Archive for the ‘Messages & writing’ Category

Skin in the game: ‘I’ and ‘We’

August 7, 2017

Investors like to know a CEO and other leaders have “skin in the game” – a personal stake in the company’s success in creating value. Now a study by accounting profs at Tulane University suggests that reassuring investors is as simple using the first person on conference calls.

Described in today’s Wall Street Journal (“CEOs’ Simple Trick on Earnings Calls: Saying ‘I,’ ‘We’ and ‘Us’”), the study of investor psychology “found that investors leave with a more positive impression—regardless of a company’s results—when managers use personal pronouns such as ‘I,’ ‘we,’ ‘my,’ ‘ours’ and ‘us,’ or what the researchers refer to as self-inclusive language.”

The study takes two approaches: Analyzing more than 50,000 earnings-call transcripts with a textual-analysis tool, the researchers found that market reactions to the calls were more positive when executives used self-inclusive language. Separately, more than 250 people were asked to make investment decisions after listening to simulated conference calls on a fictional company, Webtex – some using “I/we/us” language and the alternate version referring to “Management” or “Webtex.” First-person language won.

Some companies like to refer to themselves in the third person – as if humility requires saying “The company” or “Management” did such-and-such. Worse yet, they’ll use the passive voice: “Full-year earnings are expected to be $1.80 to $2.00.”

I’ve always thought that using “We” or “Our team” is stronger, allowing management both to take credit for accomplishments and to acknowledge shortcomings. It’s not a matter of ego – it’s a way to affirm that we’re accountable. We have personal skin in the game.

© 2017 Johnson Strategic Communications Inc.

 

 

 

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What’s the value of your brand?

March 30, 2017

Andy Warhol’s “Coca-Cola [3]”
Crystal Bridges Museum of American Art

The typical raw materials of valuation are numbers – and investor relations people get very comfortable working with metrics that feed investors’ calculations for growth, margins, cash flows, multiples of earnings and the like, and assorted more granular numbers.

But what value do you assign to your company’s brand? Your customer base? Your products or product lines? Valuing these seems open to as many interpretations as, say, a painting by Andy Warhol. Assigning a dollar value seems more like art than science.

So I find it interesting when brand gurus, from time to time, peg the best-known brands as having a monetary value. Recently I ran across the “Global 500 2017” – a list of the world’s most valuable brands – published by Brand Finance, a London consultancy in brand strategy.

The list itself is interesting to browse. No. 1 in 2017 is Google, nudging Apple to No. 2 from its place at the top last year. The iconic Coca-Cola, a favorite of old-school marketing profs (and Andy Warhol), has slipped to No. 27. Christian Dior is No. 500.

The directory is sortable by industry, country or year. If you sort for your industry or country, you’ll see the big names – maybe your company’s, if you rate. If not, it’s still interesting to see who did make the list. (Estimated dollar values are given for the top 100. Beyond that, the Brand Finance table is a teaser to draw you into buying their services or reports. Everyone’s got to make a living.)

So what makes the Google brand worth $109 billion, and Apple $107 billion, and Amazon $106 billion?

Poking around for Brand Finance’s Methodology page, you can pull back the curtain. When they talk about a brand, they mean the trademark – words, iconography and other intellectual property. The value, then, is an estimate of what you would have to pay to buy (or could gain by selling) global rights to that brand. Brand Finance estimates the future revenue that a brand will generate, applies a royalty rate, and does a net present value calculation. Along the way, the gurus mix things like a brand’s financial performance with its emotional connection and sustainability to score “brand strength” on a scale of 1 to 100. Then they multiply by a royalty rate based on deals in the relevant sector. And they apply that to forecasts of future revenues related to that brand. Stir, mix and – voila! – brand value.

In my mind, intangibles are best understood qualitatively. Saying the Starbucks brand is worth $25.615 billion seems less meaningful than talking about its actual financials, plus forecasts – or looking at today’s market cap. Investors should qualitatively understand those emotional connections, daily habits of customers, sales of other stuff under the Starbucks name, and so on. Separated from the organization, all the baristas and training, aromas in the stores, and whatever else goes into the “brand,” the value of the name could go way down. Sometimes it happens fast, when a big crisis overtakes a company. More often it is slow, as management loses its edge or people’s tastes change and leave the brand behind.

When it comes to assigning monetary values to brand, I must confess I feel more confident with, well, the numbers – in the sense of sales, margins, discounted cash flows.

But it’s still interesting to contemplate the value of your company’s brands (corporate and products). We should all analyze and talk with investors about the durability, customer loyalty, competitive strengths, and values that maintain and bring growth to our brands. Investors will factor this into their assessment of brand value – which is the one that counts in IR.

What do you think?

© 2017 Johnson Strategic Communications Inc.

 

 

Beware of spell check

July 18, 2016

Principle spelling

There is a double warning in an advertisement by Hartford Funds in the July-August 2016 issue of Bloomberg Markets. First, the disclaimer cautions investors that things don’t always work out as hoped.

And then, unintentionally, the ad warns communicators of all kinds – including investor relations – not to place our trust in spell check. (I’m assuming the financial marketers didn’t mean to say their mutual funds could suffer a loss of principle, but rather a loss of principal.)

Proofreading by humans still matters. That’s one of my, er, principles.

© 2016 Johnson Strategic Communications Inc.

What’s your creation story?

February 11, 2014

As investor relations people, we often hear or talk about stocks that have a great “story” – by which we mean a memorable explanation of how the business generates value. Stockbrokers and the buy side like a good story.

So I was intrigued by “How to Tell Your Company’s Story” in Inc. magazine’s February 2014 issue, which highlights entrepreneurial CEOs and their corporate offpsring. Writer Adam Bluestein says:

Before it has investors, customers, profits, press coverage, or even a perfected product, every startup has at least one valuable asset: its story. So you might want to ask yourself: Who are you? Where did you come from? Why are you doing this? … your company’s origin story has more power than you might imagine.

Inc. focuses on the sizzle of young entrepreneurial stories, of course, but the power of how and why your business got started applies to corporate old-timers as well. Even decades into a company’s history – sometimes a century or more – the values, initiative and focus of a founder can influence the culture and brand appeal of a business:

The creation myth is not an asset just for startups. As those businesses grow into established firms and individual founders figure less prominently, the origin story can serve as both a road map and moral compass. Keeping that story alive, keeping it true, and keeping it relevant–these are the challenges more mature businesses must contend with.

What’s the significance for investor relations? Well, investing ultimately is a bet on a company, a group of people trying to accomplish something in the bigger world around us. In IR, we hope to connect with investors whose perspective extends beyond the current quarter.

If we can show that creativity and drive are embedded in a company’s DNA, that business is probably a good bet over the long haul. Think about great companies, and you’ll realize they are also great stocks.

What’s your creation story? Have you researched it, defined the distinguishing characteristics, set out the strategic essentials that fuel your business today and will continue to do so in the future?

© 2014 Johnson Strategic Communications Inc.

Memorable statements

November 16, 2013

Like many who were blessed to work in the robust culture that entrepreneur Ewing Kauffman built in a pharmaceutical company once called Marion Laboratories, I benefited from two core values: First, treat others as you would want to be treated, and, second, share the rewards of performance with those who contribute.

Eighteen years later, these simple rules still roll off my tongue easily. This came to mind recently when talking with a client who recited the mission of one of her former employers, in similar fashion – one, two.

Memorable. Brief. Simple.

These qualities, surely, are what make a great corporate mission, value statement or brand. So ad jingles and rhymes about cereals and sodas echo around in our heads decades later. We remember the guiding principles of our long-past employers. Colors and shapes call to our minds names of companies: Coca-Cola, Dow, BP.

And how about investor relations?

Do we give the market memorable, brief and simple messages?

Or do we describe our companies as a complicated matrix of market segments and product categories? A “portfolio” of services and technologies? A graphic collection of boxes crisscrossed with arrows?

And our business strategies: 18 points? Four categories with multiple strategies for each? Changing formulations quarter by quarter?

We should try to boil our companies down to a corporate brand – a few words that are memorable, brief and simple. A reason to invest. Can we capture the essence in two points, or one? A half-dozen words?

© 2013 Johnson Strategic Communications Inc.

The intangibles investors like

July 1, 2013

Conversations with investors often focus on the numbers, but we also need to give thought to the “soft information” – intangibles. The cover story in this week’s Barron’s, “World’s Most Respected Companies,” provides a pretty good tutorial on which qualitative issues gain the respect of institutional investors. Respect doesn’t always mean a buy decision, but it opens doors.

The direct point of the article is a ranking: Berkshire Hathaway is #1 in a survey comparing institutional investors’ esteem for the world’s 100 largest companies, Walt Disney #2, Apple #3 (down from #1 last year), Google #4 and Coca-Cola #5. No surprises there.

More interesting to me are the comments institutional investors make about intangibles they consider important. The top three qualities that inspire respect, according to the Barron’s investor group, are sound strategy, strong management and ethical practices:

Barrons respect

Those three are followed by other qualities like innovation, competitive edge and growth. In this survey “the numbers” are secondary: Growth in revenue and profit is key for just 5%, strong balance sheet for 1%.

A few of the institutional investors’ comments:

[On Berkshire] “It’s a well-conceived business model, owning good basic businesses, bought at good prices, and managed by great people. A company much to be respected.” …

Does the firm have a defensible long-term business model, and is it built to innovate, compete, and grow? And how good is management, particularly when it comes to capital allocation? …

[On JPMorgan, #45, best of the disrespected megabanks] “How many CEOs would have come out front and center and said, ‘This is my fault?’ … If he weren’t at the helm, you have to think long and hard whether you want to be in this stock …”

“There is value in investing in companies with high integrity. The likelihood is that they won’t do bad things, very bad things, that will affect their stock prices.”

For the investor relations professional, the question is: Are we communicating these intangibles to our investor audiences?

We ought to be thinking about the intangible value-creating qualities as we approach second-quarter earnings (or any season). The message isn’t just this period’s earnings. It is the strategy guiding the company’s business for the coming years, the leadership team’s experience and performance, and whether investors can trust management to deliver on promises.

What’s your opinion?

© 2013 Johnson Strategic Communications Inc.

A pile of dirt and a vision

June 10, 2013

Pile of Dirt2

Sometimes progress looks like a pile of dirt. It’s true of the big construction project starting to take shape. And the biotech company laboring through long years of development to get to market. And the out-of-favor, battered management putting in place a new strategy.

Caught in the snapshot of today’s pervasively short-term thinking, progress often looks like a pile of dirt. When the current financial results aren’t pretty, investors can see an ugly mess – or something entirely different. This brings us to our role in investor relations.

One of our tasks in IR is to communicate the vision to investors – to show the prospective owners the architect’s rendering and give form to what today may seem like a pile of dirt. That vision must begin with the CEO, of course. But the IRO is one of the primary messengers to ensure that others see and understand the picture of the future.

Here are a few thought-starters on how we can do it:

  • Acknowledge the present state. If the past six quarters have been ugly, say so. If the development project has moved more slowly than hoped, admit it. People will give a company credit for recognizing the same pile of dirt they see – and having a plan to get beyond it.
  • Focus on the future state. Any presentation, report or web content should talk more about what is coming than what just happened. I’m referring to  emphasis, not the number of words, because of course we need to give ’em the facts about the company and its performance. Clear accounting results are essential to disclosure and IR – point is, we can’t leave it there. Even past accomplishments are data points for talking about where we are heading, because investing is about the future.
  • Lay out the plan. Executives building a great enterprise – whether developing a medical breakthrough or transforming operations or rolling up an industry through M&A – sometimes don’t clearly explain what they’re doing to those outside. In IR we should be laying out the process so investors know the steps involved in building value. And, of course, then we will tell them each time we complete a step along the way.
  • Give the microphone to the CEO. It’s his or her vision, so challenge the boss to paint the picture of the future. A CEO speaking to investors about nothing but quarterly results seems like a wasted opportunity. Since most CEOs are giving the best part of their lives to a company, they need to share with others the vision that drives their enthusiasm.

What about you – do you have any favorite ways of showing how the company is building value when current results may look like a pile of dirt?

© 2013 Johnson Strategic Communications Inc.

What’s your theory?

June 7, 2013

THEORYThe classic question “What builds value for a company?” often finds its answer in a strategy. But that’s the wrong answer, Todd Zenger, a professor of business strategy at Washington University, argues in the June 2013 Harvard Business Review. The right answer, he says, is the corporate theory. The distinction matters to IR professionals who influence messaging on shareholder value.

In “What Is the Theory of Your Firm?” Zenger says value does not come from strategy, at least not military-style plans for targeting attractive markets and conquering your rivals (“competitive advantage”):

Unfortunately, investors don’t reward senior managers for simply occupying and defending positions. Equity markets are full of companies with powerful positions and sluggish stock prices.

What Zenger calls the theory of your firm is a view of life that runs deeper than any particular strategy:

Essentially, a leaders’ most vexing strategic challenge is not how to obtain or sustain competitive advantage – which has been the field of strategy’s primary focus – but, rather, how to keep finding new, unexpected ways to create value. [The corporate theory] reveals how a given company can continue to create value. It is more than a strategy, more than a map to a position – it is a guide to the selection of strategies.

Three kinds of “sight” go into a corporate theory, Zenger says:

  • Foresight: beliefs and expectations for the future of an industry or its customers
  • Insight: deep understanding of what is rare, distinctive and value in your company’s assets and activities
  • Cross-sight: ability to spot complementary skills or assets that will fit together to create something new

Apple is one example Zenger cites. With PC makers chasing cheaper, faster and bigger computers that basically were interchangeable, Steve Jobs took a different view of how to create value. It was a theory:

… essentially it held that consumers would pay a premium for ease of use, reliability, and elegance in computing and other digital devices, and that the best means for delivering these was relatively closed systems …

This theory guided Apple into a wide range of markets:

Apple was not the first to design a digital music library, manufacture an MP3 player, or market a smartphone. But it was the first to craft and configure those devices and their user environment with elegant, easy-to-use devices and with tight control of complementary products, infrastructure and market image.

So what’s your firm’s theory? One way to find out is to often ask, Why?

Why this, and not that? Is a particular view of the future driving your CEO’s choice of strategy? Does a unique set of assets or skills energize success, across products or markets? Is a novel perspective leading your company to build or acquire new skills and assets to drive growth?

As Zenger suggests, a good theory not only guides a business; it gives power to the value creation story. And if investors buy your theory – well, they buy. We investor relations people should always seek to better understand – and better explain – how our companies are creating value.

© 2013 Johnson Strategic Communications Inc.

One message is better than five

June 8, 2012

Ken Segall, a creative ad man who worked with Steve Jobs through the heyday of building the Apple brand, has an idea worth considering in investor relations:

Minimize your messaging.

Segall came up with the “i” in the iMac brand (which led to iPod, iPhone, iPad …) and worked on memorable campaigns for Apple and other leading companies. Segall’s book Insanely Simple: The Obsession that Drives Apple’s Success came out this spring and is a good read for people involved in telling their companies’ story.

“Think minimal” is an idea at the core of Apple’s simplicity, Segall says. For example, Apple offers five choices of computers rather than dozens of variations sold by HP or Dell. Segall spoke Thursday at the Mid-America Corporate Growth Conference hosted by Association for Corporate Growth in Kansas City.

Minimalism works in getting your message across, too, he says. From the book:

Human beings are a funny lot. Give them one idea and they nod their heads. Give them five and they simply scratch their heads. Or even worse, they foreget you mentioned all those ideas in the first place.

Minimizing is the key to making a point stick. … Your point will be more quickly understood, and more easily remembered, if you don’t clutter it up with other points.

When talking to investors, our temptation in IR is to unleash a tsunami of facts. More details in the earnings release, more slides, more bullet points, more pages. We want to overwhelm doubts by flooding people with every piece of information.

Though Segall’s expertise is in marketing consumer goods, he’s right when he urges us “Don’t bury your fact in facts.”

Segall tells a story of discussing an ad with Steve Jobs for an iMac computer. Jobs considered four or five major facts critical to the ad – and thought 30 seconds was plenty of time to make these key points. Segall’s ad-agency boss, Lee Clow, tore off several sheets of paper and wadded them up into little balls.

Taking one ball, Clow said “Here, Steve, catch,” and tossed the ball to the client – who caught it. “That’s a good ad,” Clow said.

“Now catch this,” the ad man said – tossing five balls at once across the table. Jobs couldn’t prevent paper balls from bouncing all over the place – and caught none. “That’s a bad ad,” Clow said. And Jobs was convinced.

So next time we’re working on the quarterly release, or slide deck for the road show, let’s try to remember. As Segall says:

People will always respond better to a single idea expressed clearly. They tune out when Complexity begins to speak instead.

Yeah, yeah, I know. In investor relations, we have a lot of information we must get across to the audience. A lot, even, that we’re required to communicate. But the principle of simplicity holds true. Advice we should heed: Less is more.

© 2012 Johnson Strategic Communications Inc.

Metrics are the message

March 26, 2012

Flipping through the annual report of an oil company I own a few shares in, I skimmed over the usual headline cliches (“proven business model,” “rigorous execution,” “strong results”). As a shareholder – and a practitioner of investor relations – I’m glad they don’t have a discredited business model, lackadaisical execution or weak results. But maybe there’s something more to take the measure of this company.

As a casual weekend reader, I passed over the gray-looking shareholder letter. I did have to circle back and see if there was an explanation of that puzzling schematic diagram on the cover – it was an engineer’s view of the company’s proprietary oil sands technology, of all things, decorating the cover of the annual report.

Finally I landed on a page headed Financial Highlights. And there I dug in.

You often hear investors say, “It’s about the numbers.” Or if you talk a bit more, the numbers and management – because having the confidence to bet money on a company includes believing in the management team.

But the numbers – more particularly, key metrics – are the main thing investors are looking for in a company’s disclosures, reports and presentations.

The metrics and what management is doing about them are the strategic message.

When I landed on the financials in this report, my eye was drawn to the 5-year history of sales and a similar line for net income – both up nicely in 2011, looking like the last time oil prices were high, in 2007-08. I scanned down to ROE and ROCE, both of which which this company provides – nicely. Other metrics of interest … well, they weren’t there, until I went to work on the financials with my calculator.

My thought is that investor relations people ought to make key metrics – those viewed by management and your investors as driving the share price in the long term – easy to find in news releases, reports and presentations. Because key metrics are what investors, whether institutional or individual, are looking for.

A few metrics are likely to be top-of-mind for nearly any company:
  • Earnings per share. Sure, I know the theories about cash flow or some other measure being more important, and some managements are passionate about EBITDA as the key metric. For most shareholders EPS is still the bottom line.
  • Growth rates of sales and earnings. Whether the picture is pretty (sales up 23% in the current period) or ugly (earnings down 14%), companies ought to make growth rates easy to find. And do the math for investors; don’t make ’em get out their calculators.
  • Return on equity – or capital employed or assets. To know whether a business is attractive as an investment, the most basic question is whether it earns more than its likely cost of capital. If  ROE is 27.5%, as an investor I’m comfortable on that issue. If it’s 7.5%, I’m going to look a little closer.
  • Profit margin & its trend. Gross margin seems to be the most popular, or operating margin. Investors want to know the power of a business to take raw material or merchandise, sell it and turn a profit. Margins provide an objective view of the impact of rising costs, dropping prices or lack of scale.

Every industry and many companies have their own key metrics. Same-store sales growth. Net income margin. Proven reserves. Milestones in drug development. Whatever investors see as driving the value of the company for the future.

Of course, companies also offer up all kinds of non-GAAP metrics like “adjusted EBITDA” or “ongoing operating earnings” – which investors may or may not trust. If it works for you, OK, but you may want to validate that with your investors.

In any case, settle on your key metrics (not 20, just a few) and then use them …

Investor reporting ought to emphasize, say, three or four key metrics – make them highly visible in words, tables and graphs – and explain what you are doing about them. When they improve, take credit on management’s behalf – this is what we did to add 50 basis points to margin. When they go the wrong way, acknowledge it and tell shareholders what management is doing now to turn the situation around.

I see metrics as the core message of investor relations. What do you think?

© 2012 Johnson Strategic Communications Inc.