Monday, January 4, 2010

More Essential Life Skills for the Investor Relations Professional

First, a brief commercial: I am happy to announce my seminar, "Fundamentals of Investor Relations" will be given in Houston on February 24, 2010. The workshop was developed from my MBA course at Rice University and is designed to be a comprehensive one day overview of the essentials of investor relations. At a cost of $475.00, it represents a great value. For more information, visit the Seminars tab at my website at www.palizzapartners.com.

In the early days of this blog (September, 2007), I wrote a humorous piece entitled “Essential Life Skills for the Investor Relations Professional”. Much to my surprise, the essay has proven to be one of the more popular posts I’ve written. I suspect that people do a web search looking for relevant advice about how to actually practice investor relations and wind up getting my advice about learning to talk with their mouths full, sound enthusiastic when they’re answering the same question for the thirtieth time and other odd bits of advice, but nevertheless, from the data, it appears that people actually read the post when they get there. Therefore, in an attempt to inject a little more humor into what tends to be a humorless profession, I introduce part 2 to my essential life skills series.

Today’s piece of advice is to learn to think of the analysts that cover your company as your children. This may sound like an odd analogy, but in my experience, their behavior often mirrors that of my children when they were growing up. Consider the following behavior traits:

They all want to be first in line. Think about the fight to ask the first question on your conference calls. Think about how quickly they want to get notes out on First Call.

They all want your attention immediately. When an analyst calls, they are interested in getting the answers to the questions they have NOW, not according to your schedule. This certainly sounds like my children.

They all want you to love them best. The job of an analyst is to assemble pieces of information into an investment thesis, and they all want better information flow (their version of love) than anyone else.

Because they’ve been to school, they think they have all the answers. In the case of my children, it was grammar school, while in the case of analysts, it’s business school, but other than that, it’s pretty much the same. Actual practical experience doesn’t seem to count for much.

When it comes to finding out information, they prefer to be told rather than dig the facts out of a book. My children would always opt to try and have me give them the answers instead of looking it up in a textbook. All you have to do here is substitute Report on Form 10-K for textbook and you can see my point.

I could go on, but by now I think you understand the analogy. The question then becomes what parenting skills come into play as essential life skills for investor relations professionals?

First, just as you must love all your children equally, you must also love all the analysts that cover your company equally. There is no room for playing favorites. Many people will find this piece of advice difficult to follow, because, just as with your children, every analyst has a different personality, some of which are nicer than others. Nevertheless, you must act like an adult here and be fair and consistent, even if the analyst has a sell rating on your company.

A corollary to this is that, just as you teach your children to respect others, you must also respect all analysts. Company investor relations officers often lose sight of the fact that analysts are pulled in many different directions by portfolio managers, hedge funds, research directors and the need to continually generate investment ideas. Compounding this you have a divergence of viewpoints – to most IR officers there is little difference between the company and its stock, whereas to an analyst this is a crucial difference. Because of this, a lack of respect for the work being done by the analyst can arise. An essential skill of an IR professional is to respect the work an analyst does regardless of their conclusions.

Finally, actions speak louder than words. It doesn’t matter how much philosophy you may preach to your children, if you don’t walk the talk, they will see right through you. The same is true of analysts. You have to be honest and straightforward in how you respond to their questions. If in discussing a topic, you fail to cover some essential points simply because the question asked wasn’t specific enough, your credibility will eventually suffer.

Although I could continue in this vein for an extended period, I have to stop now. My children are home for the holidays and I have to go break up a fight about who gets to use the car tonight…

2 comments:

Roberto Ushisima said...

Very amusing and enlightening, mr., congratulations!

sallfham said...

John:
All quite true. A similar mindset is helpful in remaining sane around corporate executives.
I realized this when I once asked the secretary to the CEO about her week's vacation. She had spent it volunteering at a summer program for small children, average age about five.
What, I asked her, was different about her work at the program, and her work in the office?
She thought a long moment.
"People here tend to keep their shoes on," she said.