By Moira Conlon for Forbes.
The main reason that companies go public is to gain ongoing access to growth capital. That said, many companies endure the arduous process of becoming public yet fail to optimize their access to capital, primarily due to ineffective engagement with Wall Street.
Having advised CEOs and CFOs of many newly public companies, I have witnessed almost every investor relations mistake possible. The game of dodgeball is at the top of the list, with excuses like:
• Our results for the quarter aren’t that great, so let’s not have a Q&A session on our earnings call.
• The metrics we provided on our recent IPO roadshow are no longer the right ones, so we need to change them or stop providing some of them.
• The timing isn’t right to meet with investors—our business isn’t doing that well, so we don’t have a great story to tell for now.
Reflecting on this arsenal of experience, I framed the following: Rules of the road for successful investor communications. I share these with CEOs and CFOs who are new to the scrutiny of being a public company as well as those who may be experiencing setbacks in their business.
Information Reduces Risk
From an investor’s perspective, information reduces risk, and transparency is highly valued. Management needs to provide information that reflects an understanding of what Wall Street needs to evaluate your company’s investment potential and helps them accurately model your business and outlook while measuring progress against your stated objectives.
In determining what information to provide, consistency is key. Keep in mind that you can always provide more information, but you will be penalized for taking it away. Also, know that the information you provide will travel far and wide to customers and competitors alike.
A thorough analysis of sector and peer group practices is mission-critical to successful communication. Great companies are always looking for ways to bolster their credibility and transparency with Wall Street, so the goal is to enhance disclosure over time as market conditions and the competitive landscape evolve.
Communication Is Key
Companies build a strong financial brand by consistently communicating key messages that reinforce why investors should own their stock. It’s up to management to take the lead in educating Wall Street on your company’s investment thesis by developing compelling investor communications materials, from your investor relations (IR) website to earnings call scripts.
Controlling the message is equally important—if you don’t control the message, Wall Street will do it for you. With all investor communications, always remember: Your end goal is to sell stock, so don’t be shy about reiterating your investment highlights. Finally, align your communications practices with best practices—walk the walk and talk the talk of corporate leaders who have a strong Wall Street following. Being effective communicators is a skill they have mastered, to the benefit of their stakeholders.
Credibility Is King
Investors want to own companies led by management teams they trust and believe can execute their strategy, so credibility is at the top of the list of investment considerations. Building credibility is achieved by telling investors what you plan to do, doing it and then reminding them you achieved what you set out to do. A major pitfall to avoid is focusing on the magnitude of what you promise rather than consistently delivering on what you promised.
When it comes to providing guidance, there is no magic formula for appropriately setting and managing expectations. Since there is no one-size-fits-all approach to guidance, companies should develop a guidance policy that provides information—whether financial or nonfinancial metrics or milestones—that helps the Street measure progress on strategy execution. Always remember that Wall Street hates surprises—especially if they damage their own credibility.
Most CEOs are second to none at building relationships with prospects and customers to win business and drive revenue growth, yet many are not as successful in applying the same skills to the Wall Street audience. We advise our public company CEOs to add investors and analysts to the list of people they “treat like customers.” That means fostering strong relationships and communicating consistently—in good times and bad. We have seen time and again the valuation premium and benefit of the doubt that comes with strong Wall Street relationships. It is well worth the effort.
No investor relations program will be a bases-loaded home run without performance. However, we have seen over the years that standout investor relations can make or break a company’s ongoing access to growth capital. While most companies will experience headwinds at some point, credibility and clear lines of communication can give investors greater confidence in their long-term potential.
Moira Conlon is the founder and CEO of Financial Profiles, a national strategic communications firm that builds long-term corporate value.