There was an interesting profile in this Sunday’s New York Times about Jim Collins, the author of a number of well known business books such as “Built to Last” and “Good to Great”. One of the things that became apparent from the article was that Collins likes to ponder and write about big questions that interest him. Naturally, after reading the article, I got to thinking about one of the big question that interests me, namely “What makes for great investor relations at companies?”
Over the years, I’ve read my fair share of business books, many of them with multi-step procedures for achieving greatness. Frankly, I can’t remember most of them, so when I sat down to think about how to convey the essence of great investor relations, I decided to try to keep things simple. When I was growing up, I used to listen to radio broadcasts of the New York Yankees baseball games. They were sponsored by Ballantine Ale, and to this day I can still remember Mel Allen advising us that the three rings on the Ballantine label stood for “Purity, Body and Flavor”. So I decided to try and boil down the attributes of great IR to three key items. (This might also have something to do with my Catholic schooling – the trinity and all that - but I really don’t want to go there, and besides, I remember the beer commercials much more clearly.)
When I sat down to write out my list, three things immediately popped up: Honesty, Consistency and Knowledge.
Honesty to me is the most important aspect of what good investor relations is all about. Investors deserve nothing less. The Securities laws try to mandate honesty, but what I’m talking about is HONESTY. If you always deal honestly and forthrightly with investors, it might be painful at times, but you will always be able to look yourself in the mirror. Further, investors will come to believe you, which will pay rich dividends when things get rough, and the valuation of your firm will more accurately reflect its intrinsic value.
Some people like to think of investor relations as an advocacy position, similar to the way our trial system works. The thinking is that IROs present the party line and then it is up to analysts and investors to challenge the story, with the truth coming out as a result of the process. Unfortunately, this also means that you are training investors to believe that there is a significant other side to the story, which the investor relations department is concealing from them. In my opinion, it is better to acknowledge the other side of the story, the potential issues that your company may face and admit to some of the things your company might be able to do better. In the long run, investors will give much more credence to your story.
Consistency is next on my list because investors keep notes. If you are talking to someone about the latest quarter’s results, chances are very good that they have in front of them their notes from the same quarter last year. Nothing drives investors crazy faster than changing your story or the way you present data or, heaven forbid, the way you calculate your data. It doesn’t matter if you do it for the purest of reasons – investors will always assume the worst, because they’ve seen many examples of data being manipulated to favor management. Having a comprehensive set of metrics about your business that you report consistently, quarter in and quarter out, will gain you a lot of traction with investors.
The same principle also applies to the way a company deals on the human side with analysts – consistency in the way you work with analysts day in and day out will earn respect over the long haul. This means no favorites, no disparaging of analysts with a sell recommendation and equal opportunities for access to management.
Finally, knowledge. Analysts don’t call up investor relations officers to learn something they already know. At least, they hope they don’t. They call because they are attempting to understand what goes beyond the contents of the press release or 10K filing. This means that the good investor relations officer will be an expert, not only on his company, its accounting systems, its culture and its markets, but also on his industry. The ability to put developments in context, both for your company and for the bigger picture, will assure that investors will call you before they call the trading desk to place a sell order.
So, with a nod to Ballantine Ale and Mel Allen, the greatest voice in baseball broadcasting, there you have it: Honesty, Consistency and Knowledge. Now I think I’ll slip off and have a cold one…