Posts Tagged ‘CEOs’

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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Gift bags and a chat with shareholders

December 13, 2016

Gift bag. Isolated

A nice feature on the Estée Lauder annual meeting ritual – a gathering of mostly older ladies dressed to a T, gathering for a continental breakfast “beautifully displayed,” a gift bag of cosmetics, and genteel conversation – lightens up p.1 of The Wall Street Journal today.

It is a nostalgic image, of a time when shareholders formed bonds of loyalty and companies cultivated that. As today’s headline says, “Estée Lauder’s Annual Meeting Is a Pampered Affair.” The shareholders’ questions, of course, dealt with issues of makeup.

I’m a fan of annual meetings and have attended many. A few, mostly consumer companies, offered product samples or showed off their wares. Some had the atmosphere of a reunion, including firms with many retiree-shareholders, where the focus was more internal than external. Some have been family affairs, revealing sons and daughters of the founder as mid-level executives (that tells you something). An occasional meeting has brought confrontation between activists and a CEO. Some at company locations have included tours. Coffee, or even breakfast, is a nice touch.

To me, the more personal events are nice. I can’t argue that these affairs pay for themselves, but they make a kind of statement, “We care about you, our shareholders, our owners. We report to you.”

Of course, the investor relations team is likely to provide planning and logistical help for the annual meeting. This brings me to my point: Whether large or small, all-business or old-home-days, an annual meeting is about reporting to shareholders, answering their questions and receiving any input. It is like a one-on-one with the big institution, but democratized.

I think it’s too bad when companies, noting that only a handful of investors will attend, reduce the annual meeting to a reading of the lawyers’ script, going through the motions of voting on board seats and executive pay, and then adjourning after 10 minutes. They say it’s because no one attends but, then, why would anyone? It’s a vicious circle – and becomes a pointless date on the corporate calendar.

In my experience, annual meetings also can bring out the deepest concerns of shareholders. “Are you planning to cut the dividend?” was the first question at one I attended. “What’s your plan to turn around declining sales?” “Is the strategy failing?” “Will this acquisition destroy value?” Real questions. Investor relations in the relationship sense.

So I say, bring on the gift bags, a video of the new plant – but, above all, an explanation of the strategy for next year and how we are going to build the value of the business for the future. What do you think?

© 2016 Johnson Strategic Communications Inc.

Hillary (or Donald) ate my homework

November 7, 2016

Passing Blame with arrows pointing to others accusing them of doing something wrong or messing up and denying responsibility, accountability or culpability

Ya gotta love it! This just in from today’s Wall Street Journal:

If you believe U.S. corporations, Americans are drinking less coffee, eating fewer doughnuts and taking fewer cruises, all because of the presidential election. Companies have made a habit of finding excuses for their quarterly results. Blaming the weather is a perennial favorite. The fear of rising interest rates is another. Brexit is a newer culprit.

Now, Tuesday’s vote is front and center.

Among the companies blaming election angst for lagging performance, according to WSJ, are Starbucks, Dunkin’ Brands (Dunkin’ Donuts married to Baskin-Robbins), Carnival Cruises and McDonald’s. After tomorrow, of course, companies can blame it on whoever wins.

Oh, for the days when companies blamed slow sales on weather – snow in winter (or too-mild weather), heat (or cool) in summer and so on. Is the problem ever that we aren’t selling what people want to buy?

Is this a question investor relations people should ask before news releases and conference calls make these excuses an official message point? My guess is investors are taking notes.

 © 2016 Johnson Strategic Communications Inc.

‘That’s not a strategy’

August 31, 2016

Henry_R._Kravis_verticalHenry R. Kravis, co-chair of KKR, in the July/August Bloomberg Markets, on interviewing CEOs of potential investments:

I compare their responses to the dot-com period around 2000. Back then I’d ask, ‘What’s your strategy?’ and people would tell me, ‘Go public.’ I’d say, ‘That’s not a strategy-that’s a way to raise money.’ ‘It’s all eyeballs,’ they’d say. ‘OK, eyeballs,’ I’d say. ‘You’re looking at your screen: How are you going to turn those eyeballs into money?’ And of course all of those people went away.

The arrogance during that time was staggering. I can’t tell you how many people told George [Roberts, Kravis’s cousin and partner in KKR] and me, ‘You don’t get it …’

In explaining our companies’ strategies, investor relations officers – and CEOs – should be wary of two traps: (1) hubris and (2) mistaking a near-term payday for a real strategy to build a profitable business.

© 2016 Johnson Strategic Communications Inc.

 

Mind the GAAP – and the perceptions

August 1, 2016

London, United Kingdom - October 30, 2013: Detail in the Metro with train in station. The door are open in on person is written "Mind the Gap". Inside the train is strong light and door on other side is closed. On right is woman, passenger sleeping in train.

One of many fond impressions London offers to visitors is the warning “Mind the gap” – a uniquely British way of cautioning subway riders not to trip over, or get their foot stuck in, that space between platform and railcar. Very polite and considerate. A stumble could be nasty.

The gap investor relations people must mind – pardon the pun – is the difference between earnings under Generally Accepted Accounting Principles and the measures that CEOs, as well as some investors, prefer for assessing the performance of businesses. The EBITDAs and Adjusted-Whatevers are so many and varied that investors and IR professionals must watch our footing.

A good primer on the issues is provided in “Where Financial Reporting Still Falls Short” in the July-August issue of Harvard Business Review. A couple of accounting profs look at GAAP and the gaps in terms of what investors should look out for, and to some extent what policy wonks might try to regulate next. For accounting is also all about regulation.

Issues they cover are disclosure matters that IR people need to “get”:

  • Universal standards, with GAAP and IFRS converging (or not)
  • Revenue recognition, especially for complicated products or services
  • Unofficial earnings measures, Adjusted-How-We-Look-At-Our-EPS
  • Fair value accounting vs. what you paid for an asset
  • Cooking the decisions, not the books

The writers call this last item “the more insidious – and perhaps more destructive – practice of manipulating not the numbers in financial reports but the operating decisions that affect those numbers in an effort to achieve short-term results.” So a CEO (or other execs) seeing indications of a revenue shortfall will cut prices to move more product before quarter-end, or to save earnings will delay a discretionary cost like an R&D project or ad buy. Voila! Suddenly EPS meets expectations.

I’m not sure that’s new, or always insidious. When you judge people by numbers, they strive to hit the numbers – teachers teach to the test, sales people sell what they have incentives to sell, and CEOs try to hit their numbers. If the market wants to encourage long-term thinking, boards and perhaps investors can start judging CEOs by the change in performance over years, not quarters. Short-termism is an issue. But I am skeptical of policy makers (or accounting profs) tinkering with regulations to alter how executives make decisions.

The perceptions behind this article are more concerning: Investors don’t trust, with good reason or not depending on the company, disclosures they receive. GAAP or non-GAAP, trust is absolutely critical. Perceptions matter.

What can investor relations people do about this gap?

  1. Understand our own companies’ GAAP and non-GAAP metrics, not just to provide the mandated reconciliations but to be able to work through the numbers and clearly explain the rationale.
  2. Ask investors what they like (or don’t) about our financial reporting.
  3. Benchmark peer companies for insightful metrics and best practices.
  4. Challenge our managements if metrics are confusing or misleading.
  5. Be an advocate for simplicity and clarity.

Being transparent means giving information that enables investors to see what’s going on in the business. That doesn’t just mean more pages of accounting boilerplate and reconciliation tables. Perspective is one of the greatest values IR people can give investors.

© 2016 Johnson Strategic Communications Inc.

Relationships, not just road shows

September 26, 2015

What makes for a successful IPO? Or sustained capital markets success for established public companies? Discussing the boom (or bubble) in biotech IPOs, an investment banker who specializes in capital formation for that sector, puts his finger on one of the key factors – which applies across industries and company life cycles.

In “A Street-Wise Conversation” in the September Pharmaceutical Executive, Tony Gibney of Leerink Partners, says:

The best management teams focus intently on cultivating relationships with the buy side over years instead of just during the IPO process itself.

handshake_nsfReally, this is true whatever industry you’re in – and whether you’ve been public for 50 years or your IPO is still in the planning stages. Success comes from focusing on relationships, cultivated over time, especially with institutional investors who put money into your sector.

The CEO or CFO whose idea of investor relations is to gear up only when an offering (initial or follow-on) is at hand will walk into buy-side offices on the road show as an unknown – and therefore riskier – story to bet on.

The “known quantity” who has talked to investors for years, provided clarity and insights on his or her company and the industry, developed long-term relationships … That’s the management team long-term investors will want to put their money behind.

© 2015 Johnson Strategic Communications Inc.

Attracting like-minded investors

April 6, 2015

How do we bring in long-term investors? By disdaining short-termism and managing the business for results over the long haul. That, at least, is the short answer in an interview of Tim Cook, CEO of Apple Inc., for the “World’s 50 Greatest Leaders” feature April 1 in Fortune:

“The kind of investors we seek are long term because that’s how we make our decisions,” he says. “If you’re a short-term investor, obviously you’ve got the right to buy the stock and trade it the way you want. It’s your decision. But I want everyone to know that’s not how we run the company.”

Seems like the ultimate free-market view: Investors and companies self-selecting, with short-termers attracted to companies that behave like momentum plays, and long-term investors drawn to companies that manage for the long haul and communicate as much.

So, can we get that done by next week?

© 2015 Johnson Strategic Communications Inc.

Can companies think & act long-term?

September 26, 2014

CEO at windowWhen former Merck & Co. CEO Ray Gilmartin sat down with a governance guru to reflect on “The Board’s Role in Strategy” for the National Association of Corporate Directors’ Directorship magazine, the topic turned to the conflict between short-termism and the sustained commitment that executing a strategy demands.

Gilmartin waxed philosophical when asked about encouraging CEOs to act strategically, even under pressure from short-termist investors:

What’s happened is that there is confusion between stock price and creating firm value. I don’t believe investors are short term-oriented, but boards and management can be. Investors will reward investments in R&D, for example, because they recognize it will create long-term value. Therefore, if you’re lowering your earnings growth or you missed a quarter because you don’t want to cut back on R&D, if you have good relationships with your investors and they have confidence in your operating capability and your ability to deliver, then even though you’re falling short on the quarter or you’re going to lower your earnings to invest in research, they will still reward you for that.

Well, OK. This seems a bit theoretical. The ex-CEO is nearly 10 years out from the corner office, having taught at Harvard Business School and served as an outside board member in the intervening time. It’s been awhile since he sweated Merck’s stock price dropping 12% in two days, or its blockbuster drug going off-patent. Maybe it’s more accurate to say investors will eventually reward investments in R&D, but they may deliver a thrashing in the quarter(s) when EPS falls short. So get ready.

For the here-and-now, I would add two things to Gilmartin’s opinion that boards and CEOs can think and act strategically for the long term:

  • Communicating clearly is essential. A big part of the CEO’s job, as well as the CFO and IRO’s, is to explain that the wheels are not falling off the bus – we’re investing in the future. Then we must show concrete evidence of progress, step by step, in R&D or gross margins or whatever.
  • It takes guts to think and act for the long term. When earnings go the wrong way, the whole team needs to toughen up and be bold about interfacing with investors. Hiding doesn’t help, it hurts.

That’s my two-cents’ worth. What do you think?

 © 2014 Johnson Strategic Communications Inc.

‘Key to success … is preparation’

June 2, 2014

AlaixJuan Ramón Alaix, CEO of the animal health giant Zoetis Inc. (formerly Pfizer Animal Health, spun off as a NYSE-listed company last year), offers wise counsel on communicating effectively with investors.

In a “How I Did It” CEO interview in the June 2014 issue of Harvard Business Review, Mr. Alaix comments:

A lot of people, when they reach a certain age, are reluctant to accept training. That’s not true for me—I’m very open to it. I’d had communication training over my career, but the preparation for our IPO was much more intensive. Before I did my first TV interview, for instance, I probably spent more than eight hours doing mock interviews. I believe that the key to success in communication is preparation. By the time I gave the first road-show pitch to investors, I’d rehearsed it at least 40 times.

Wonderful words from a CEO! As IR professionals, most of us have had the opposite experience: an exec who is too busy to practice and thinks it’s OK to wing it because, after all, who knows the story better?

Ask the people who listen to investor presentations: The CEO, CFO or IRO who is practiced and prepared will always have a greater impact than the one who fumbles with his thoughts – or just reads the script.

It’s good to hear Mr. Alaix endorse the most basic rule of speech making: rehearse, rehearse, rehearse! I’m sure Zoetis is well-served in its communications – and other areas – by this kind of diligence.

© 2014 Johnson Strategic Communications Inc.

Let’s make a deal

May 27, 2014

Mergers and acquisitions are resurgent – a factor in the stock market’s buoyancy, a topic of conversation everywhere and a sometimes challenging reality in our jobs as investor relations professionals.

The current issue of Barron’s advises investors on “How to Play M&A” and offers some stats from Dealogic:

So far this year companies have announced deals worth $1.52 trillion that are either completed or pending, according to Dealogic. That’s up 56% from last year and marks the largest dollar amount for deals since the $2.06 trillion recorded during the same period in 2007. Jumbo deals in particular are making a comeback.

Mergers, divestitures and other deals are popping up all over. The top five sectors are healthcare, telecom, real estate, tech, and oil & gas. Make no mistake, M&A is cyclical, as seen in this chart from Barron’s:

M&A deal value by year

If you observe that the last two peaks in M&A activity coincided with stock market “tops,” you’re not alone – although Barron’s believes this bull still has room to run, in both stock prices and deal flow. We’ll see.

My point here is that IROs and IR counselors should develop M&A communication as a core competency. Mergers are so important to the strategic future of most companies – as buyer, seller or competitor – that we need to dig deeply into how deals do (and do not) create value for shareholders. And we need to consider how to tell that story.

The first instinct of some CEOs, and IR people, is to trot out familiar M&A bromides: “strategic combination,” synergies, “merger of equals,” 2+2=5, “critical mass” and excitement about the future. The press conferences are all smiles. Not that these stories are false, but they don’t tell investor whether the transaction is really creating value.

Worse yet, merger messaging can arise from defensiveness. Execs who have spent months thrashing out a deal may draw talking points from the touchy issues: where the new headquarters is or how the top jobs are divvied up. Significant maybe, but not the main point for investors.

Here are three key needs to consider in communicating M&A:

  • Strategy. An acquiring company must explain why the deal makes sense and keep explaining it. Strategy is not a combined list of products or expanded footprint. It’s how the deal changes your competitive position, how it changes who your company is, three to five years from now.
  • Metrics. Besides adding two companies’ sales together, merger announcements most commonly discuss forecasted cost savings and change to EPS (acquirers love to say “accretive”). How about operating cash flow per share? Return on capital invested vs. your cost of capital, or change in return on equity overall? Impact on dividends?
  • Follow-through. Success in M&A is all about integration, and IROs can help execute the strategy. When it comes to telling the story, plan for follow-up announcements as milestones are achieved. Track those metrics and report the progress. And keep explaining the “why.”

I’m not saying these are the answers. Getting the right messaging depends on all the specifics of your company, the deal that’s in front of you, your industry and what your investors care about the most. But developing that messaging with the CEO and your deal team is one of the most important jobs of IR during a time of transition.

IR professionals also play a central role in managing communication. It’s critical to lay out a detailed timetable for all communications that need to take place on Day 1, announcement day, and following.

Delivering the right investor messages, tailored for each audience, is essential in playing “Let’s make a deal” as a public company.

© 2014 Johnson Strategic Communications Inc.