The letter that wiped 25% off IBM's stock in a day: how to deliver bad news

One of the hardest calls a CEO of a major company can make is to deliver bad news early and openly. IBM CEO Arvind Krishna chose exactly that path on July 14: eight days before the company's official second-quarter earnings release, he sent investors an open letter warning that results would come in well below expectations.

The market did not take the news lightly. By the close of trading on the day the letter went out, IBM shares had plunged nearly 25% — the worst single-day performance in the company's 115-year history. Within days, Wall Street analysts were debating whether activist investors — major shareholders who pressure a company's management into strategic changes — might push to break up the tech giant known as 'Big Blue.'

According to investor-relations consultant Dean Foust, founder of Inspirent Communications, executives in this situation always face the same dilemma: breaking bad news early can rattle the market immediately, while delaying it only deepens the eventual loss of trust. Foust, who previously wrote earnings-call scripts for UPS, treats the IBM case as a lesson in just how hard that timing call is.

IBM's story shows that financial transparency, however sound it looks in theory, can carry a steep price in practice. But delaying it usually costs even more — the market punishes any 'hidden' problem far more harshly once it eventually comes to light.

The takeaway is the same for entrepreneurs and executives in Uzbekistan: honesty and timely warnings to investors, partners, or customers may sting in the short term, but remain the only reliable way to preserve trust over the long run.