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Benjamin Franklin once said, "Glass, china, and reputation are easily cracked, and never mend well."
Warren Buffett said of reputation, "It takes 20 years to build a reputation and 5 minutes to ruin it."
And Sebastian Bach once observed, "Park Avenue leads to Skid Row."
Sadly, it has been my experience that most IROs see reputation as the exclusive domain of their corporate communications colleagues. While I realize that some of this has to do with corporate structures (I was lucky - when I was on the corporate side, I had the luxury of overseeing both IR and corp comm*), I do think some of this resistance comes from the fact that IROs are increasingly coming into the position with a finance background rather than a communications background and, therefore, may not fully understand the direct relationship between reputation and valuation.
As you'll see in this piece by Business Insider, this is a relationship that all who contribute to their organization's investor relations effort must understand and appreciate. In this case, what you don't know can hurt you.
* And, for the record, I still hate when people say, "When I was..." I hope you'll forgive me for this transgression.
Listen… I’m not looking to get anyone in trouble or make fun of anyone… but read this lead quote from a recent earnings release and tell me what it means (Note: I’ve modified it to protect the guilty):
“Fiscal 2010 has been a year of significant progress at (company), as we have been completing the development of numerous strategic initiatives that are being implemented over the coming year,” said (El Taco Grande). “These initiatives, which are designed to enhance the (customer) experience, expand (customer) protections and ensure… (they) succeed in our programs. These initiatives will present new challenges for the Company in the year ahead, but they are the right things to do for our (customers) and they will better position us to succeed as an organization over the longer term.”
Ummmmm… what?!!? I’ve read this quote - which is the second paragraph in the release - no less than eight times in a row and have no idea what it says. What progress? What strategic initiatives? What challenges? What will success look like? How long is longer term?
Maybe I’m wrong but I always thought earnings release should answer questions, not beg them. Perhaps this is the evidence we need to finally liberate IR from the finance department and return it to the communications function it was intended to be.
Last week, my firm issued its 2010 Report on Annuals. Among other things, the piece is intended to help companies get more out of this “annual” project - from themes to avoid (e.g., “Well-Positioned for Future Growth”) to the potential of online and more.
I might be old school, but I don’t understand why so many yearn to kill the annual report as a communication tool. Yes, investors can access financial data more quickly through other channels… but they can’t access management’s view of the near-term competitive landscape, long-range growth opportunities and performance against plan more quickly than through a well-crafted annual report. Yes, it’s less expensive to simply update website content… but what’s the opportunity cost of limiting the growth potential of management’s credibility that can be nurtured through a consistently clear and candid annual report content. Remember: when you update a web page, the old content disappears - unless you’re Angela Bennett - while annual reports can be compared and contrasted year-over-year by investors to gauge strategic focus and progress… huh… maybe that’s why folks are trying to kill the annual report!
If you are a non-believer of annual reports, I’d love to hear your rationale.
I had the pleasure of grabbing coffee with IR legend Lou Thompson last week after his speech at the local NIRI chapter meeting. For those of you who have had the pleasure of working with Lou over the years, you know full well what an insightful (and humble) man he is. What continues to amaze me about him is how quickly he can identify the critical issues facing the IR professional and then how succinctly he can articulate the steps IROs need to take to address the issues. I also appreciate how much he causes those around him to think and reflect.
His presentation was focused on the role of IR in the wake of Dodd-Frank. Among other words of wisdom, Lou encouraged IR professionals to join forces with their corporate communications brethren, the corporate secretary and top governance officer at their company to form a “campaign strategist” function. Among other things, this new multi-disciplined function would be tasked at securing the necessary shareholder support on the executive compensation plan and the slate of directors. The campaign strategist function would have to begin its efforts long before the proxy drafting process is started - including meeting with those that actually cast the votes within investor organizations - so that it could provide senior management and the board with an unvarnished view of what really matters to shareholders as they evaluate management proposals.
Makes perfect sense to me… now, more than ever, we should be thinking of this process as a proxy campaign rather than a proxy contest (read: a marathon, not a sprint). If my experience with dissident investors is anything near the norm, these investors start spreading their seeds of doubt months, if not years, before mounting a full-fledged proxy fight. As a result, management has lost the vote before the proxy has been mailed in many cases.
So… the question I kept asking myself this morning on my daily walk was: will IROs take the Dodd-Frank challenge? I hope so… but I couldn’t convince myself that it would be an overwhelming majority. I don’t know if it’s the atrophy from years of deferring all things annual meeting to the general counsel’s office or something so sinister that only Olivia Dunham can figure it out… whatever it is, I fear IROs will miss a unique opportunity to earn that coveted “seat at the table” that has been pined for at so many industry conferences.
I hope I’m wrong. Please - tell me I’m wrong - please assure me that our profession will evolve with the landscape around us.
