Clarity, clarity, clarity

They don’t give Pulitzer prizes for earnings releases. Or annual reports. Or conference call scripts. But if public companies were to be judged on efforts to communicate with investors, the judges’ list of criteria would surely include clarity. The top three standards might be accuracy, timeliness and clarity.

This is the stuff of investor relations. And after all, investors do judge companies’ efforts to communicate – in the market.

I was reminded of this core mission for IR by a collection of articles on CEOs in the third-quarter issue of NYSE Magazine. In one piece Bill McNabb, Chairman and CEO of Vanguard Group, is asked what today’s shareholders want most.

McNabb talks about the nexus between governance and financial performance. Institutional investors want structures that keep management accountable, he says, because they want companies to execute well. And then he adds:

Shareholders are looking for CEOs to have an increased focus on clarity; they want to be able to understand the numbers and put them into perspective.

A lack of clear disclosure means higher risk for the investor, McNabb says:

The less clarity around off-balance-sheet activity, the higher the hurdle rate for the investment manager to get comfortable with what’s going on at a company.

As an IR practitioner, I would say our job is to be clear rather than to bury people in numbers or legalisms or “sunshine in a bottle” optimism. The goal is for investors to understand the business, its performance and market position.

Clarity – I like that!

© 2010 Johnson Strategic Communications Inc.

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One Response to “Clarity, clarity, clarity”

  1. Guillaume Maury Says:

    Dear Mr Johnson,
    accuracy, timeliness and clarity … It really sounds like the 4 essential qualities Labrador, a French financial publisher, defined for transparency in financial information listed companies have to disclose to the market: accessibility, accuracy, comparability and availability.

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