By Dara Dierks
Even the most successful and well-managed companies experience unforeseen challenges, setbacks, and delays from time to time. Whether it’s negative financial results, a delay in your product launch date due to a manufacturing issue, a data breach, unexpected costs, or something else, things can — and do — go awry every so often.
Investors know and understand that companies can experience hiccups, so in these situations, what matters most is how leadership responds. Ultimately, the ways you assess the problem, communicate it, and follow up will have a powerful and lasting impact on Wall Street’s view of your credibility and your stock’s long-term valuation.
Below, we explore a few guidelines for effectively communicating negative events to investors.
1. Be visible.
Investors value transparency. The extent to which investors and analysts can trust your management team plays a large role in determining the long-term value of your stock. With that in mind, the number one thing to remember when communicating bad news is that you should not try to hide a challenge or problem. Whatever you do, don’t bury negative information by, for instance, issuing a press release on a Friday afternoon or canceling upcoming non-deal road shows or investor meetings because you are trying to hide an issue.
2. Be timely.
Timing is critical when it comes to communicating bad news. Don’t delay any announcements of negative information. Investors and analysts will be upset — and will be more likely to distrust your management team — if they think you’ve held onto bad news for a long time. In many cases, the best time to communicate bad news is during the scheduled earnings conference call. This gives your management team more control and the ability to decide how much time to spend on prepared remarks and Q&A — as well as an opportunity to share any positive news or developments.
3. Provide as many facts as you can.
When you do communicate the negative information, there may be some details you don’t yet know. However, make sure you volunteer the information you do know; holding back information will only serve to damage your credibility when the news is eventually released.
4. Do not speculate or put a marketing spin on it.
It can be tempting to put a positive spin on the news, but investors will see right through those efforts — and your credibility will take a hit. Simply stick to the facts.
5. Be clear about next steps.
Know what concrete steps your company will take to overcome the problem, and demonstrate to the shareholders that you have a handle on the issue and are making clear progression toward a solution. Some future actions may be unknowable at the current time, and that’s OK, as long as you’re being transparent about next steps as you move forward. Make a commitment to providing additional information as appropriate, and stick to it.
6. Have a proactive and realistic IR strategy.
The best way to avoid blowback from unforeseen problems is to be prepared. Have an investor relations strategy that allows for the unexpected to the greatest extent possible. Give realistic, conservative guidance, be clear-eyed about expected revenues and costs, and avoid setting timelines for yourself that don’t allow for any delays.
When faced with bad news, your company should communicate with complete transparency while demonstrating that you have a plan of action for the future. With this approach, you can preserve your management team’s credibility and maintain a positive public perception of your company.
For a deeper look into how to develop a comprehensive investor relations plan — whether you’re communicating bad news or positive developments — download our guide, “Investor Relations Primer: The Basics of an Effective Plan.”