Do we focus on the long term?

March 17, 2014

We often hear CEOs complain about the short-termism of Wall Street, but a commentary by value investor Francois Ticart in this week’s Barron’s questions whether most companies really focus on long-term value. Let’s include investor relations in that question. Ticart, founder & chairman of Tocqueville Asset Management, says:

Listed companies, the analysts who follow them, and the executives who run them have become increasingly short-term minded in recent years. Stocks now routinely respond to whether they “beat” or “miss” quarterly consensus estimates of sales and earnings, and much of the stock trading takes place on that basis. Needless to say, quarterly earnings have very little to do with long-term strategies or other fundamental factors. By focusing on them, financial analysis has become nearly useless to long-term, fundamental investors.

So think about IR: We say we want long-term investors, but how much energy do we focus on quarterly results and short-term fluctuations, and how much effort do we devote to communicating strategic drivers of our business over a 3-year to 5-year time horizon like the one Ticart favors? Are our own IR efforts part of the problem?

© 2014 Johnson Strategic Communications Inc.

How IR adds value for investors

March 6, 2014

NIRI KC 3-6-2014 Hancock & BurnsAt the NIRI Kansas City chapter’s “IR and Governance Bootcamp” today, Debbie Hancock, vice president of investor relations for Hasbro, Inc. did a great job – with an assist from Bruce Burns, director of investor relations for Westar Energy - marching us through “a day in the life” of an IRO, skill sets we need and the role of IR both internally and out in the capital markets.

That’s a lot of ground to cover – really, the whole job of IR. I’ll share one thought of many that struck me, from Hancock’s comments on a slide headlined “How IROs Add Value to Investors.” Note that she focused on adding value to investors. On her list: representing the company honestly, being prepared with answers for questions, informed and responsive, conveying understanding of the numbers.

The Hasbro IRO  listed one value-add that especially stood out to me:

Put the story together for investors. I think this is super-important…. What are the big takeaways from all this information? Put that together for them, put that story together.

Providing perspective, thinking like someone on the investor side and meeting the needs of an asset manager or analyst trying to make an investment decision, is probably the greatest value we can add in IR.

© 2014 Johnson Strategic Communications Inc.

What’s your creation story?

February 11, 2014

As investor relations people, we often hear or talk about stocks that have a great “story” – by which we mean a memorable explanation of how the business generates value. Stockbrokers and the buy side like a good story.

So I was intrigued by “How to Tell Your Company’s Story” in Inc. magazine’s February 2014 issue, which highlights entrepreneurial CEOs and their corporate offpsring. Writer Adam Bluestein says:

Before it has investors, customers, profits, press coverage, or even a perfected product, every startup has at least one valuable asset: its story. So you might want to ask yourself: Who are you? Where did you come from? Why are you doing this? … your company’s origin story has more power than you might imagine.

Inc. focuses on the sizzle of young entrepreneurial stories, of course, but the power of how and why your business got started applies to corporate old-timers as well. Even decades into a company’s history – sometimes a century or more – the values, initiative and focus of a founder can influence the culture and brand appeal of a business:

The creation myth is not an asset just for startups. As those businesses grow into established firms and individual founders figure less prominently, the origin story can serve as both a road map and moral compass. Keeping that story alive, keeping it true, and keeping it relevant–these are the challenges more mature businesses must contend with.

What’s the significance for investor relations? Well, investing ultimately is a bet on a company, a group of people trying to accomplish something in the bigger world around us. In IR, we hope to connect with investors whose perspective extends beyond the current quarter.

If we can show that creativity and drive are embedded in a company’s DNA, that business is probably a good bet over the long haul. Think about great companies, and you’ll realize they are also great stocks.

What’s your creation story? Have you researched it, defined the distinguishing characteristics, set out the strategic essentials that fuel your business today and will continue to do so in the future?

© 2014 Johnson Strategic Communications Inc.

It’s the CEO

January 31, 2014

When it comes to interacting with the investment community, Numero Uno is still No. 1. According to a global survey of more than 1,200 investor relations officers by IR Magazine, nearly two out of three IROs (64%) say the Chief Executive Officer is more important than the Chief Financial Officer in relationships with investors.

At least in terms of CEOs’ primary role in investor relations, customs aren’t that different around the globe, according to a story in IR Magazine‘s December 2013-January 2014 issue.

Among small-cap companies, even more IROs (76%) say the CEO is preferred over the finance chief by investors seeking access, while 61% of mid-cap and 59% of mega-cap IROs agree.

According to one European small-cap IRO quoted in the survey:

Investors want to believe in the vision, not in the quarterly figures.

I’ve seen it both ways: companies whose CEOs “own” the story and are the best salespeople for it, and others whose investors would rather talk with the CFO while the CEO stays home to run the business. What’s your experience?

© 2014 Johnson Strategic Communications Inc.

Memorable statements

November 16, 2013

Like many who were blessed to work in the robust culture that entrepreneur Ewing Kauffman built in a pharmaceutical company once called Marion Laboratories, I benefited from two core values: First, treat others as you would want to be treated, and, second, share the rewards of performance with those who contribute.

Eighteen years later, these simple rules still roll off my tongue easily. This came to mind recently when talking with a client who recited the mission of one of her former employers, in similar fashion – one, two.

Memorable. Brief. Simple.

These qualities, surely, are what make a great corporate mission, value statement or brand. So ad jingles and rhymes about cereals and sodas echo around in our heads decades later. We remember the guiding principles of our long-past employers. Colors and shapes call to our minds names of companies: Coca-Cola, Dow, BP.

And how about investor relations?

Do we give the market memorable, brief and simple messages?

Or do we describe our companies as a complicated matrix of market segments and product categories? A “portfolio” of services and technologies? A graphic collection of boxes crisscrossed with arrows?

And our business strategies: 18 points? Four categories with multiple strategies for each? Changing formulations quarter by quarter?

We should try to boil our companies down to a corporate brand – a few words that are memorable, brief and simple. A reason to invest. Can we capture the essence in two points, or one? A half-dozen words?

© 2013 Johnson Strategic Communications Inc.

Is ‘guidance’ all there is?

November 13, 2013

Providing financial guidance has become so common – NIRI says 76% of public companies offer forward-looking financial guidance – that investor relations professionals don’t stop to think much about it. But an investment banker in the pharmaceutical industry notes increasing frustration with investors and analysts who obsess on guidance.

In a piece called “The Tyranny of ‘Guidance’,” Michael Martorelli of Fairmount Partners tells readers of Contract Pharma that he’s hearing more questions on conference calls seeking clarification or expansion specifically on management’s guidance for near-term financial results – as opposed to penetrating questions seeking insight into fundamentals or trends:

If you thought all analysts developed their own estimates for the revenue and earnings paths of the companies they follow, welcome to the post Sarbanes-Oxley world of Wall Street research.

Before Sarbanes-Oxley, Martorelli notes, sell-side analysts were committed to building in-depth knowledge of  companies and industries. Investors and corporate managements came to respect the best analysts, and the work of analysis was highly valued.

Post-Sarbanes, of course, the mandate to give the same information to everyone at the same time often takes the form of guidance. And market participants, Martorelli says, can put too much value in near-term numbers. They’ll ask, “Why didn’t you raise your guidance this quarter? Why is the range of your guidance so wide? Why did you lower (or raise) only the top (or bottom) end of your guidance?”

When evaluating the future financial results of a company … too many investors rely more on management’s guidance than on their own independent analysis of the company, the industry, and the trends.

The legal structure is what it is, but companies can perhaps affect the tone of the conversation by focusing what we talk about on the fundamentals … what is really changing in our businesses, growth drivers, challenges and the strategies our companies are executing. After all, we really outperform not so much by beating “guidance” as by beating the competition to create real value for shareholders. It’s the big picture, not the pennies for next quarter.

What’s your take on guidance? Has it taken over the conversation?

© 2013 Johnson Strategic Communications Inc.

Twitter IR could be interesting

November 8, 2013

TWTR NYSEA few years ago an investor relations colleague told me Twitter was “the end of the world as we know it.” Bothered by the cacophony of 140-character mini-messages, this Old Schooler was offended by the damage that tweeting could inflict on our language. To me, it looked interesting rather than scary.

And now Twitter, Inc., after a hugely successful IPO on Thursday that raised roughly $2 billion (which The New York Times DealBook blog sniffed was “more modest” than what the company might have gotten if pricing had been higher), is going to be even more interesting for IR people to watch.

The social media platform has begun life as a public company pledging to talk to investors through – well, social media. To be sure, there is a Twitter investor relations webpage, though I found the corporate site only after some searching. The IR page itself is worth checking out, a bit unconventional with its news from the company blog of mostly non-investor related happenings, a page of financial releases (“Coming soon” … like the earnings, a cynic would say) and, of course, a feed from @twitter.

But this will be worth following. In rolling out Twitter’s stock offering, management pledged to practice its own preaching – using online postings and social media (its own) to get the word out. From the TWTR prospectus:

Channels for Disclosure of Information

Investors, the media and others should note that, following the completion of this offering, we intend to announce material information to the public through filings with the Securities and Exchange Commission, or the SEC, our corporate blog at blog.twitter.com, the investor relations page on our website, press releases, public conference calls and webcasts. We also intend to announce information regarding us and our business, operating results, financial condition and other matters through Tweets on the following Twitter accounts: @dickc, @twitter and @twitterIR.

The information that is tweeted by the foregoing Twitter accounts could be deemed to be material information. As such, we encourage investors, the media and others to follow the Twitter accounts listed above and to review the information tweeted by such accounts.

Any updates to the list of Twitter accounts through which we will announce information will be posted on the investor relations page on our website.

That all seems to be in line with the SEC’s guidance on IR use of social media and company websites for disclosure (speaking as a non-lawyer). Twitter has the advantage of starting afresh – investors aren’t accustomed to seeing its news in one particular place or format.

Twitter fin releases

The end of the world? Hardly – but IROs will be watching with interest.

© 2013 Johnson Strategic Communications Inc.

And now, Twitter as a public company

November 7, 2013

TWTR tweet

Washington revs up enforcement

September 12, 2013

Wall Street’s Top Cop: SEC Tries to Rebuild Its Reputation,” an interesting piece on page 1 of The Wall Street Journal today, traces the enforcement actions of the Securities and Exchange Commission since the financial crisis reached meltdown five years ago.

SEC logoThe agency is still smarting from suggestions that too little was done to punish Wall Street fat cats for the supposed malfeasance behind the financial crisis, the article says. Actually the SEC brought civil charges against 138 companies and individuals related to the crisis, and garnered $2.7 billion in fines, forfeited gains and other penalties, the Journal says, enumerating them in a timeline graphic.

But the gummy bear image persists in Washington, the story says, so leaders at the SEC feel they’ve got something to prove. For example …

In April, former federal prosecutor Mary Jo White started work as SEC chairman with a simple enforcement motto:

“You have to be tough.”

As crisis-era cases run their course, the SEC will redeploy resources to new enforcement actions, the paper reports.

© 2013 Johnson Strategic Communications Inc.

Reg FD: Does $50,000 get your attention?

September 7, 2013

Court gavelIn the old days, companies sometimes tried to soften the shock of bad news by getting on the phone with key analysts to tweak their assumptions, whether on this quarter’s earnings or another issue. A Regulation FD case against an IRO, resolved Friday by the Securities and Exchange Commission, sends a clear message: The old days are over.

Here’s my non-lawyer version of what Reg FD says to IROs: When things are changing in ways that may be material for shareholders, don’t think about “signaling” or “telegraphing” the market by talking to a few analysts and investors. Instead, broadly disclose the changes through a news release, 8-K filing, or conference call open to all investors. Selective disclosure is out, fair disclosure is in – that’s been true at least since Reg FD took effect in 2000.

The recent SEC case involves Lawrence Polizzotto, former head of investor relations for First Solar, Inc., an Arizona firm whose financing was part of the political controversy a couple of years ago over Energy Department loans to renewable energy companies. On Friday, Polizzotto agreed to pay a $50,000 penalty in the selective disclosure case and accepted a cease-and-desist order with the SEC, without admitting guilt.

Here’s the scenario the SEC painted: In September 2011 Polizzotto attended an investor conference with First Solar’s CEO at the time. The firm had conditional commitments from the Energy Department for three loan guarantees totaling $4.5 billion, and the CEO expressed confidence  the company would receive that backing.  Two days later, word came that First Solar would not get at least one of the guarantees. According to the SEC:

A group of employees including Polizzotto and one of First Solar’s in-house lawyers began discussing how and when the company should publicly disclose the loss of the loan guarantee.  The company lawyer specifically noted that when the company received official notice from the Energy Department, “we would not have to issue a press release or post something to our website the same day.  We would, though, be restricted by Regulation FD in any [sic] answering questions asked by analysts, investors, etc. until such time that we do issue a press release or post to our website …”

Comment: When lawyers talk, IROs should listen. SEC went on …

Polizzotto violated Regulation FD during one-on-one phone conversations with approximately 20 sell-side analysts and institutional investors on Sept. 21, 2011 – the day after a Congressional committee sent a letter to the Energy Department inquiring about its loan guarantee program and the status of conditional commitments, including three involving First Solar.  This Congressional line of inquiry caused concern within the solar industry about whether the Energy Department would be able to move forward with its conditional commitments.

Analysts began issuing research reports about the Congressional inquiry, and analysts and investors began calling Polizzotto. Despite knowing that the company had not yet publicly disclosed anything, Polizzotto drafted several talking points that effectively signaled that First Solar would not receive one of the three loan guarantees.  His talking points emphasized the high probability of receiving two of the loan guarantees and the low probability of receiving the third.

Polizzotto delivered his talking points in the one-on-one calls with analysts and institutional investors, and he directed a subordinate to do the same.  Polizzotto went even further than his talking points when he told at least one analyst and one institutional investor that if they wanted to be conservative, they should assume that First Solar would not receive one of the loan guarantees.

So there it is: material nonpublic information. The proof of materiality is that, when First Solar learned of the one-on-one disclosures and issued a press release the next day, its stock dropped 6 percent.

If you want guidance on Regulation FD or its application, ask your securities counsel. You can read Reg FD here, see the Polizzotto order here or explore links on the SEC’s selective disclosure webpage.

The philosophical heartbeat of Reg FD was captured by Michele Wein Layne, director of the SEC’s Los Angeles office: “All investors, regardless of their size or relationship with the company, are entitled to the same information at the same time.”

© 2013 Johnson Strategic Communications Inc.


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