Archive for May, 2009

Let’s make IR more visual

May 20, 2009

Whether you’re raising first-round venture capital or cultivating shareholders in a public company, investors need to understand the business model – and drawing a picture of it may help – suggests Cliff Illig, co-founder and vice chairman of Cerner Corporation, a mid cap healthcare IT company listed on NASDAQ.

Illig told a meeting of entrepreneurs last night at the Polsinelli Shughart law firm in Kansas City that a business model is essentially a value proposition. It’s not about how well-designed your widgets are, or the wonderful efforts you exert internally to develop or produce those widgets.

The business model looks outward and answers the question, “How do we create value for customers?” Someone else has described this less delicately as “How do we move money from the customers’ pockets to our pockets?”

Cerner includes a picture of its business model in each annual report and in every presentation to Wall Street, Illig said. Of course, I had to see this picture – so I looked it up (apologies for the shrunken copy shown here).

CERN business modelWell, Cerner’s business model picture isn’t exactly pretty – most companies bog down in complexity when explaining their business – but it does explain their financials. The graphic is a flow chart showing where the money comes from (sales pipeline on top), how it flows through contracts and backlogs into each of the business segments, what the margins are – and, ultimately, how money gets to shareholders in the form of operating profit and EBITDA (at the bottom).

I’m not pointing to Cerner as the Michelangelo of IR art – but do consider this picture.

A schematic of a business model says a lot. The more you can simplify it, the better. My feeling is that investor relations people ought to be doodlers – always taking what we hear and looking for ways to sketch a picture of it – simpler, more visual and more intuitive. Bottom line, we want investors to understand how we create value.

Majority still offer guidance

May 19, 2009

Despite the wild economic ride we’re on, most companies haven’t stopped providing forward-looking guidance on earnings, according to a survey by the National Investor Relations Institute.

In an Executive Alert published May 18, NIRI says the practice of guidance continues to decline – but not very fast:

One might assume that the recent dramatic economic decline would necessarily result in a meaningful decline of public company guidance. Counterintuitively, NIRI member respondents have not abandoned guidance in large numbers.

A few highlights from the 2009 survey of 515 NIRI members:

  • 60% say they do provide earnings guidance, down from 64% a year ago. The ranges companies provide are wider amid economic uncertainties.
  • 50% of the companies offer guidance on revenues, also down a bit.
  • Guidance on annual expectations is most popular, with quarterly updates.
  • The most common reason for offering guidance is as a way to keep sell-side expectations in line with what seems reasonable to companies.
  • My own feeling is that the decision “To guide or not to guide?” is individual to each company. The answer depends on needs of your investors, comfort level of your management and board, predictability of your business and so on. In some cases, offering qualitative or quantitative views on earnings drivers such as trends in key markets in which you compete may be as useful as an EPS range.

    Point is, most investors assess the value of your stock based on some forward-looking estimate of earnings or cash flows – so IR needs to provide as much guidance as the company is comfortable providing.

    A company’s policy on guidance, NIRI suggests, should include decisions on metrics that management wants to give forward-looking information on, time frames for that guidance (annual, quarterly, monthly), and frequency of communicating guidance. NIRI also offers links to supplemental information for members (see the Executive Alert).

    So there it is – some guidance on guidance.

    Quote, unquote – Open dialogue

    May 14, 2009

    Sounds like a cliché, but if we can walk the talk, this exec has it right:

    In uncertain economic times, stakeholders need a CEO committed to transparency, communication and an unwavering focus on client service. H&R Block stakeholders deserve nothing less than an open dialogue about our company’s financial health and business trends.

    – Russ Smyth, CEO, H&R Block,
    Communication is Key,” NYSE Magazine, 2nd Quarter 2009

    The job of the CEO (and IRO)

    May 5, 2009

    Procter & Gamble CEO A.G. Lafley offers insights on the job of a CEO in the May 2009 issue of Harvard Business Review. Since we as communicators work on the CEO’s supporting staff, the piece also sheds light on the job of an IR professional.

    Lafley draws heavily on Peter Drucker’s view of the chief executive:

    The CEO is the link between the Inside that is ‘the organization,’ and the Outside of society, economy, technology, markets, and customers. Inside there are only costs. Results are on the outside.

    To be effective as that link between the outside and inside of a company, Lafley says, the CEO must embrace four fundamental tasks:

    • Defining “the outside,” interpreting which external stakeholders matter the most and what actions by the company are meaningful to them.
    • Deciding “what business you are in,” focusing and providing direction – as well as spelling out what business you’re not pursuing.
    • Balancing the demand for a “sufficient yield in the present” with the need to invest in the long-term future vitality of the company.
    • “Shaping values and standards” that connect with what people outside value – and shaping behavior to deliver on those promises.

    I like this focus. It says that a CEO is not just a head cheerleader – or even the chief whip cracker. He or she must take on the tough job of defining and communicating the business and how it relates to the world around us.

    If you’ve been in investor relations for long, or corporate communications, you see yourself at times standing in that same intersection between the internal world of your enterprise and the people on the outside who matter most to its success. Topics revolve around the four tasks cited by Lafley.

    IR professionals should stand with our CEOs as active helpers – both in communicating with key stakeholders and feeding back to the CEO what those audiences say about the values, direction and plans of the company.

    You can read Lafley’s piece, or watch his condensed version on video, at the HBR website.