Can companies think & act long-term?

September 26, 2014

CEO at windowWhen former Merck & Co. CEO Ray Gilmartin sat down with a governance guru to reflect on “The Board’s Role in Strategy” for the National Association of Corporate Directors’ Directorship magazine, the topic turned to the conflict between short-termism and the sustained commitment that executing a strategy demands.

Gilmartin waxed philosophical when asked about encouraging CEOs to act strategically, even under pressure from short-termist investors:

What’s happened is that there is confusion between stock price and creating firm value. I don’t believe investors are short term-oriented, but boards and management can be. Investors will reward investments in R&D, for example, because they recognize it will create long-term value. Therefore, if you’re lowering your earnings growth or you missed a quarter because you don’t want to cut back on R&D, if you have good relationships with your investors and they have confidence in your operating capability and your ability to deliver, then even though you’re falling short on the quarter or you’re going to lower your earnings to invest in research, they will still reward you for that.

Well, OK. This seems a bit theoretical. The ex-CEO is nearly 10 years out from the corner office, having taught at Harvard Business School and served as an outside board member in the intervening time. It’s been awhile since he sweated Merck’s stock price dropping 12% in two days, or its blockbuster drug going off-patent. Maybe it’s more accurate to say investors will eventually reward investments in R&D, but they may deliver a thrashing in the quarter(s) when EPS falls short. So get ready.

For the here-and-now, I would add two things to Gilmartin’s opinion that boards and CEOs can think and act strategically for the long term:

  • Communicating clearly is essential. A big part of the CEO’s job, as well as the CFO and IRO’s, is to explain that the wheels are not falling off the bus – we’re investing in the future. Then we must show concrete evidence of progress, step by step, in R&D or gross margins or whatever.
  • It takes guts to think and act for the long term. When earnings go the wrong way, the whole team needs to toughen up and be bold about interfacing with investors. Hiding doesn’t help, it hurts.

That’s my two-cents’ worth. What do you think?

 © 2014 Johnson Strategic Communications Inc.

‘Key to success … is preparation’

June 2, 2014

AlaixJuan Ramón Alaix, CEO of the animal health giant Zoetis Inc. (formerly Pfizer Animal Health, spun off as a NYSE-listed company last year), offers wise counsel on communicating effectively with investors.

In a “How I Did It” CEO interview in the June 2014 issue of Harvard Business Review, Mr. Alaix comments:

A lot of people, when they reach a certain age, are reluctant to accept training. That’s not true for me—I’m very open to it. I’d had communication training over my career, but the preparation for our IPO was much more intensive. Before I did my first TV interview, for instance, I probably spent more than eight hours doing mock interviews. I believe that the key to success in communication is preparation. By the time I gave the first road-show pitch to investors, I’d rehearsed it at least 40 times.

Wonderful words from a CEO! As IR professionals, most of us have had the opposite experience: an exec who is too busy to practice and thinks it’s OK to wing it because, after all, who knows the story better?

Ask the people who listen to investor presentations: The CEO, CFO or IRO who is practiced and prepared will always have a greater impact than the one who fumbles with his thoughts - or just reads the script.

It’s good to hear Mr. Alaix endorse the most basic rule of speech making: rehearse, rehearse, rehearse! I’m sure Zoetis is well-served in its communications – and other areas – by this kind of diligence.

© 2014 Johnson Strategic Communications Inc.

Let’s make a deal

May 27, 2014

Mergers and acquisitions are resurgent – a factor in the stock market’s buoyancy, a topic of conversation everywhere and a sometimes challenging reality in our jobs as investor relations professionals.

The current issue of Barron’s advises investors on “How to Play M&A” and offers some stats from Dealogic:

So far this year companies have announced deals worth $1.52 trillion that are either completed or pending, according to Dealogic. That’s up 56% from last year and marks the largest dollar amount for deals since the $2.06 trillion recorded during the same period in 2007. Jumbo deals in particular are making a comeback.

Mergers, divestitures and other deals are popping up all over. The top five sectors are healthcare, telecom, real estate, tech, and oil & gas. Make no mistake, M&A is cyclical, as seen in this chart from Barron’s:

M&A deal value by year

If you observe that the last two peaks in M&A activity coincided with stock market “tops,” you’re not alone – although Barron’s believes this bull still has room to run, in both stock prices and deal flow. We’ll see.

My point here is that IROs and IR counselors should develop M&A communication as a core competency. Mergers are so important to the strategic future of most companies – as buyer, seller or competitor – that we need to dig deeply into how deals do (and do not) create value for shareholders. And we need to consider how to tell that story.

The first instinct of some CEOs, and IR people, is to trot out familiar M&A bromides: “strategic combination,” synergies, “merger of equals,” 2+2=5, “critical mass” and excitement about the future. The press conferences are all smiles. Not that these stories are false, but they don’t tell investor whether the transaction is really creating value.

Worse yet, merger messaging can arise from defensiveness. Execs who have spent months thrashing out a deal may draw talking points from the touchy issues: where the new headquarters is or how the top jobs are divvied up. Significant maybe, but not the main point for investors.

Here are three key needs to consider in communicating M&A:

  • Strategy. An acquiring company must explain why the deal makes sense and keep explaining it. Strategy is not a combined list of products or expanded footprint. It’s how the deal changes your competitive position, how it changes who your company is, three to five years from now.
  • Metrics. Besides adding two companies’ sales together, merger announcements most commonly discuss forecasted cost savings and change to EPS (acquirers love to say “accretive”). How about operating cash flow per share? Return on capital invested vs. your cost of capital, or change in return on equity overall? Impact on dividends?
  • Follow-through. Success in M&A is all about integration, and IROs can help execute the strategy. When it comes to telling the story, plan for follow-up announcements as milestones are achieved. Track those metrics and report the progress. And keep explaining the “why.”

I’m not saying these are the answers. Getting the right messaging depends on all the specifics of your company, the deal that’s in front of you, your industry and what your investors care about the most. But developing that messaging with the CEO and your deal team is one of the most important jobs of IR during a time of transition.

IR professionals also play a central role in managing communication. It’s critical to lay out a detailed timetable for all communications that need to take place on Day 1, announcement day, and following.

Delivering the right investor messages, tailored for each audience, is essential in playing “Let’s make a deal” as a public company.

© 2014 Johnson Strategic Communications Inc.

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.


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