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Last week, I was asked by a reporter what, if any, role Mark Zuckerberg would play in Facebook's first-ever earnings conference call. That question sparked a really interesting (for me) conversation on prepping for an earnings call, which ultimately turned into a really great article on Facebook's earnings "war room."
The conversation got me thinking about prepping for conference calls in general... maybe it's me but it seems like folks are spending less time upfront getting ready for earnings calls than they used to. I don't see companies conducting due diligence on the content/tone/questions asked during peer conference calls as they once did. I don't see as many management teams practicing calls a day or so in advance like they used to. I don't hear companies debating what should be in the prepared remarks and what should held for the Q&A session.
I just don't get it. I had a CEO tell me that the prep I put him through for a call was many times harder than the call itself and, therefore, he had enormous confidence getting on the call. According to him, regardless of the actual results, he never worried about what he'd get asked during the call because I had already asked him all the really tough and obnoxious questions. That's the confidence and conviction you want your CEO to convey to investors. Remember, it's not what you say but how you say it.
Earlier this year, I wrote about the most common earnings conference call mistakes. I think I made a mistake when I wrote that post. The biggest, most common mistake with regards to earnings conference calls is not prepping thoroughly before the actual event.
According to The Wall Street Journal, there have been 106 supplemental proxy filings this year regarding executive-pay plans (an increase of 83% from a year ago). Blair Jones, managing principal at Semler Brossy said in the Journal story, the supplemental filing "... is a second attempt to say ‘perhaps we weren’t as clear as we could have been in explaining our compensation strategy.’” ("Supplemental Proxy Filings Surge" - June 26, 2012).
While that's a scary number, what's even more scary is that in only four of those situations did the proxy advisory firms overturn their initial recommendation.
What do these scary numbers tell us? That supplemental proxy filings aren't worth the virtual paper upon which they are printed? I wouldn't go that far - in many cases, the supplemental proxy filing is absolutely necessary to address assertions made (or conclusions drawn) in by the proxy advisory firms.
Nope... the takeaway for me is simple: it's too risky to wait until the proxy is mailed to start the discussion on executive-pay plans with the compliance officers at your institutional investors. This conversation needs to take place long before the proxy is mailed so that you have enough time to properly delineate the rationale behind the pay plan, as well as to give your investors the chance to provide feedback and, if appropriate, input to your compensation committee. If nothing else, by creating a direct line of communications early can dramatically reduce the need for investors to send management a message through its proxy ballot.
Just my two cents, of course. Anyone have other pocket change on this issue?
A few weeks ago, I said that if you wait for your investors to bring up sustainability, you will have all-but-missed a major opportunity to differentiate your company as an investment option.
Yes... I saw you roll your eyes. And, yes, I heard you snort. I also heard you mumble, "dude's an idiot."
It's okay... I've got a wife and kids so I'm used to this reaction.
Plus, I know I'm right (for a change).
For example, just recently the mighty KKR announced that its "green portfolio program" continues to expand globally. Pretty telling when an investor of KKR's ilk asserts its clout/muscle/influence/je ne sais pas in this way, don't you think? Don't roll your eyes - tell me why you disagree because, from where I sit, the expectations for sustainability reporting are building fast.
Summertime means a lot of things to different people: Family vacations... summer camps for the kids... cookouts... fireworks... baseball games... summer blockbuster movies... a(nother) trip to rehab for some artist whose summer concert tour might not be selling as well as hoped... time to catch up on books you've been meaning to read...
Let me add one book to your list (or start your list for you magazine-only readers): The Shareholder Value Myth by Lynn A. Stout, a law professional at Cornell. Don't believe me? Read this write-up by The New York Times... she's bringings the heat, am I right? And the fact that she is willing to point the finger at her academic brethren clearly shows there's no half stepping allowed with Professor Stout.
For those of you who tire easily after reading 140-characters, let me cull some soundbites from the NYT article for you:
"The blame lies with economists and business professors who have pushed the idea, with generous enabling from the corporate governance do-gooder movement, Ms. Stout contends. Stocks, as a result, have become the playthings of hedge funds, warping corporate motivation and eroding stock market returns.."
" ... the idea that shareholders "own" their companies isn't actually so set in the law, Ms. Stout argues... what the law actually says is that shareholders are more like contractors, similar to debtholders, employees and suppliers. Directors are not obligated to give them any and all profits, but may allocate the money in the best way they see fit. They may want to pay employees more or invest in research. Courts allow boards leeway to use their own judgments."
"The professor's argument is that as companies have increasingly focused on their stock prices... they have inadvertently empowered hedge funds that push for short-term solutions...the average holding period of a stock was eight years in 1960; today, it's four months."
"The biggest ill has been to align top executives' pay with performance, usually measured by the stock price. This has proved to be 'a disaster,' Ms. Stout says. Managers have become obsessed with share price. By focusing on short-term moves in stock prices, managers are eroding the long-term value of their franchises... Ms. Stout also blames the corporate governance movement, which pushed for such alignment. It has 'proven harmful to the very institutions that it is seeking to benefit,' she says. 'Investors are actually causing corporations to do things that are eroding investor returns.'"
"[Companies should ]... think about their customers and their employees and even to start acting more socially responsible. Shareholders... would be 'relatively weak - and that's a good thing.'"
Obviously, there are two sides - if not more - to every story... how would you counter this argument?
No, no... this isn't another ROBBIE awards ceremony... we're talking shareholder votes this time.
If you only read one obituary from this most recent proxy season in the States, make it this study of US mutual funds by Tapestry Networks (in concert with IRRC Institute).
Among the many highlights was this gem: mutual funds are increasingly relying upon proxy advisory firms to serve as data aggregators. "Across the board, participants in our research said they value proxy firms’ ability to collect, organize, and present vast amounts of data, and they believe smaller asset managers are more reliant on those services."
All the more reason companies need to treat proxy matters as a year-round campaign and make sure their investors understand their governance structures, protocols and practices. Similarly, doing so will allow companies to clearly understand their investors' governance concerns and sensitivities long before they send out the proxy ballot.
Be interested to know what jumps out at you when reading this report.