The harsh winds of the ’08 market have pretty much chilled us all to the bone, but we wish you a warm, secure, happy time with family and friends as the year winds down to a close. And all the best for a bright 2009!
Archive for December, 2008
Warmest wishes for the holiday
December 24, 2008Toxic compensation is catching on
December 20, 2008My one contribution to the 2008 financial bailout was an idea back in September to motivate members of Congress, Treasury bosses and Fed honchos to fix the markets by paying them in mortgage-backed securities. If the bailouts fizzle, the compensation is worthless. If the economic fix works, the power brokers are in the money.
Uncle Sam hasn’t adopted this scheme, but toxic compensation seems to be catching on in the private sector. At least, the eminent Credit Suisse is on board, according to Thursday’s online Wall Street Journal:
ZURICH – Credit Suisse Group said Thursday it will use up to $5 billion of its own illiquid assets such as mortgage securities to pay senior staff year-end bonuses at its investment bank, a move meant to spread risk more evenly between the bank and its employees.
The Zurich-based bank plans to pool commercial mortgage-backed securities and leveraged loans it can’t sell because demand has seized up, then dole out units in the entity to managing directors and directors as part of this year’s pay, according to a memo made available by a spokesman.
I don’t imagine investment bankers accustomed to stacks of cash will be celebrating this New Year’s over the new-fangled paper scrip. But maybe financial innovators, suitably motivated, can figure out how to get the markets unstuck. And toxic compensation may be better accepted on Main Street than the cash still being paid to some executives on Wall Street.
XBRL really is coming our way
December 18, 2008The Securities and Exchange Commission has now adopted a three-year timetable, starting mid-2009, for requiring companies and mutual funds to file disclosures using the eXtensible Business Reporting Language (XBRL).
SEC Chairman Christopher Cox has made XBRL a top priority – and spearheaded getting the final rules approved before leaving office in January. A video of the announcement by Cox on Dec. 17 explains the benefits. The interactive data format electronically tags hundreds of line items and topics in company filings. XBRL will allow automated data mining by investors (or anyone else) with tech skills to rapidly compare companies and industries, analyze changes over time, and search for discrepancies or financial data overlooked by people in the marketplace.
Originally, XBRL was about bringing disclosure and investment analysis into the interactive age through 21st Century technologies. Now Cox ties the need for change to recent financial collapses and scandals, which he blames partly on lack of accessible information. He says XBRL will help:
Data disclosure will make the markets far more fair for honest participants … Unlike document disclosure, data disclosure helps analysts, financial journalists and regulators find red flags. And it makes it easier to detect missing information. This is because data analysis is faster, cheaper and more accurate than document analysis.
(I’m a big believer in the critical role of information in assessing value and risks. But Cox seems to overreach when he claims XBRL will help restore confidence in markets, prevent financial frauds and even avert formation of future asset bubbles. His emphasis on XBRL as an enforcement tool is interesting, though – this is new, like data mining to detect flu outbreaks.)
Cox’s earlier plan (see June 18 post) would have “gone live” with XBRL at the start of ’09, but the SEC took mercy on finance staffs – and investors – scrambling just to survive in ’08. The final timetable:
- About 500 largest US and foreign companies ($5+ billion in float) will start filing XBRL-coded reports with the first 10-Q after June 15, 2009.
- All other “accelerated filers” must start filing after June 15, 2010.
- And all other companies must start filing with XBRL after June 15, 2011.
So XBRL really is coming our way. Companies can get ready by (1) studying up, starting at a site like XBRL.US, (2) consulting legal counsel and CPAs about the requirements, and (3) investigating vendors for XBRL tagging services. No doubt, the vendors will be calling you. Whether the actual work of implementing XBRL falls to IR, Accounting or Legal, investor relations professionals need to help their companies prepare.
We should also consider how data mining will affect the capital market’s view of our companies: What kind of data will XBRL users seek to compare, within or across industries? How will that reflect on our companies? Does the tagging process, as it is implemented, accurately capture our unique features or issues? Can we expect a different type of investor to become interested in our companies, or will they ask different questions?
It’s coming.
The times they are a-changin’
December 18, 2008
In many ways, the times they are a-changin’ … so it seems appropriate to share the song of that name from the early Bob Dylan. This link is to an appropriately scratchy video from 1963 of the melancholy, even apocalyptic, tune – now on YouTube. An excerpt from the lyrics:
Come gather ’round people
Wherever you roam
And admit that the waters
Around you have grown
And accept it that soon
You’ll be drenched to the bone.
If your time to you
Is worth savin’
Then you better start swimmin’
Or you’ll sink like a stone
For the times they are a-changin’.
As we look to 2009, investor relations professionals should prepare for change – more change – in the economy, capital markets, disclosure needs, regulatory climate, IR technologies and our jobs.
I’ll try to offer commentary that helps – rather than just whiny songs. Please feel free to add your comments (anonymous is an option). Meanwhile, enjoy “Bob Dylan on IR.”
“The patient is in a coma.”
December 17, 2008
I suppose it could be good news, in some circumstances, if the doctor comes out of an operating room and says your loved one is in a coma. The patient hasn’t died. But most of us wouldn’t cheer.
So the Federal Reserve cuts its target Fed Funds rate to near-zero (good story in The Economist). The Fed is saying the patient is comatose. The doctor administers a maximum dose of the primary tool for restoring vitality to the economy. The nurses are trying to keep the patient breathing. Specialists are all saying “Hmmmm.”
And the stock market … goes all ecstatic. Up 5% yesterday, gives back 1% today. One of these days, positive vibes on an auto industry bailout may trigger another round of exuberance.
As an old Econ major, I know life moves in cycles. And I’m all for Dr. Fed and Nurse Treasury and even the Capitol Hill quacks doing what they can to revive business when the cycle takes a dire turn. We need the medicine.
What doesn’t make sense, entirely, is the wild enthusiasm the stock market unleashes at each new stage of the bailout. Maybe it’s escapism: A one-day binge of silliness takes us back, ever so briefly, to the good old days of 2007 or 1999 – or whenever we remember as a stock-market nirvana.
Those of us who communicate the financial prospects of companies (public or private) need to try to keep an even keel. We shouldn’t give in to doomsayers on bad-news days. Nor should we break out the champagne when the Fed adopts an interest rate of zero.
Clearly, the doctor is not smiling. This patient has a long recovery ahead, and we must be realistic. Discussions with investors should reflect real data on our businesses – not the market’s mood.
© Copyright 2008 Johnson Strategic Communications Inc.
Beware the perfect storm
December 10, 2008
In any time of disruptive change, some CEOs and politicians latch onto a metaphor to try to communicate what’s going on – or an oversimplified version of it – to us common folk. Trouble is, this often doesn’t work. And coining a cliche (speechwriters beware) can make the speaker look like a follower, rather than a leader.
So we come to the perfect storm. Washington Post business columnist Steven Pearlstein skewers that literary (or movie) allusion in his column today:
A bit of unsolicited advice to business executives trying to explain why their company or their industry is suddenly in the soup:
Please spare us the “perfect storm” metaphor.
It’s hackneyed, for starters. It doesn’t square with the facts. And for people who fancy themselves leaders, it’s downright unbecoming.
Newspaper and real estate magnate Sam Zell and Wall Street presence Robert Rubin have laid claim to the perfect storm metaphor recently, Pearlstein notes.
The worst aspect of this turn of phrase is that, far from letting executives off the hook, “perfect storm” refers to a dangerous weather pattern for which ship captains like the one in the movie (if you missed it, see trailer here) are likely to receive more than ample warnings.
The captains of industry and Wall Street heard dire warnings before 2008, Pearlstein contends, so this storm exonerates no one.
In crafting investor relations messages, we usually do better with straight language than metaphor. Results generally speak louder than words, and the goal of a company’s explanation ought to be clarity – rather than spin.
Biotechs & the Big Three: We all need a plan
December 2, 2008
In any business, a collapse in stock price tends to stimulate soul-searching. Biotech companies have suffered, along with almost everyone else, a painful loss of value in the current bear market. Investments in R&D are risky, in a time when risk hasn’t been paying well. And the financial crisis has pretty much dried up equity offerings for biotechs or anyone else.
So the In ViVo blog, an offshoot of the business-of-medicine magazine of the same name, has been fretting lately about the state of biopharma companies. Today, the In Vivo blog noted that biotech industry leaders – like the Big Three auto companies’ CEOs – recently went hat in hand to Congress to beg for financial aid. The carmakers got a tougher reception, however, as Congress demanded the execs go back to Detroit and work out plans to revive their businesses.
Says In Vivo:
What’s odd to us is that BIO didn’t get the same assignment from Congress. We’ve never gone so far as Socrates in suggesting that the unexamined life isn’t worth living. But we do go so far as saying that the unexamined business plan sure isn’t worth funding. We’re all for biotech investors getting some additional incentives for funding the industry, but we’d also – for the good of investors, patients and taxpayers – like to see some ideas for how biotechs ever plan to make back the money they’re asking for.
The issue isn’t innovating scientifically. Or even clinically. The challenge is getting products approved and paid for.
And at the moment, biotechs aren’t doing that well enough to justify their funding.
Lurking in that exhortation for biotechs is advice that makes sense for all: Let’s go back to the business plan. Be sure we understand the path our companies are charting to achieve future sales and profitability. Let’s not focus so much on the minutiae of this quarter’s issues that we overlook the fundamental strategies to create value.
Especially in tough times, surviving and thriving – for companies and shareholders alike – is all about basics. So is investor relations.
The R word … it’s official now
December 1, 2008As you’ve probably read, the recession is finally official. The National Bureau of Economic Research (NBER), a private group of scholars, called the recession today. The business cycle gurus confirm that economic activity peaked in December 2007 and has been going in the tank ever since.
As an old Econ major I try to be scrupulous with use of the word recession in writing investor reports or presentations for clients.
My problem with the R word is that it actually has a meaning, which ties back to data. A recession isn’t just a case of indigestion in our business, but a specific change in the macro numbers. We used to say a recession was two consecutive quarters of decline in Gross Domestic Product, although NBER now uses a more complex set of metrics.
My peeve is that too many media folks are eager to drop the R word into their stories about a crisis in whatever they’re writing about. Politicians who stand to gain by painting a bleak picture also love the R word. And some business executives like to declare they are simply victims of a recession, whether or not the R word applies by objective measures.
But now it does apply. The official arbiters have declared, somewhat after the fact, that these folks are all correct in deploying the R word to describe what ails us. And we can use it in investor reports – although, let’s try not to blame all the consequences of past decisions on the R word.
The good news, you might say, is that we’ve already been in this recession for a year, according to NBER. So how ever long it lasts, the first year has passed and we’re that much closer to recovery. Wahoo.
Dick Johnson, seasoned IR counselor & communicator, is president of Johnson Strategic Communications Inc. More info: 
