McKinsey: Good time to open up

Transparency is “in” again, big-time. But what transparency should look like in ongoing conversations with investors isn’t always clear.

McKinsey & Co. consultants Robert Palter and Werner Rehm outline a sensible strategy in “Opening Up to Investors” in the January ’09 McKinsey Quarterly. It begins with not hiding in tough times:

As the credit crisis sorts itself out, one outcome investors and regulators will almost certainly demand is more transparency into the strategy and the underlying operating and financial performance of companies—not only the financial ones at the storm’s center but all companies. Managers should enthusiastically embrace such reforms.

The consultants urge companies to take action by thinking through and bolstering disclosure in three areas:

  • Give additional detail on how you create value, such as more granular P&L and balance sheet data to help investors value business segments.
  • Provide a candid assessment of performance, including initiatives that don’t work out and discussion of trade-offs such as pricing and margin.
  • Offer long-term guidance on your value drivers – estimated ranges on a handful of key operating metrics that drive value (not quarterly EPS).

The McKinsey piece suggests quite a few examples of disclosures to implement these three broad actions in specific industries. It’s available on the McKinsey website, with free registration. (Thanks to financial communicator Nick Iammartino for passing along the McKinsey article.)


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