Investor Relations: When the Going Gets Tough…
“That is, assuming we have public companies on Wednesday…,” wrote a business acquaintance of mine in reference to Wall Street’s recent meltdown. A bit of gallows humor to be sure.
The US debt crisis, the Standard & Poor’s downgrade of our credit rating, Europe’s woes, the threat of worldwide recession… You know the litany by now. The stock market is on a roller coaster ride. Corporate managers and investors are gripped by fear, waiting for the next crisis to hit.
In times of market turmoil, corporate managers tend to cut back on their investor relations activities under the mistaken belief that nobody is paying attention. But is that really the case? It has been said that it is easy to be hero in a bull market when just about every stock is going up; however, investors’ skills are really put to the test during market downturns and the need for information becomes even more important, making communicating with investors essential during down times.
We offer some perspectives on investor relations during uncertain times:
- CEOs / Investor Relations Officers Need to Forge Strong Working Relationships. The CEO needs to be highly involved in the company’s IR activities and should interact with the IR team (including outside advisors) on a daily basis. Support from senior management is a key ingredient of a successful investor relations program while passion is the single most important element. An investor relations officer needs to be extremely well informed and needs to fully believe in what their company is doing and what they are communicating. Daily discussions should include a review of corporate issues, trends and initiatives while the IR team should provide insights into the thinking of investors gleaned from their daily discussions with “the Street.”
- Maintain an Open Line of Communication. Given the critical need for investment information, it is essential that CEOs and IROs maintain an open dialogue with the financial community. In addition to the traditional metrics important to your business, the investment community is likely to be interested in learning about industry trends and the competitive landscape for your company’s products. You have to be prepared to put data into context for the investment community. In addition, you should increase your visibility within the investment community through additional road shows and increased participation in brokerage-sponsored institutional conferences.
- Don’t Hide from Bad News. It has been said, “Good news. Bad news. But no surprises.” The true test of a sound IR program lies in how bad news is communicated. When external factors impinge on business it’s best to separate the things you can control from those you can’t. It is difficult to predict where the global economic environment is going; all that managers can control are their business strategies and how they execute them. Timeliness and accuracy are essential in IR communications. Fast response in a crisis is essential. All company spokespersons must be continually prepared to deliver consistent, well thought out messages. The key to a successful IR program is to think long-term and admit when results are soft. Don’t hide from bad results; explain them and put forth strategies to improve your results.
- Consistent Communication is Critical. IR teams need to establish a culture of clear, consistent communications with “the Street.” Once you provide a certain metric or type of information, the investment community wants comparable data each period. Many companies change their communication strategies based on external factors; however, it is critical to be as transparent with “the Street” as possible throughout the year. Investor relations should be viewed as a long-term commitment that doesn’t necessarily produce immediate results. Credibility is built over time and that is the intangible part of investor relations that is hard to measure.
- Find an Audience. By their charters, institutional investors must put money to work and find investment opportunities. Bring your company’s story directly to them through an aggressive institutional targeting campaign. Track the flow of investment funds among your peers to determine investor sentiment and interest in your sector. Seek out those firms with a demonstrated interest in your industry and arrange meetings the appropriate analysts and portfolio managers. An often overlooked opportunity can be found by exploring some of the secondary money centers.
- Bond with Your Existing Institutional Holders. It is less expensive to maintain the interest of an existing institutional shareholder than finding a replacement. Maintain contact with these owners on a frequent basis either through personal meetings or by telephone after earnings calls or major events to insure that all of their questions have been answered.
- Utilize the Financial Media. If you have a good story to tell, you should begin a dialogue with the financial media for a profile story or inclusion in an industry wrap-up piece. Reach out to reporters when issuing transactional news (e.g., acquisitions, new executive appointments, etc.). Even with negative news, you will want to insure that your company’s plans to remedy the situation are covered.
It is difficult to tell how long these tumultuous times will be with us; however, you should take the view that investors will always be interested in a company with good story, solid fundamentals, and a credible strategic or turnaround plan in place. You just have to work harder during tough times, however, the credibility and shareholder value that will be created is well worth the effort.