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Last week, I had the opportunity to participate in NIRI's webinar on the annual shareholder letter. Given that it's generally the season for ramping up this "annual" project (pun intended), I thought I'd pass along my slide deck, which delineates some do's and don'ts - among other things - that might be helpful. Anything you'd add to either list?
(If you get a chance, try to find the replay of the panel as my fellow panelist - Moriah Shilton and Karen Fisher - were REALLY good.)
Move over Gord Downie, I do believe there's a new voice of Canada... a new Wheat King so to speak... and it goes by the name of Terence Cororan.
According to Mr. Cororan's recent article on "Say on Pay," the role of the Chief Executive Officer is transforming into the Chief Bureaucratic Officer quicker than you can say "day for night"! I honestly don't remember ever seeing an article that tossed so many well-aimed road apples at this subject. For example, check out this unplucked gem:
"Shareholders who have no idea will tell boards what to do, and then rush for the no-responsibility exit. What happens when know-nothing shareholders vote against the CEO’s pay package, prompting the board to curb the CEO’s pay and the CEO to move elsewhere? Will the same shareholders then try to sue directors for carrying out the shareholders’ advice?"
Though better boats been done by less water, I seriously felt like my spine had been cracked like a whip when I read this piece. Clearly, this is not a guy who knows the dim possibility of showing some restraint. No sir. Mr. C brings it like a polar bear looking for his promised hibernation high... like a guy who wants to earn his fifty-mission cap the old fashion way. Now, I don't know how old Mr. Cororan is but I don't think his point of view is generational. I didn't read this and think "Oh no, here's a guy who's waiting on the trickle down to come back in vogue." Rather, I took it as something akin to when the powers of observation comes to the periphery town. Frankly, in this path-of-least-resistance era - whether you agree with him or not - you have to admire his courage to take such a bold stance.
Thank you, Mr. Cororan, for reaffirming my belief that all the good ideas and critical thinking are coming from Canada these days. After reading your refreshingly frank words, something down deep inside me says, ‘Where ya been all my life.' I hope you'll be writing on this subject again soon... sure, the kids don't get it and that might impact sales a bit but don't put it off for too long as this debate needs your voice.
(And - hey man, thanks - Gord for everything else. You're still ahead by a century in my book... with grace, too.)
Last week, I sorta felt as though I was taking my life in my hands when I dared to "debunk an American myth" and question the true strength of today's emerging IR tools. Refreshingly enough - and much to my relief - many of you agreed (guess I can cancel my request for Witness Protection).
Let's indulge that notion for a moment, shall we? Let's say you're self-actualized enough to admit that your IR content is not as strong as your IR tools. Would you know where to start the rehabilitation? Obviously, if your core investor messaging is so bland that it could apply to any company in any industry, a major re-work is in your near future. But let's say for the sake of argument that that's not the case. Let's say your core investor messaging is actually pretty good but it just hasn't been refreshed as recently as your IR toolkit has. In some ways, this is a harder problem to address.
One way to think about it is to view the task as a home improvement project... it's an expansion (read: adding to the sound foundation), not a makeover (read: gutting the structure and starting over) ... make sense? As you well know, I could go on and on about analogies... let me know if this home improvement analogy doesn't cut it for you. Here are a few ways to expand (read: improve) your IR messaging to ensure it's as strong as the tools with which you use to diseminate it:
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Innovation – Every company claims to be innovative, but how many can prove it? By establishing a consistent and accurate metric and reporting it to investors (e.g., a vitality index that captures the amount of revenue generated by products launched over the past three to five years), you will be able to more fully leverage this important value driver.
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Use of Cash – With balance sheets restocked with cash, investors are anxious to understand how these dollars will be deployed effectively to spur growth and drive value. They want to know what criteria the board and management are using – and over what timeframe – to determine the best uses of the cash to generate value.
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Governance – Investors consistently rank quality of governance as pivotal to strategy execution and shareholder value creation, and they expect transparency around a variety of governance issues. Succession planning is a key area. Investors are also becoming more acutely focused on the qualifications of each director and want to understand how each contributes to the company’s strategic growth plan.
There are a few more ideas included in this piece that we just issued. Anything else you'd add to this list? Anything on this list you'd avoid?
The best IR tools known to man can't save a company from lousy investor messaging.
In other words, you could have a fully loaded, state-of-the-art IR "sound system" in place (e.g., turbo-charged website, active Twitter account, plush YouTube page, hearty virtual road show itinerary) but investors will turn a deaf ear if you don't have something compelling for them to listen to. Think about it, would you rather listen to this or something original like this?
"Hello darkness, my old friend... I've come to talk with you again..."
I'd be surprised if these words (or, perhaps, these words) haven't crossed the mind of Sprint CEO Dan Hesse in the wake of his company's most recent analyst day that - according to Walter Piecyk, an analyst with BTIG LLC, which specializes in global trading and fund services for hedge funds - turned "ugly" when Mr. Hesse refused to provide detailed financial forecasts in response to repeated questions. The stock valuation fell approximately 26 percent following the event. As my uncle once said, "It's a paper loss... but that's A LOT of paper."
If you were in charge of Sprint's investor relations, what would you do?
I tell you what, waiting for the dust to settle would not be an option in my book. An organizational trauma such as this requires swift and immediate action - from a formal release addressing the financial question(s) to a follow-up conference call/webcast to discuss release regarding the financial question(s) to expanded content on the IR website (and elsewhere) to 1:1 meetings with investors, among other things. I'd also want an investor perception study done - likely after earnings are announced later this month - to see how "Operation Restoration" (I just made that up - it's kinda catchy, though) is tracking, if the messaging needs any modification in the short term and what the IR priorities need to be in the coming year. Such a study would also allow management and the Board to more clearly separate what's real and what's rhetoric amid the clamor of its vocal analysts. I'd also want to work closely with HR to combat the rumor mill and anxiety in the hallways, as well as keep in touch with sales/marketing to monitor the marketplace as closely as investors will be.
How do you see it?
While there are those that continue to want to hang Andrew Mason in effigy for the twists and turns relating to Groupon's proposed IPO, I think he deserves some credit for not overlooking IR's forgotten audience - the employees.
It's been my experience that - more often than not - senior management teams are so focused on their large institutional holders that they completely lose sight of the loyal shareholders right under their noses. Among other things, these employee-owners can represent an important voting block each proxy season and, thus, should hear from management directly throughout the year on financial performance, strategic accomplishments and "... all the stuff that one would want to look good..." Of course, the communications to this constituency needs to be consistent with all other public disclosures to investors and in accordance with Reg. FD. But it should not be left to chance or assumed word will trickle down. Certainly employee-owners have a unique purview on their part of the company's operations, but they likely know less about the entire business and its strategy than you think. They - like all investors - need to have the dots connected for them and the metrics examined regularly.
Have you talked with your employee-owners lately?
According to Dan Primack, it's time to kill the IPO quiet period because, among other things, "It's time for the SEC to let companies communicate more freely with everyone..." While I am all in favor of making sure the governing rules and regulations align properly with the reality of the marketplace - and always think it's a good idea to see how we can get the government out of the marketplace - I think Mr. Primack has the gun pointed in the wrong direction on this one.
It's not time to kill the quiet period - it's time to (not literally) kill those who insist on putting together unreadable prospectuses filled with industry jargon, legalese, and fill-in-the-box boilerplate pap that make it nearly impossible for investors to get a true sense of the issuer's distinctive value proposition. It's time to treat the prospectus as a marketing tool, not merely a required compliance document. It's time to finally make "plain English" a reality rather than a theory. It's time to focus less on historical/unaudited/pro forma financial results and focus more on the core intangible assets (e.g., innovation/commercialization, management credibility/integrity, corporate reputation, market position, quality of strategy, customer loyalty, governance, CSR, etc.) that will drive results and create future growth opportunities. It's time for the prospectus to directly answer the primary question on every investors' mind - "Why is now the right time for me to take a position in this company?"
As Mr. Primack wisely points out, it's "... too loud a world to keep these [IPO] companies so quiet." But, from where I sit, killing the IPO quiet period will only increase the noise level in and around an initial public offering. I'd rather we focus on improving the quality of the discussion.
Did you see this article a few weeks ago in The Wall Street Journal about this about grading directors by stock price? (subscription required) Man... that's about as dumb as trading two fast-rising pitching prospects for a guy who can't find the strike zone.
IROs - and people who love IROs - where are you on this one?!!? Why aren't you filling the blogosphere with call-and-response chants of "What do we want? METRICS! When do we want them? NOW!" Where's the sudden surge in related webinars? Where's the collective push to establish a comprehensive governance score card for companies and their Boards to use with investors?
C'mon people - if you really want a seat at the table as you've said before, then you can't sit on your hands! If the stock price isn't the right way to grade your performance, then how is it the right way to measure your boss's boss?!?!
There are few things in life you can truly count on:
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Death
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Taxes
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"Next year" being "the year" for any professional sports franchise from Cleveland to finally win a championship
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"This year" being "the year" that the annual report is put down like a badly injured racehorse
We'll leave the first three for another day... talk to me about the annual report... why is this communications tool a perennial on the "death watch" list of so many in/around investor relations? And, if it is so damaged, then why do reports such as these continue to be produced?
(My thanks to the folks at ReportWatch for allowing me to serve as the North American judge again this year... truly a labour of love)
A while back, I asked folks how they handle rude e-mails from investors, which - not surprisingly - sparked a healthy debate on LinkedIn (For those of you who participated in this online discussion, I sincerely thank you for taking the time to share your experiences and point of view - turned out to be one of the best webinars/seminars I've attended/been to in years!).
As I have reflected* on that discussion, a couple of things come to mind. First and foremost, let me make clear that I don't believe "respond" equals "debate" - rather it simply means "acknowledge." For that matter, "respond" does not have to involve an ongoing e-mail chain. In fact, it shouldn't. I agree with the majority of folks who felt strongly that the best way to address was to invite the sender to discuss the issue on the phone. Among other things, it prevents you from having your e-mails become fodder for various social media channels. Finally, if nothing else, a response puts the human element back into the equation. For example, see this redacted response to the IRO who received the e-mail that sparked the debate:
"Thanks for the news….I like what you said….just having you there to correspond is so uplifting no matter what happens…I can tell you are a really warm and considerate person- rare in this dog eat dog world…"
Of course... there is a risk of getting voicemails like this that was received by an IRO at a different company:
"(name), you are in charge of investor relations. Well, for someone in charge of investor relations, you definitely have no clue about how to handle investors. Listen, I have the big d#ck here, so you're here to suck my d#ck, not the other way around. I’m not here to prove to this (slur) motherf#cker guy who I am. Okay? So, next time you put someone like this on the phone, I’ll cut his f#cking balls off and I hope you (inaudable) this sh#t." [NOTE: the aforementioned "(slur) motherf#cker guy" was the company's CEO]
So... let me revisit the question - what's the rudest e-mail you ever got from an investor and how did you respond?
* I know - kind of pompous sounding but I couldn't think of anything that worked better.
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