It’s the Quality of Disclosure, Stupid

When Bill Clinton was running for president for the first time, one of the catch phrases of his campaign was, “It’s the economy, stupid”.  One of the things meant by this (with Bill Clinton, you’re never sure if you’ve captured all of the intended meanings) was that people should focus on the main issue and stop talking about the many smaller peripheral issues that can distract voters from what is important. That’s the way I feel about many earnings press releases I read.

Take, for example, Walgreens recently released second quarter 2014 earnings. Readers of this blog will know that I often write about Walgreens, but when you write, its best to write about something you know, and having worked at Walgreens, I think I know it better than the average investor (I also own the stock). There are a lot of things going on in the second quarter earnings release, and to a certain extent, Walgreens finds itself boxed in by all the adjusted earnings they’ve reported in the past. Having elected to report “adjusted earnings” (see my post from June 26, 2013 “The Slippery Slope of Adjusted Earnings” http://investorrelationsmusings.blogspot.com/2013_06_01_archive.html ) Walgreens now finds itself in the uncomfortable position of reporting that what they consider core earnings reflecting the true underlying nature of the business are 5% lower than they were a year ago. This compares to earnings only being down 1% on a GAAP basis. I give them full credit for continuing to report this way, as many companies would have stopped reporting on an adjusted basis the moment it didn’t serve their purpose, but it just goes to show how you can get boxed in by these adjustment shenanigans. 

However, what really caught my eye in the earnings release was a claim of combined synergies for Walgreen and its strategic partner, Alliance Boots, of approximately $236 million in the first half of fiscal year 2014.  When I see a claim for such a big number, a red flag always goes up in my mind and I start looking for where all this money has filtered into the earnings statement. After all, if you are claiming a synergy, you either have to be buying better and thus reducing your cost of goods, or lowering your expenses, reducing your selling, general and administrative expense. Synergies of $236 million on a base of $37.9 billion should result in savings of .62% in these ratios for the first half of the fiscal year. Yet when I compare the cost of goods and S, G & A ratios from year end 2013 to 2Q2014, I find that cost of goods have actually gone up 10 basis points, so they’re not buying better as a result of the acquisition. The S, G & A ratio on the other hand, has declined 60 basis points to 23.3% from 23.9%. So maybe they are within shouting distance, 8 basis points, but then I have to ask, “Does this synergy number mean that your earnings would have been worse by $236 million if you had not done the acquisition?” I suspect not, and I think you would very quickly get an answer from the company that the calculation of synergies does not tie directly to earnings.

Unstated in all of this is that “synergies” is a non-GAAP term, not constrained by the bounds of normal accounting. Companies can and do throw all sorts of “opportunity costs” and hypothetical savings into the pot when calculating these sorts of things. It is sort of an alternative accounting universe that does not have to tie out to the earnings statement. (I’ve also written about this before, see my post of March 3, 2012, “Where’s the Beef?” http://investorrelationsmusings.blogspot.com/2012/03/wheres-beef.html )

Which brings me full circle. These types of claims detract from and make it look as if the company is trying to obscure what is really going on - “Look at the great synergies we’re getting, not at the fact that earnings are down”. So my advice to companies that engage in this sort of junky accounting is: “It’s the quality of disclosure, stupid.” 

Tell Me a Story

I wrote in October about the importance of using a variety of delivery methods in order to help your audience learn from and retain what you are saying. Because this is a blog about investor relations (mostly, although I confess to straying from the topic from time to time), today I want to expand upon this idea in one way that can help companies better get their message to Wall Street. In short, stop thinking of investor relations as simply a conduit of information and start thinking of it as a way to also tell a story about your company.

The meat and potatoes of any investor relations program is the ability to convey to investors basic financial information that relates to the company. There is no getting around this - it forms the core of all subsequent discussions. Yet this information often falls into the boring, but important category. Additionally, there are at least two problems with this data. First, unless you are among the lucky few companies that are showing outstanding growth and financial performance, it’s easy to get lost in the shuffle. As they say in the entertainment business, there’s no hook. Secondly, information about past performance does not always give investors a good idea of where the company is going in the future, nor does it give a sense of the way the company operates. This is where making it memorable by telling your story becomes important.

Building upon basic financial information is a critical factor in helping a company stand out from the crowd. When you combine this with the fact that most people learn and retain information better when they get it from a variety of sources, you can begin to appreciate why investor relations should be more than drafting the next press release. Being able to place your company into context in terms of your industry by telling the story of your company is an example. People remember stories. If your company relies on product development, being able to tell the story of how a product was developed can bring context to the bare fact of how much you spent on research and development. This concept can be transferred to almost any industry, be it oil and gas development, retail or consumer goods, to name a few. 

After all, companies are a collection of people, and where you have people you have stories to tell about how those people create unique approaches to the way they do business. How those people set your company apart from other operators and cause it to be unique are integral parts of the story that mere financial numbers can’t tell. It is in providing this context in a memorable fashion that investor relations can add value.

Are You Talking About What You Want to Say or What Your Investors Want to Know?

I confess that I’m not an avid reader of much of what gets churned out in the business press by the so-called experts. I readily admit that this is somewhat of a contradiction in me, because I want people to read what I write about in my area of expertise, but let’s face it, there’s a lot of crud out there. Most business writers seem to approach their subject as if it were the key component to business success. If their readers would simply follow their cookbook formula, everything would be peachy. If only life were so simple. So I tend to restrict my reading to The Wall Street Journal, The New York Times, The Economist and a few other assorted publications.

One of the other assorted publications I tend to pay attention to is the McKinsey Quarterly, and it is an article there that spurs me to write today. The article, which was published early in October, 2013, is entitled “How B2B companies talk past their customers” and it examines the gap between the messages that suppliers send to their customers and what their customers really want to know. The article struck me as particularly germane to investor relations because, stripped to its bare essentials, IR is a business-to-business marketing effort where companies present the reasons to own their stock to sophisticated purchasing managers who are interested in buying a commodity that will benefit their customers, such as mutual fund investors or pension managers.

The article, which is available at http://www.mckinsey.com/insights, looked at how companies in the business-to-business sector positioned their brands and came up with a list of 13 broad themes and topic areas ranging from the practical (low prices) to the lofty (corporate social responsibility). Then the authors turned around and asked customers how important they thought each theme was in evaluating the brand. What they found was that there was an almost complete mismatch between what companies were saying and what customers thought was important.

This piece of research is instructive to investor relations because IR departments are formulating brand messages all the time, whether it’s in an investor presentation or an annual report, yet in my experience, the vast majority of all such messages are put together based upon what the company wants to say, not what investors want to hear.

So here’s a radical thought. The next time you put together a presentation, stop and think about what investors want and need to hear. This shouldn’t be terribly difficult, as IR departments are constantly bombarded by questions from analysts and good investor relations practice dictates that you should track the types of questions being asked. The data should be there – you simply have to integrate it into your message.

At the end of the day, it comes down to a relatively simple rule of communications – know your audience. Unfortunately, it is a rule that is often overlooked when polishing IR presentations and annual reports.

Make It Memorable

One thing I have learned from teaching over the past six years is that if you want your audience to not only learn, but also remember what they learn, you have to make it memorable.  There are many ways to do this – you can speak with passion, you can use humor, you can have catchy phrases and acronyms, you can even (heaven forbid) have a catchy PowerPoint presentation – but what you are saying and doing has to catch and hold the audience’s attention. In a way, it is education as theater, and it is particularly effective in an adult education setting where the distractions of emails and messages from the office are a constant challenge.

Last week I attended the NIRI Southwest regional conference in Ft. Worth and it reinforced my opinion that the Southwest regional conference is a better overall learning experience than the NIRI national conference. I have a variety of reasons for saying this, but for today I want to focus on the educational aspect of the Southwest regional conference. The national conference seems to be locked into a format that is heavily dependent upon panel discussions featuring panelists that are long on narrow technical expertise and short on speaking skills. This was true a year ago when I attended in Seattle and a quick review of the 2013 National conference agenda reveals that the vast majority of the sessions continue to be panel discussions. The result of many panel discussions viewed in quick succession is the verbal equivalent of Chinese water torture – many words delivered in a monotone, leading to eventual brain damage. 

The Southwest regional conference, in the years when it has been organized by the Houston chapter, has broken from this mold. In 2010 and 2012 the conference featured a case study that forced attendees to work together and make decisions. They went beyond that and introduced several new formats to the conference this year. (Full and fair disclosure: I was on the conference planning committee, but due to my move back to Chicago, cannot claim much credit for the work of the planning committee.) In addition to the usual speakers and panel discussions, the conference introduced an interactive case study based on a real life example (featuring yours truly), a point - counterpoint style debate featuring practitioners discussing current hot topics in IR, an IR version of the dating game where IR officers try to convince an analyst to cover their company’s stock, and my favorite, three short (20 minute) TED style talks where people addressed issues near and dear to their hearts with passion and conviction. The result was a mix of information delivered in memorable fashion that consistently engaged the audience.

When you are in investor relations, a key element to what you do is communication. I can only hope that the National Investor Relations Institute takes note of how the Southwest regional conference is expanding the communication boundaries in order to help people remember what they learn at conferences and become better practitioners of investor relations. After all, isn’t what these conferences are all about?

The Application of Greek Mythology to Investor Relations

Having received a degree in history from a small liberal arts college, I periodically feel the need to justify all the obscure, unrelated and mostly useless knowledge I picked up in the course of my education. This actually comes in handy from time to time if you are in the business of communicating, which, of course, we all are in investor relations. 
When I teach or give a public talk, I like to bring in a variety of arcane sources in order to keep the audience engaged. I find that introducing something interesting, which, at first blush has no connection to the topic, helps to get people thinking about what you’re saying. Of course, sometimes it’s the only thing they remember from your talk, but I’m happy if they remember anything at all from my talks.
For example, a number of years ago I was given the task of explaining executive benefits at a 7:00 AM meeting. This is about as bad as it gets – a dull topic at a miserable time of day.  The strategy I hit upon to liven things up enough to keep people awake was to use song lyrics to illustrate my points. (I freely admit that I stole this idea from a Bar exam prep teacher I had many years ago, but the best ideas are often stolen.) I had to work at it – not many songs mention stock options or long term disability insurance – and eventually references ranged from Gershwin to 1960s Motown to Pink Floyd, but I kept the audience interested in what I was saying. 
I bring this up because one of the obscure references I like to mention when I discuss the role of communications in investor relations is Sisyphus. Those of you that were blessed with a proper grounding in Greek mythology will recall that Sisyphus was the Greek King who incurred the displeasure of Zeus and was sentenced to roll a huge bolder up a steep hill, only to have the bolder roll back down to the bottom of the hill before he arrived at the summit, forcing Sisyphus to begin all over again. This ceaseless effort very concisely describes the process of communications in investor relations.
When you are communicating with investors, as they used to say in an old Nike ad, “There is no finish line”. The company is constantly moving towards its next reporting date. You are either just reporting results or getting ready to report results. The company and its strategy are continually evolving, requiring you to refresh your message. The composition of your investor base is also routinely changing as the stock is bought and sold, causing you to have to regularly educate an entirely new set of investors. In short, it never stops.
Nor should it. Good investor relations requires continual communication with investors and potential investors. The more you communicate in a transparent manner, the fewer surprises will confront investors and the less volatile your stock will be. When more information that is routinely transmitted to the Street it also means that there is less opportunity for insider trading. In short, as in economics, more is generally better until you arrive at the point of disutility. What constitutes disutility of information is a discussion for another day. For now, I will leave you to roll the rock up the hill.

(For those of you who are interested in classical Greek analogies, you may also be interested to read my post from October, 2008 “Greek Classics Revisited” comparing the financial crisis to the Iliad.)

Social Media, the SEC and Corporate Disclosure – a Wobbly Three Legged Stool

I’m always surprised by it, but it turns out that some people actually read what I write. In my last post I wrote about the practical implications of the SEC’s recent Netflix social media investigation. In a nutshell, here’s what I said:

“…the release basically establishes a safe harbor for the use of social media which investor relations departments should waste no time in establishing as a prudent risk management tool. The SEC has said that companies should take steps to alert the market about which forms of communications a company intends to use for dissemination of material, non-public information. Therefore, adding language to a company’s web site and press releases to the effect that the company may from time to time use social media sites to disclose important information would seem to be the prudent thing to do.”

Shortly thereafter I received an email from Broc Romanek at TheCorporateCounsel.net (www.thecorporatecounsel.net) explaining his take on the issues at hand. I have a great deal of respect for Broc and will readily admit that he knows more about the ins and outs of how the Securities and Exchange Commission works and thinks about issues than I do. On the other hand, I’ve spent the bulk of my career inside public corporations and have a pretty good feel for that particular viewpoint.  I’ve reproduced (with Broc’s permission) the email exchange below because I think it is a good illustration of the two points of view on this subject.

John – on your blog about the SEC’s guidance, the CYA approach actually is problematic. As borne out on my webcast on this topic last week, I hear that the SEC Staff is not happy with those companies announcing a bevy of SM channels for which they have no real intention of using them as investor communication venues. And investors probably don’t want to be forced to track a bevy of channels for which the company doesn’t intend to provide useful info for them. It’s a loser on both fronts.

thx, broc

Broc:

I recognize that it's problematic, but it is a problem the SEC created. If I was a general counsel, and I had the opportunity to create one more layer of insulation from Reg FD claims, I would grab it. Fear of Reg FD retroactive enforcement is a giant bugaboo for many companies, so doing everything you can to lower the chance that the SEC will open an investigation makes sense.

From an investor's standpoint it is a real headache to follow multiple feeds, but most investor relations departments will take the view that it is not their job to make the analysts' job easier.

I think the CYA approach only works if the social media site is widely followed and qualifies as a recognized channel of distribution, but as more companies use social media, and CEOs become more comfortable with blogging & posting, there has got to be a way to facilitate open communication without constant fear that you will wander into the Reg FD quagmire.

John

John: I believe there is way too much paranoia about Reg FD compliance. Just because a statement may be Reg FD compliant – because a CYA channel was created – it isn’t insulated from a 10b-5 claim that the statement was misleading or omitted something, which will be the more likely result – and much more serious result – when something “material” is posted on a SM channel, particularly Twitter since it is limited to just 140 characters.

Broc

I’m not sure what all the implications of this social media stuff are, but this is probably a good illustration of the law of unintended consequences relating to governmental regulation. The SEC says its OK to use social media to disclose material non-public information if it qualifies as a “recognized channel of distribution” for communicating with their investors, but then is not happy when companies announce they intend to use them. Companies on the other hand, see this as a way to add a layer of protection so they don’t wind up in the SEC’s crosshairs when their CEO either gets carried away when writing a blog or Facebook post or writes something that they genuinely believe is not material as Reed Hastings of Netflix did.

The point of all of this should be to enhance and facilitate the flow of information to investors and allowing social media to serve as a recognized channel of distribution will help accomplish this. 

Selling the Academic Side of Investor Relations

When you are an academic, if you really want to make it big, you need to come up with a snappy way to sum up your thinking on your area of expertise. For example, Porter has his Five Forces that describe his thinking on strategy – supplier power, buyer power, competitive rivalry, the treat of substitution and the threat of new entry. Similarly, Kotler has the four Ps of marketing: product, price, promotion and place. So I’ve been thinking: Why doesn’t investor relations have a way to neatly encapsulate what it is we do? Seeing this as a real hole in the academic literature, I have decided to step into the void and propose (with apologies to T. E. Laurence and the Seven Pillars of Wisdom), Palizza’s Five Pillars of Investor Relations.

I choose the wording of pillars because what I am about to describe are the skills needed to form a strong support base for an investor relations program (also, I couldn’t come up with a clever acronym or make everything begin with the same letter).  Plus, this allows me to crate a clever visual slide for my class featuring Greek columns to drive the point home. So, without further ado, here is a brief description of what I consider to be the essential skill and knowledge requirements to do investor relations well – the pillars of investor relations.

FINANCE – It is essential that a good investor relations officer have a thorough understanding of the components of his company’s income statement, balance sheet and cash flow statement, as well as the accounting treatments they derive from. On the theoretical side, the IRO needs to be comfortable with the different valuation models used by Wall Street to value his company’s stock and the role of investor relations in the efficient markets.

MARKETING - How to segment the investment universe, target appropriate investors and position the company story to appeal to those investors are basic marketing skills that are critical to good IR. At a deeper level, using marketing techniques to more efficiently use limited resources to focus on the most important investors can help IR have a bigger impact.

COMMUNICATIONS – Crafting a memorable message that resonates with investors is a critical communications skill that is used in IR. This is closely followed by figuring out what disclosures, above and beyond those mandated by regulations, will assist investors in understanding the intrinsic worth of a company. All of this presupposes a solid understanding of your company and industry. Finally, the skilled use of multiple communications channels is becoming ever more important as new means of communication such as social media proliferate.

LAW – Everything in investor relations is circumscribed by laws, regulations and case decisions. They cover everything from what you say (the periodic reporting requirements of 10-Ks and 10-Qs and mandated disclosures of 8-Ks), to when and to whom you say it (Reg. FD) to why you say it (the case decisions concerning materiality and other items). 

CAPITAL MARKETS – Knowledge of how the stock markets work is an essential skill of the IRO. If you don’t think so, try telling your CEO that you don’t really understand what the markets are doing the next time he sticks his head into your office and asks why the stock is trading down. Understanding liquidity, volatility, auction markets and the other things that impact the way your stock is traded and how to access information about them quickly are necessary pieces of information for the IRO.

Well, there you have it: The Five Pillars of Investor Relations. Now all I have to do is sit back and wait for the book offers to come rolling in…

Just When You Thought It Was Safe To Go Back on the Call

Strange as it may seem, National Public Radio and Wall Street sell side research share a common business model – they both give the product away and hope you get paid later. The motivations are different; NPR is a not for profit entity while sell side research sits at the heart of profit driven capitalism, but NPR pledge drives and sell side marketing to get commissions directed their way are similar in many respects. Both occur long after the product has been delivered to the user with no obligation for the user to actually pay for it and both attempt to convince the user that they have been given a superior product.

The reason I bring this up is that occasionally NPR comes up with a story that actually has some bearing on corporate earnings and Wall Street, and they recently did so on February 2, 2012 with a piece entitled “Is That CEO Being Honest? Tone Of Voice May Tell A Lot”. You can find it at http://www.npr.org/blogs/thetwo-way/2012/02/02/146288038/is-that-ceo-being-honest-tone-of-voice-may-tell-a-lot.

In the story, NPR examines some software developed by an Israeli company based on research referred to as layered voice analysis. The software picks up on “vocal dissonance markers” that may indicate when the truth is being shaded, or when an executive is trying to avoid saying something that should be said in order to make an answer complete.

Of course, analysts on conference calls listen to tone and inflection all the time, so this of itself is not a news flash. The part of this story that makes it interesting is that the research shows that the analysts are much better at hearing the positive tones in a call than they are at hearing the cognitive dissonance in messages that are being shaded from complete truth. According to the radio story, part of this may be that most analysts stand to benefit more from positive recommendations than negative recommendations. Another part may be that most people are less likely to ascribe nefarious intent when a person sounds less than chipper. To this I will add another factor: most conference calls have taken on a very formulaic approach, and much of the time, corporate management sounds as if they are discussing their immanent root canal surgery with their dentist. Sounding unhappy to be on the call is par for the course and, therefore, it is hard to distinguish an unhappy tone from a less than honest tone. Conversely, any time management sounds happy, it really stands out and is easy to pick up on.

Faithful readers with long memories may recall that I wrote about similar research back in August 2010 in a post titled “Using Computers to Predict If a CEO is Lying”. In that case, researchers from Stanford Graduate School of Business took a look at word patterns during the Q & A sessions of earnings calls to help predict when company management was being deceitful. Now we have software that listens to voice tone that does the same thing. So maybe we are getting closer to the day when management will have no choice but to be completely honest with investors on earnings calls.

It could mark the death knell of the earnings conference call…

Practicing Safe Presentations

How many times have you been at a conference and seen a corporate investor presentation that begins something like this:

“Good morning. I’m Joe Terrific, CEO of Godzilla Industries, and I’m here to bring you up to date on all the great things we’re doing. (Pause while he moves rapidly from the title slide, past the safe harbor slide to the beginning slide describing the business.) Here at Godzilla Industries…”

In other words, the safe harbor statement slide is up on the screen fleetingly, but not referred to verbally. The thinking being that they’ve shown the disclaimer about forward-looking statements, all the investors in the room are sophisticated institutional investors and know that when a company makes projections and statements about the future things don’t always turn out the way the company thinks they will. The requirements of the Private Securities Litigation Act of 1995 have been met, right?

Well, maybe not.

A recent ruling by a federal trial court for the Western District of Washington has underlined the need for companies to make sure they verbally reference the safe harbor disclaimer. The case is In re Coinstar Securities Litigation, Case No. C11-133 MJP (W.D. Washington Oct. 6, 2011) and all practitioners of investor relations should take notice of it.

The case involved allegations that on various occasions the management of Coinstar made projections and statements about future expectations that did not come to fruition. As happens in these cases, the lawyers for Coinstar made a motion to dismiss the complaint. This is a motion made early in the proceedings that has the effect of cutting off the litigation before the really big legal bills start to pile up. It is done before pre-trial discovery takes place, which is when a plaintiff can drive a company to distraction by forcing it to produce thousands of pages of documents and produce members of management for time-consuming depositions. Once discovery starts, the chances of the plaintiff wringing a settlement out of the company go way up, as it is often cheaper to settle than to pay hefty lawyers fees for several years running while lawyers pore over boxcar loads of documents in the hope of turning up a smoking gun, with the Russian roulette of a jury trial lurking in the background.

In the Coinstar case, one of the allegations made in the complaint was that forward- looking statements made by company management at an investor conference were false or misleading. In making the allegation, the plaintiffs relied upon a transcript of the presentation, and because the transcript contained no reference to the cautionary language on the company’s presentation slides, the court ruled that for purposes of a motion to dismiss, they could not take notice of something that wasn’t in the record and therefore the lawsuit could proceed on those allegations.

This does not mean that Coinstar lost the lawsuit, but it does mean that the lawsuit can continue and move into the pretrial discovery phase, which is almost as bad as losing. Coinstar did not accompany their safe harbor slide with a simple statement such as, “Statements made in the course of today’s presentation may contain forward-looking information and actual results may differ materially from what we are presenting today. The slide you now see gives you more information on the assumptions and factors we consider in making those forward looking statements and where to go to get more information on our risk factors.” As a result, they have subjected themselves to, at a minimum, additional and unnecessary legal bills, and at worst, the potential of a large settlement or jury award.

So today’s lesson is, just because the safe harbor slide is in every presentation, and everyone has heard it dozens of times before, doesn’t mean that a trial judge will assume investors have heard about it. Practice safe presentations - always refer to the safe harbor statement and slide.

Do You Think You Could Make That More Boring?

Who ever said that an investor presentation has to be boring? (I exclude from this question the lawyers, who as a default position, always feel that boring and incomprehensible is safer than exciting and interesting.)

I was at an investor conference last month and took the opportunity to sit in on several presentations. I think that most of the company presenters must have been listening to their lawyers. After about two presentations I began to tune out because most of what I heard was pretty bland and uninteresting. It was as if the presenters had all gone to the Sgt. Joe Friday school of public speaking. They were determined to give “just the facts” in the most humdrum fashion possible. (For those of you too young to remember, Sgt. Joe Friday was the principal character in the TV drama Dragnet who gave new meaning to the term poker-faced.)

Honestly, how can you expect an investor to get excited about a stock if the company CEO doesn’t show some enthusiasm when talking about the company? Yet that is exactly what I saw at the conference. This was especially true at the beginning of most presentations, when the speaker should be working the hardest to capture the interest of the audience, yet what I often heard was the recitation of bare bones facts about the company without a lot of context to help investors understand the company’s products and position within the industry.

The other major bone I have to pick about what I heard was that most companies thought their job was done when they had explained what their past activities had been. The implication of such a presentation is “Here’s what we’ve done in the past, now you can go ahead and make your own judgment about what we will do in the future without any help from us.” This is like saying that markets are static, conditions are not going to change and we are not working on any new products or markets. This, of course, is nonsense, as American companies and markets are predicated on growth and conditions change all the time. Further, financial theory 101 teaches that investors are buying your stock based upon the value of FUTURE cash flows, so why not give them some guidance about where you are going in the future? Hey, there’s a safe harbor statement about forward-looking statements in every presentation. Why not put it to good use?

All was not terrible, however. There were several successful and engaging speakers I saw at the conference. Generally, these successful speakers seemed to have two things in common. First, they got a little worked up about what their company was doing and what made their products and services unique. Secondly, they allowed some of their personality to come through. This is important because if you’ve ever read any of the surveys of investors and what they care about, quality of management is always high up the list. Yet if management is nothing more than a bland talking head, how can an investor be expected to make a qualitative judgment about them?

After all, who ever said, “I liked your presentation, but you could have been a bit more boring”?

Stand a Little Closer to the Podium… Coaching and Investor Relations

A short while ago a friend sent me a copy of an article in the New Yorker about coaching. We’re not talking here about improving your golf swing. Rather, the author of the article suggests that people in business could stand to benefit from having someone who is an expert observe and offer constructive criticism on how they perform routine tasks. The article can be found here: http://www.newyorker.com/reporting/2011/10/03/111003fa_fact_gawande

I was intrigued by the article, not only because I spend considerable time coaching first year MBA students on how to give business presentations, but also on the concept’s potential for improving investor relations activities. By its nature, investor relations involves repetitious activities that revolve around everything from how you talk on the phone, to investor presentations and quarterly earnings reporting. These are the exact type of activities that can benefit from coaching. And yet, in all my years of business, I have rarely seen anything that approaches coaching done outside of a seminar environment.

Take for example, your typical investor relations presentation given by a CEO. I’ve sat through literally hundreds of these throughout my career and most were less than memorable. Just a few things that we talk about with our students touching upon delivery, content and visuals could be pointed out to many CEOs:

Delivery – was the speaker enthusiastic when speaking to the investors? After all, if the CEO isn’t enthusiastic about the company, how can you expect investors to get excited?

Content – is the speaker able to place the company into an understandable framework that helps investors understand the value his company brings to the marketplace? I have seen any number of presentations where software and tech companies get so wrapped up in the technological aspects of their products that they fail to bring it down to the level where an investor can see how they can make money on the technology.

Visuals – how many times have you seen a screen full of bullet points that the speaker feels compelled to read? Worse yet, how about a balance sheet in 8 point type?

Business leaders of today have to be communicators, yet many of them could stand some improvement in their delivery. This is where coaching should come in, but rarely does. My guess is that most investor relations officers are loath to criticize their superiors. Which is too bad, because we can all stand some improvement. I know I’ve been practicing public speaking for over thirty years and there are still things I need to improve.

So here’s today’s practical tip: if IROs don’t want to tread on thin ice by critiquing executives, videotape them and let them review themselves. It helps if you give them a list of common errors to watch and listen for, such as vocal fillers, repetitive phrases, body language and eye contact. Then tell them to watch/ listen to the presentation four times:

First, listen and don’t watch. This lets the speaker focus on vocal qualities such as pitch, tone, speed, ums and ahhs, and if he was using his voice to tell listeners what was important.

Second, watch with no sound. This will draw attention to body language, eye contact and the annoying things the speaker may be doing with their hands.

Third, listen and watch the presentation to see if it all comes together in a coherent whole.

Fourth (for the brave), watch the presentation at double speed. This will really bring to the fore any annoying or quirky things the speaker tends to do, such as looking up at the ceiling, or performing a little dance step as he speaks.

Who knows, after watching themselves a few times, CEOs might get a little bit humbler.

Crisis Communication

Last week I had the pleasure of attending the National Investor Relations Institute (NIRI) Southwest Regional Conference in San Antonio. I’m on record as having said this before, but I like to repeat it: I believe that the Southwest Regional Conference is a better learning experience for investor relations professionals than the National Conference. I say this because the Southwest Regional Conference is shorter – a day and one-half as opposed to two and one-half days and thus more focused and, with a smaller number of people in attendance, you actually feel as if you have a chance to get around and talk to everybody.

This year, under the leadership of Lee Ahlstrom and Scott Winters of the Houston NIRI chapter, the Conference once again took an interesting departure from the usual lineup of talking heads you normally get at these conferences. The first morning saw everyone engaged in a case study examining a crisis communication situation. The case required everyone to participate, as each table of eight assumed the role of the investor relations/corporate communications professional. They soon found themselves barraged with information in the form of management meetings, memorandums, twitter feeds, media inquiries and videos of the plant explosion in question. In the middle of trying to parse through the data, they found themselves being interviewed by a reporter and asked questions by a sell side analyst. While all of this was going on they found themselves having to recommend media and disclosure strategies to management.

Everyone I talked to said that the exercise was one of the best simulations they had seen on crisis communications. While that’s nice to hear, when I do case studies in my class, I always like to wind up with some key takeaways from the experience, so for the benefit of both the people who were at the conference and those that may wish to learn a little something about crisis communications, so here are the points to remember from the exercise:

1. 1. To quote Dwight Eisenhower, “In preparing for battle I have always found that plans are useless, but planning is indispensable.” In other words, the crisis you wind up with rarely looks like the one you planned for, but the exercise of planning for a crisis causes you to think through the process. This planning process is what helps you to deal with the crisis you do get.

2. 2. There is always somebody important you can’t reach when the crisis breaks. This may seem surprising in this age of interconnectedness, but people go on vacation to remote areas, cell phone coverage tends to break down under the stress of a crisis and there is always someone who is just out of pocket for some random reason or another. Having a clear chain of command as to who acts in the absence of others is important.

3. 3. The need for speed. People have to meet on short notice. Large amounts of data have to be absorbed quickly. Investors want answers right away and if you don’t respond to the press they will come up with their own version of events. There is no time for multiple editing rounds of your press release.

4. 4. You almost never have all the facts you need when you need them. In a crisis information is often garbled, late and sometimes just wrong. This means that the best messages you can send to your audiences are based on simple factual statements.

5. 5. Differing people have different agendas. The corporate counsel may not want to disclose anything at all. Business managers may not want certain facts to come out so that customers, suppliers and creditors don’t get upset. The reporters want to sell newspapers and get good video footage. Analysts care about how the event will affect the company’s stock and what collateral damage there may be to other companies. Good crisis communications has to deal with all of this.

In the end, there is no set formula for how to deal with a crisis, as each situation brings its own unique set of facts. Practice and planning can help however, which is why this year’s NIRI Southwest Conference was so well received.

Before I finish, I have to relate an interesting story from the conference. This year I decided to participate in the golf outing at the conference. I was out on the golf range practicing before the event (I need a lot of practice) when the person on the next practice tee looked at me and asked, “Are you the blogging professor?” I guess there are worse things you can be known as – it even has a sort of ring to it –“The blogging professor.” Maybe I’ll have it put on my business cards.