higher growth than the 45% of the Owners that choose to not hold earnings calls. Those that had quarterly calls grew even faster than those that only held annual or semi-annual calls.

Looking at total shareholder returns, perhaps not surprisingly, the regular earnings calls companies outperformed the whole group across every time horizon. We measured total shareholder returns (TSR) for the 5, 10, 15, and 20-year period ended December 31, 2025. Please note, that while our white paper cut the data off at December 31, 2022, we have updated returns for the group and will update that analysis in a future post.

But while regular earnings reporters were not surprising that they were out-performers, what was indeed surprising was that semi-regular earnings call hosts under-performed the S&P 1200 under all periods except the 20-year compounded returns.

Also consistent with other previous academic papers on transparency and valuation, the current PE ratio of owners that host earnings calls was 28.9x, vs. 26.7x for the owners that refuse to host earnings calls. Both classes still far surpass the current 21.4x PE multiple of the S&P 1200.

Overall, the most surprising findings from our analysis of Owners and transparency was the 12% of owner operated firms that hold investor days lagged those that skipped the investor day and instead held earnings calls.

That would suggest to us, similarly to prior work found on straight-talking vs. vague-talking, that regular questions & answers (Q&A) sessions is more important than the company simply expanding existing reporting.

Quality of the decision making and transparency to that process is not only helpful for investors, but also employees — as reported by prior academic work.

Thus, there is little point in holding investor days for owners that host regular Q&A sessions.

Or perhaps, like Leonardo and another portfolio owner operator, International Petroleum Company, holding regular investor days with rolling forward-looking plan periods perhaps is even better than the once-in-a-while investor day spectacles.

THe Price of Trust

 “We believe we owe you additional commentary about what you own and how we think.” — Warren Buffett

At GreenWood, transparency of our own process, portfolio, and research has always been a cornerstone of our process and interaction with investors. For us, it’s not just an aspiration, but we take it for granted.

While it may seem like earnings calls are a given, not an option, a very high number of companies still choose not to host them, nor allow for transcripts.

Hitting closer to home, it wasn’t until January 2025 that portfolio holding Swatch started posting transcripts for its earnings calls — which, for the first time, were open to everyone. Prior, only sell-side analysts were welcomed to join.

While the data is still immature since January 2025, the company’s shares have had a clear valuation rebound since transparency started to improve at Swatch. Since transcripts started, the average EV / Sales has been 1.2x vs. 1.1x in the prior timeframe.

Swatch is similar to other owner-operators in that it doesn’t issue guidance.

No matter, we believe the market has come quite a bit further than simply asking for quarterly or annual guidance. Perhaps this is due to the poster-child of quarterly guidance beats and raises, Jack Welch, and the total destruction of his managers on various S&P 500 companies. Or it’s just a simple evolution and acknowledgment that a single number tells you little of what’s going on at a firm.

For small firms with limited analyst coverage — guidance is still important. It helps analysts launch coverage more easily, and can help lead to an easier discovery process.  

But for other Owners, like Constellation Software and Berkshire Hathaway, the investors prefer candid Q&A with the principals.

Employees prefer the same.

Transparency into decision making is the killer app in building trust today, and helps Owners build market-leading valuation multiples, which helps reinforce the capital allocation flywheel.

When we first entered the Leonardo board, we took care to instill this Owner-oriented framework. It was quite novel for the worst-in-class valuation. A new IR with a “we compete for shareholders” mindset plus the dedication of the management and fellow board members to build trust along all the capital structure helped dramatically lower the cost of capital.

That enabled proactive M&A, divisional strategic alternatives, which in turn, helped create a more defensive suite of products and a very high level of R&D spending.

While the concept is not novel, the execution of it matters.

Transparency is not easy — just ask Roberto Cingolani today.

Sometimes it’s not convenient.

But it is necessary for trust-building.

That trust has a price, or in our own work, the valuation premium for owners that host earnings Q&A sessions sport a 35% valuation premium over the S&P 1200 index.

That is consistent with the findings of Bushee & Miller (2012) that showed a similar valuation evolution as a result of firms implementing investor relations programs.

These Owners know the different between guidance and information.

Guidance is a game. Information builds trust.

The paradox is that less guidance can create more trust — if it is replaced by better information.

Not more slides. Not more slogans. Not another staged investor day.

Real transparency is visibility into judgment: what management sees, what it fears, what it is doing, and how it changes its mind when reality changes.

That kind of trust has a price.

The market charges it to the companies that avoid transparency — and pays it to the owners who embrace it.

Disclaimer:

This article has been distributed for informational purposes only. Neither the information nor any opinions expressed constitute a recommendation to buy or sell the securities or assets mentioned, or to invest in any investment product or strategy related to such securities or assets. It is not intended to provide personal investment advice, and it does not take into account the specific investment objectives, financial situation or particular needs of any person or entity that may receive this article. Persons reading this article should seek professional financial advice regarding the appropriateness of investing in any securities or assets discussed in this article. The author’s opinions are subject to change without notice. Forecasts, estimates, and certain information contained herein are based upon proprietary research, and the information used in such process was obtained from publicly available sources. Information contained herein has been obtained from sources believed to be reliable, but such reliability is not guaranteed. Investment accounts managed by GreenWood Investors LLC and its affiliates may have a position in the securities or assets discussed in this article. GreenWood Investors LLC may re-evaluate its holdings in such positions and sell or cover certain positions without notice. No part of this article may be reproduced in any form, or referred to in any other publication, without express written permission of GreenWood Investors LLC.

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