Wednesday, July 21, 2010

Tell Them Why

Following on to last week’s post about what investor relations presentations can learn from jazz, this week I take my inspiration from a different pod cast, Ted Talks. Anyone who is interested in communications should listen (the pod casts are available on ITunes) or watch Ted Talks (, where you can find some of the best and most passionate speakers on a wide variety of topics. The TED Talks speakers have the ability to grab and hold their audiences, and if you are in the business of communicating ideas, there is no better way to learn about the process than to watch speakers such as these.

The talk that caught my attention and which I think can be instructive for people trying to get their story across to investors was one by Simon Sinek, the author of a book entitled “Start With Why”. The talk, which I gather distills the main idea of his book, offered one overarching thought, which is “People don’t buy what you do, they buy why you do it”. In a world where there are many competing products and services, the thing that distinguishes the winners and makes them appealing is the underlying passion that forms the core of their product or service. The example Sinek talked about is Apple and how they inform everything they do with a passion for combining technology, design and ease of use, but there are plenty of other examples out there. Everything Wal-Mart does is designed to deliver products to their customers at the lowest price possible. Toyota sells Lexus automobiles based upon a relentless pursuit of excellence. Whole Foods wants to deliver better and more wholesome foods.

When you start to think about this in the context of investors, who are purchasing the future stream of cash flows of your company, it starts to make eminent sense to bring to the fore the why of your company. Products, markets and service offerings change over time. Who your company is and why they do things in the manner they do changes far less often. Investors need to know what informs your basic philosophy and culture, because that is part of what they are buying: it goes into everything your company does.

Yet if you look at most investor presentations, what you find is that companies are good at telling what they do, but not why they do it. What they do is something that can be quantified or visualized. Why they do what they do is much less easy to explain. So my thought for the day is: the next time you are putting together an investor presentation about your company, stop and think about the why of your company. Is your motivation to be the very best at providing customer service, are you experts at solving technical engineering issues or perhaps you want to deliver the best combination of value and product offerings to consumers? Every company has a motivating factor and good investor relations dictates that it should be placed on display for investors to make a judgment about.

As for me, I’m passionate (and opinionated) about getting people to understand the principles of good investor relations.

Wednesday, July 14, 2010

What IR Presentations Can Learn from Jazz

I was working out the other day and listening to one of my new favorite podcasts, NPR’s Driveway Moments. The particular segment I was listening to featured an interview with the jazz musician Wynton Marsalis, who was explaining jazz to the uninitiated. I definitely fall into that category, as I don’t “get” most jazz. Several of the things Wynton Marsalis said caught my attention and made me think that there are some interesting parallels between some things we see in music and investor relations presentations.

Most investor presentations are set pieces: you’ve got a speaker, a set of PowerPoint slides and a bunch of information that gets disseminated over the course of 30 minutes. In this they resemble classical music. They follow a prescribed score and they don’t deviate. The speaker covers every last bullet point, just as the musicians play every note, and everyone feels safe and secure because they are on familiar ground. The speakers, similar to orchestral players, are almost interchangeable and it’s very hard to see any individuality or emotion.

This approach has some merit in that everyone navigates the treacherous shoals of regulation and potential litigation and (usually) nobody gets fired. The problem with the approach is that it’s boring and it’s not very good at getting investors excited about your company’s prospects. And investors are buying the future stream of earnings of your company, not its past deeds. Next time you’re at an investor conference, sit and listen to three or four presentations in a row. I guarantee that you will be numb at the end of the last speaker.

Contrast this with jazz. There is a structure with rhythm and melody, but there is also room for some improvisations and solos. The improvisations and solos have to fit within the framework – they don’t work if they don’t fit into the structure of the piece, but they also allow for the expression of talent and passion for the subject matter.

More passion is needed at investor presentations. Speakers should be allowed to get excited about their companies and what they’re doing. They should have a passion and a pride in their products and people and it should show through to the investing public. This is very hard to do if what you’re saying is highly scripted.

One of the masters of conveying the excitement about what he was doing was a guy I used to work with at Walgreens, Dan Jorndt. He never worked with a script, but he always knew what he wanted to say. He put things in his words and allowed his passion and pride in the company to show. Investors loved him. Another master of the art is Howard Schultz at Starbucks. Not only can he convey the romance of a cup of coffee, he is passionate about what his company stands for, from the product to the entire customer experience. If you’re ever at an investor conference and he’s speaking, take the time to go and listen to him.

Now, I can sense that many IR officers out there are squirming and thinking, “We can’t do that with our guys, they’ll go right off the rails and into the ditch”. And perhaps the approach is not for everyone. Some speakers need more structure than others, but all speakers should be allowed to exhibit what they think makes their company great. And that doesn’t come from reading a bunch of bullet points off a slide. At the very least there should be a point within a presentation where a speaker can speak from the heart, whether it’s to tell a story about an employee or a customer, or the great new product the company has developed. To put it in a jazz context, a riff or solo within the structure of the piece that serves as an exclamation point to the entire presentation. Try it – you just might acquire a taste for it.

Wednesday, July 7, 2010

Who Are You Going to Believe – Me or Your Lying Eyes?

Trial lawyers have a cheap, but effective trick when they catch a witness in an inconsistency. They simply ask, “Well, are you lying now or were you lying then?” I sometimes get the same feeling when I compare management statements with the risk factors disclosed in SEC filings.

For example, there was a recent blog post at Footnoted ( 29, 2010) that pointed out exactly just such a discrepancy between management and the lawyers over the impact of Walgreens’ participation in prescription drug plans administered by CVS, a rival drugstore chain.

Walgreens and CVS, bitter rivals, also do business together by virtue of the fact that CVS owns Caremark, a large pharmacy benefit management company. Many prescription takers are in plans administered by Caremark, but choose to get their prescriptions filled at Walgreen retail stores. This, of course, was bound to be a troubled relationship, and sure enough, earlier this summer, Walgreens announced that it would no longer take new prescription plans administered by Caremark. After CVS, in a fit of pique then announced that it was terminating Walgreens participation in all pharmacy benefit plans, Walgreens released a statement by Kermit Crawford, executive vice president of pharmacy stating: “Regardless of CVS Caremark’s decision, we are confident of our ability to continue to grow our business as a provider in hundreds of other pharmacy benefit networks and as a direct provider to employers.”

Walgreens and CVS subsequently reached a new agreement and that was that until Walgreens filed its most recent 10-Q where, out of the blue, a new and previously undisclosed risk factor was discussed. In what seems to be a direct acknowledgement of the potential impact of losing the Caremark plans, the risk disclosure states:

“We derive a significant portion of our sales from prescription drug sales reimbursed through prescription drug plans administered by pharmacy benefit management (PBM) companies. … If our participation in the prescription drug programs administered by one or more of the large PBM companies is terminated, we expect that our sales would be adversely affected, at least in the short term. If we are unable to replace any such lost sales, either through an increase in other sales or through a resumption of participation in those plans, our operating results may be materially adversely affected.”

Now, I suppose you could say that Walgreens was merely posturing in saying that they were confident they could continue to grow their business in spite of losing the Caremark business, but that’s the sort of thing you do at the negotiating table, not in a press release. Investors expect and deserve consistency. The original statement is patently at odds with the risk statement, so I’m left with the basic question: Should I believe what you say now or what you said then?

(Full and fair disclosure: by virtue of having worked at Walgreens for over twenty years, the author has a significant financial interest in the company. I want them to get it right, which is why I get so upset when they screw up.)