Small-cap company boards should help CEOs and CFOs face the difficulties of connecting with investors and analysts, governance adviser Adam Epstein argues in a roundtable on investor relations (“Communicating with the Street: Addressing Small-Cap Challenges”) in the Nov-Dec 2012 issue of Directorship magazine.
Here, for example, are three prevalent mistakes that small caps make in IR:
- “A failure to communicate clearly with an appreciation for the audience [emphasis mine]. … A mix of small, growth-oriented institutional investors and retail investors typically owns shares of smaller public companies, and many lack technical educations and backgrounds. Accordingly, communications with the Street will resonate with only a small portion of investors unless that technology-speak is simplified and more emphasis is given to what most small-cap investors care about—growth and financial performance.” (David Enzer, Roth Capital Partners, small-cap banker)
- Small-cap habits that “destroy management’s credibility [emphasis mine] and make investors run for the hills and on to the next opportunity: One, a failure to communicate on a consistent, scheduled and timely basis, regardless of whether the news is good or bad. Two, a failure to translate non-GAAP metrics into GAAP metrics, e.g., no one except management knows what ‘orders’ or ‘bookings’ means in terms of revenue. And three, chronically overpromising and underdelivering.” (Timothy Keating, Keating Capital, small-cap investor)
- “A systemic failure to treat investor relations as a strategic imperative [emphasis mine] … Electing not to put the proper investor relations policies and procedures in place to offer management the opportunity to present a cogent business plan, with proper forward guidance to targeted investors and analysts, will all but guarantee life in the ‘boundary waters’ of Wall Street for small-cap companies.” (John Heilshorn, Lippert/Heilshorn & Associates, IR consultant)
IR is about the basics, in other words. CEOs and CFOs of smaller companies, especially, tend to be so focused on daily demands of running the business that they don’t devote the time or resources needed to communicate well. Where boards can help is by identifying a lack of engagement in IR – and encouraging more. It takes commitment to identify your audience, speak their language and explain who you are. And more commitment to maintain a consistent, proactive outreach.
Although the Directorship piece focused on small caps, commitment to excellence in IR really is the issue with many companies – from micro-cap wannabes to global mega-cap giants.