Monday, January 3, 2011

Focus on the Fundamentals

I spend a fair amount of time listening to business experts on the Harvard Ideacast and Knowledge@Wharton podcasts. I choose to listen to the podcasts as opposed to read the scholarly articles they are based upon for two reasons: First I find that authors are much more likely to speak in plain English than they are to write it. Second, I spend a fair amount of time cycling to stay fit and listening to podcasts beats hearing my playlist of oldies for the 2,000th time (and I can hear traffic over the sound of the spoken voice whereas Bruce Springsteen tends to drown out the sound of approaching cars).

One thing I’ve noticed about business experts, whether their field is human resources, finance or management, is that they are all convinced that the insights they bring and the field they are working in are the most important and critical applications for the modern corporation. Almost every expert comes across as being convinced that if company managements would only sit up and take notice of the expert’s crucial insights, companies could solve all of their ills and rake in the profits.

And so it is with investor relations experts as well. Over the past several years as I have observed and commented upon the field of investor relations, I have seen a parade of experts inform us how our lives were going to be radically changed by the latest topic du jour, and that we had better get on the train because it was leaving the station and those that were not on board were doomed to extinction.

Let’s start with XBRL. I first wrote about this topic in January 2009, so almost two years have gone by since I confessed that I didn’t understand the revolution. Guess what? I still don’t understand what all the fuss was about. XBRL sure hasn’t changed my life, and I look at company filings and websites all the time. It may have changed the lives of some programmers that had to map all that data, but to me it just seems like another government mandate that has had little to no impact in the real world.

And how about social media? Has it totally changed your IR program yet, the way all the experts claimed it would? I think the only change social media has made to IR is to give rise to an entire set of new experts that will get you prepared for the revolution they say is coming.

The point here is not that these issues don’t have an impact – they do, albeit a minor one in the scheme of things. These relatively new technologies will grow in importance over time, just as the use of the web and email have, although each new technology brings about its own dangers (see my June 10, 2009 post “Email is Not Your Friend”). The point I am trying to make is that IR practitioners should not let the latest fad overshadow the fundamentals of what we do. And what we do is to ensure that investors have sufficient information to make reasoned investment decisions about our company’s stock. This is accomplished by making sure the information our companies disclose is clear and understandable and presents a complete picture so that investors can make an informed investment decision. Clear and understandable generally comes in two parts: how we plan to make money in the future, back-tested against what the company has accomplished in the past.

The medium of how information gets delivered, whether it is in the form of paper, telephone, fax, email, text messages or social media, is just a tool – the important part is the information itself. So as we move into a new year, let’s focus on the important stuff and make sure that we make sure the basics are covered before we start chasing the stuff at the margin.

2 comments:

karin_tyche said...

John,

Don't forget that the medium changes the message. Social media is not a revolution in the sense that it has made people read blogs, but in the sense that is has changed the way people (including investors) understand, respond to and share information. This does affect us working with IR, maybe in the sense that we should, as you suggest, make sure investors focus on fundamentals, ie spend more time on education. People are seldom as informed as they think, especially not when they think they (and their friends) already have all the answers...

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