IR & the coming recovery

Newsweek-It'sOverThe cover of the latest Newsweek shouts “The Recession Is Over!” A balloon and an exclamation point add emphasis, although writer Daniel Gross layers on the qualifications – making it clear the economy, even if it is at a turning point, remains in turmoil.

For my money, it’s a little premature to celebrate. I’m skeptical of newsweekly covers. And too much pain seems to be lingering – for consumers, workers, capital markets and companies. The sunshine hasn’t broken through enough to banish the dark clouds in favor of sunny days.

Yet a glimmer does shine through, here and there. Recovery will come, maybe soon. And my sense is that investors are looking for signs, seeking each ray of light, asking if good news is coming next quarter, or the next after that.

So investor relations people need to be asking: What’s our recovery strategy? How do we offer forward-looking perspective? What do we say in an uncertain time when we see hope but can’t be sure? And when do we declare recovery has arrived?

Some ideas for you to consider (feel free to add your own as comments):

… Explain the recovery strategy. Our job in IR, any time, is to help investors understand our companies’ strategies for creating value. Right now, shareholders are battered but very much looking forward and wondering what’s next. With more than a little nervousness, they want to know where we go from here.

In a piece called “Beyond Challenging Markets,” the consulting firm Deloitte says shareholder returns vary much more among companies around a recession than in good economic times – that is, some emerge as winners that outperform for investors, while others survive but never quite lift off for shareholders.

Deloitte outlines four stages of strategy for recession and recovery: strengthening the balance sheet, optimizing performance, building confidence and positioning for the future. Most companies have addressed the first two by working to reduce debt and cut costs; now we’re looking forward.

Building confidence as a basis for outperforming in a recovery, Deloitte suggests, may include improving corporate governance; demonstrating a strong approach to anticipating and managing risk; creating realistic expectations and delivering on promises; and responding proactively to the prospect of increasing regulation.

Deloitte says positioning for the future means developing a strategy for achieving near- and intermediate-term growth in existing businesses; changing the business model where markets or conditions have changed (e.g., ongoing credit limitations or sluggish consumer spending); and expanding through M&A or new products.

The consultants’ emphasis is that CEOs and senior management should be doing the work of strategy formation for the next phase of the economy. But IROs, equally, should be taking on the job of explaining strategy for what’s coming next.

… Give historical perspective. One of the best ways to talk about the future is to talk about the past. In today’s Wall Street Journal, Justin Lahart analyzes “the Great Recession” in comparison to eight decades of economic slumps (with cool interactive graphs online, if you’re an Econ nut). Most companies can draw upon experience with past recessions – and the recoveries that followed. So we can speak factually about how recovery tends to work its way through our business.

… Share specialized knowledge. Companies can add value for investors and nurture lasting relationships by sharing industry-specific insights. That means helping investors, especially generalists, understand how the business cycle works its way through your sector, how the competitive landscape is changing, and what special risks or opportunities you see. Your view of the business in which you compete is a valuable perspective to add to the investors’ mosaic.

… Don’t be overly optimistic. A realistic tone, infused with humility, seems to fit the times. Most of us didn’t predict the economic turmoil would be this severe, so we have reason to be cautious about forecasting the strength or timing of recovery.

There are positive signs. Floyd Norris of The New York Times notes: “The index of leading indicators, which signals turning points in the economy, is rising at a rate that has accurately indicated the end of every recession since the index began to be compiled in 1959.” And various industry-specific indicators show upticks.

We could truly be at the bottom, although some business people sound more like they just can’t imagine things getting any worse. The recovery may already be underway. Or, as Norris says, we may be entering the first upstroke in a W-shaped recovery, only to face a second downturn of unknown severity.

To be clear, I’m not trying to call an economic recovery – or deny it. My point is that as IR people we need to be thinking and communicating about the coming recovery, probably without predicting the timing.

When should we declare that recovery has arrived? Personally, I favor a factual approach that keeps investors current on company or industry-specific indicators, including third-party economic data. And then I would suggest waiting to break out the champagne until actual results start to show improving sales and profits.

That’s when investors will start breathing easier.

© Copyright 2009 Johnson Strategic Communications Inc.


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2 Responses to “IR & the coming recovery”

  1. Mission accomplished? « IR Café Says:

    […] recovery phase, providing perspective and industry insights. An earlier post offers some ideas on IR for the coming recovery. In this transitional time, we should present a view of the business based on data, not wishful […]

  2. IR as a roadmap « IR Café Says:

    […] Investors need to see the path back to financial health for most companies coming through the recession. How will the P&L improve, through cost cuts or recovery in revenues? What steps are we taking, and when will we get there? Where do we need to take the balance sheet? (See earlier post on recovery IR.) […]

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