How CEOs Can Drive Investor Relations

Confidence is crucial in investor relations. If the CEO can drive the IR process effectively by telling a good story, it will ultimately impact the bottom line. This means courting shareholders and analysts and telling the right story to capture the imagination of new investors; and reassure existing ones. But how frequently should the market be updated and which channels are most effective?

Every CEO wants to see increased shareholder value. But it’s not easy balancing the inherent short-termism of being a listed company with making the tough decisions that are in the long-term interests of the business. The CEO must present a consistent message to the market and be clear in every communication. After all, one wrong statement could lead to disaster.

Manage Expectations

Eventually, every CEO may face the prospect of failing to meet expectations. While there is no tangible profit to be made from updating the market, this communication could be the CEOs most important transaction – not least as a test of deal brokering and negotiation – as the value of the company could be altered drastically based on what is or isn’t said.

Rob Woodward, CEO of STV group plc, exemplifies the importance of managing expectations with investors: “STV has been a turnaround story which has required a very specific approach to IR. When I became CEO, I was determined that we needed to re-establish trust as a priority. We set out a very public turnaround plan with KPIs set out for the next three years. We established 12 KPIs, each of which was selected to enable all stakeholders to measure our progress every step of the way. We use the KPIs, as well as the normal financial metrics, in all our City-based communication.

“As well as the regular reporting cycle meetings, we also regularly host investor events in London and at our Glasgow headquarters. In addition, we invite investors and analysts to informal updates where they can meet the full STV executive team.”

Geraint Anderson, CEO of TT electronics plc, agrees: “You must have regular dialogue with investors and analysts to build trust and credibility. You need, first of all, for the investors to understand your strategy and then you need to build their confidence as you execute that strategy. You need also to be very clear in setting the expectations as you will always be judged on what you said you will do. So, good news or bad, it’s the same as long as it’s in line with the strategy and expectations you have set.”

In terms of frequency of communication, it’s imperative to think a little further down the track. What you reveal today will invariably come back to haunt you, so it’s vital to get it right the first time around.

Vin Murria, CEO of Advanced Computer Software plc, says: “Some companies will announce everything; others will only communicate carefully considered elements. It’s all about managing expectations. If you are prolific during the good times, questions will be asked about you if lines of communication fall silent during the bad. Normally, you will report results every six months, but you can also do interim trading updates, somewhere between four and six every month. It depends on your type of business. At ACS, we deliver to our numbers every time, without hiccups. We tell shareholders what we are going to do and we stick to it. I’ve been in a plc environment for more than 20 years and I know that you are heavily penalised if you don’t deliver against what you said you would. After all, the City has a very long memory.”

Don Elgie, Founder and CEO of Creston plc, an insight and communications company, says: “The predominant issue for small caps is meeting investor expectation. The market abhors surprises so, if there is a trading issue, companies need to tell the market in good time. It is difficult enough for small caps to achieve funding with investors targeting larger, more liquid investment options. Smaller organisations on the Main Market need to be honest and open now if they want to be successful when market sentiment changes. Taking this approach should help reassure investors that small caps are still a good investment option.”

Understand your Medium

There’s a growing trend for smaller companies to use webcasting to bolster their IR efforts, not least because the cost of live video streaming has fallen in recent years. If you are comfortable with using the technology, digital channels such as webinars and social media like Twitter allow greater transparency between stakeholders.

Take AIM-listed Software Radio Technology plc (SRT), which has been praised for its unscripted live video webchat for answering questions from investors.Simon Tucker, CEO of SRT, answered questions that were emailed from investors in a 37 minute real time unedited session from the company’s headquarters. Based on the positive response, SRT is set to make the webchat a regular event, broadcasting several times a year.

Simon says: “We decided to do it as we wanted to inform investors of all sizes about what we do to generate the figures from an operational perspective. Since shareholders own the company and I therefore work for them, I felt the need to react. By giving more information to investors, it enables them to make informed long-term investment decisions rather than short-term speculation and understand the ups and downs which are a reality of business.”

Mike Ashley, CEO of AIM-listed Harvard International plc, says: “There is a need today to be much more transparent and dynamic when communicating to shareholders. The marketplace has been opened up by the internet, driving a need for immediacy and constant interaction when new news or changes to expectation occur. Corporate governance also dictates a certain framework, but it is essential that transparency remains core. I favour an open style that highlights strengths and weaknesses while explaining plans to deal with the riskier areas of the business.”

However, for small caps rushing to realise the value created from embracing social media conversations with investors, Don offers this caveat: “There is no question that technology is speeding up response times to shareholders. Social media is just one example. However, I don’t agree that it necessarily leads to better quality communication. A rubbish message delivered by social media is still rubbish, just delivered more quickly. In fact, the danger is that a quick response time means not enough thought goes into what the message should really be.”

Effective Communication

A small company faced with the rather daunting task of dealing with the media may suddenly realise the value in hiring a professional communications agency. For those that can afford it, financial PR can drive real value as it will help it to adjust its story for the audience (potential investors) – especially if that news isn’t all good.

“Dealing with potentially bad news is all about managing expectations,” explains Stevie Spring, CEO of specialist publishing house Future plc. “Every crisis communication has had a line that says ‘the outlook is cautious’ and most analysts or investors are skilled at reading the subtext. So you must be open and honest and make the unexpected part of your risk management strategy. Nature abhors a vacuum. If you don’t deal with issues, speculation and conjecture fills the void.”

Vin says: “We are a £150-175 million enterprise value business and, as such, it’s wise to take good advice from our lawyers and financial PRs. Financial PRs will understand the agenda of different shareholders, for example, whether they are retail or institutional. It’s important to remember that financial PR is very different from any other kind; it’s not a sales pitch but a factual update to your shareholders.”

Rob suggests that it is also prudent to review the relationship with your PR advisor, not least to refocus what it is you are making use of them for and what it is you are trying to achieve. He says: “Although we had received good service from our previous [financial PR] advisor, I think it is effective occasionally to ‘stir the pots’ in order to refresh the relationship. From our new advisors we seek three distinct relationship links: with the City pages to ensure our story receives appropriate coverage; with the analyst and fund management community; and, because STV operates in a highly regulated sector, with the political powers-that-be. Having access to the three core skill areas under one house is very useful. It makes for a more efficient process.”

Take the Lead

Communicating with investors, as with any other stakeholder, requires structure and strategy in crafting the right messages for the moment. A long-term plan is essential, as is recognition of the channels, new and traditional, through which investors communicate. But the CEO should be under no illusions about who needs to drive the communication and manage the investor relationship.

“The FD and the CEO lead the communication with the investor community, says Geraint. “They are the ones that own the strategy and deliver it every day. There is a key role here for the NED, in following up the communications to ensure the story is being understood.”

Mike says: “The Chairman, CEO and FD scene-set working with advisors to ensure the required messages are being captured. The Board will then review and agree the final communication in a fully interactive session to ensure there is a well balanced and clear end product.”

Whoever else the CEO wants to bring with them to attend the investor meeting will depends on the size and expectations of the shareholders. You may inform your financial PR, broker and investor relations team, but the process you follow will be different for each set of shareholders.

Ultimately, it is the CEO that drives the relationship with investors and takes the company on the road to generating shareholder value, as Stevie explains: “The role of the CEO is as strategist and storyteller-in-chief. Good communication always starts with simplicity, keeping messaging clear and brief, and repeating key messages as often as possible. The same rules apply to shareholders as to employees. They want honesty, no surprises, and to know that you are doing what you say you will do.”

Please get in touch if you have any comments about the issues raised here.

I hope to see you soon

Matthew

www.twitter.com/criticaleyeuk

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