Where Corporate Reputation Meets Wall Street

On October 23^rd, ICR and Korn Ferry co-hosted the second edition of Where Corporate Reputation Meets Wall Street featuring a series of presentations, a panel of institutional investors and a Q&A between a former CFO and CCO of public companies. The afternoon’s discussions explored how investors think and what it means for senior communicators at public companies.  A summary of highlights and key takeaways from the event presentations follows:

CCO of the Future:

Richard S. Marshall, Global Managing Director, Korn Ferry

• Korn Ferry’s 2023 Chief Communications Officer (CCO) Study reveals the role of CCO is becoming more prominent with expanded scope, larger team sizes, and compensation approaching other C-suite levels, though still not equal.
• With CEO tenure shrinking, they look to the CCO as strategic advisor and enterprise leader, with less need for category/industry experience, more about life stage experience within the business.
• CCOs are increasingly owning “organizational jump balls” ‑ areas that don’t clearly fit into the responsibilities of other departments and functions ‑ while being tasked with defining and integrating organizational narratives across all audiences.
• One of the key areas of increased expectation of CCOs is in the area of financial acumen and literacy, with CEOs looking for their comms leaders to be able to interact on more equal footing with the CFO and IRO (even overseeing IR in some cases) and to develop strategies and programs with an understanding for how investors interpret news.

 

Institutional Investor Panel:

Laird Bieger, VP and Portfolio Manager, Baron Funds
Arun Daniel, Head of Equity Strategies, Portfolio Manager, American Century Investments
Jill Woodworth, CFO, Alation
Randy Konick, Managing Director, Senior Analyst, Jefferies
Lyndon Park, Managing Partner, ICR (former Black Rock and Dimensional Fund Advisors stewardship director)

• Every stock is a “story.” You need to be able to explain it in the simplest of terms. What is yours?  Is it compelling?  Unique?  Believable? Executable?  Once those questions are answered, it is about your plan to implement it, the benchmarks you set and how you communicate your progress against those benchmarks.  That’s where management teams maintain, gain, or lose credibility.
• Institutional investors typically look for 2-3 years of consistent execution before investing in a company, particularly for smaller or newly public companies.
• Institutions want to meet with management – to speak directly with the company through an intelligent conversation with senior management. Transcripts and AI are useful, but direct conversations are key.
• There’s an investment thesis tied to every stock that a buy side investor owns. For investors, they will sell a stock where they see a gap in the business plan that isn’t well explained, or a lack of consistency in execution.
• Investment professionals should emphasize the importance of management keeping it simple, and being approachable and thoughtful in communications. Stick to the message and answer every question. Set expectations clearly and meet them.
• Be precise. Don’t quote a target figure and then report a different number, even if it’s only a small difference.
• While it’s not possible for a CEO to ignore the day-to-day stock price, it’s important for them to focus on the long-term. Founders can have a more difficult time not focusing on the short-term stock price because it is personal. Institutional investors want to be sure the long-term incentives are aligned for management, so management doesn’t have a short-term mindset.
• For investors, hearing about plans and vision, through regular updates of some sort, is hugely important. Going dark when things are not going well leads investors to fear the worst and sell the stock. If you need to bring estimates down, then do so in a transparent manner. That may actually engender some confidence that you have visibility and understanding of the business.
• Analyst Days should be strategically timed and not necessarily held annually. They should provide substantial new information that cannot be covered in regular earnings calls to maintain credibility and investor interest.
• Activist investors use media strategically to influence public opinion and shareholder votes. Companies need to be proactive in their media strategy, especially during activist campaigns. Perhaps most importantly, companies should be proactive during “sunny days” not under activist fire, when the message can be heard more clearly.
• In a CEO or CFO transition, investors want to know why. They also want to see an alignment of skill set with the phase the company is in. They want to see an incoming executive with the experience and skills to take the company through that next phase.
• After an IPO, investors want to see a beat and raise for at least 4-6 quarters. So, companies need to carefully consider valuation at the time of pricing. Under-promising and over-delivering need to start on day one.  It’s important to have advisors who understand the nuance of building investor demand while also appropriately pricing the company. Don’t hate the player, hate the game.

CFO-CCO Partnership:

Doug Michelman, Former CCO, Visa and Sprint
Jill Woodworth, CFO of Alation, former CFO of Peloton

• CCOs can build credibility with CFOs and CEOs by showing intellectual curiosity and interest about financial matters and understanding how communications decisions impact financial metrics – for example, listen in on analyst calls, go to analyst day. Ask, “What does that mean financially” when a major development occurs, for example.
• The great communications person understands that authenticity and brand and communications are absolutely connected. And employees know it, so be sure to keep them close and informed. They are a critical stakeholder.
• Prevention of crises and mistakes is always the best practice. Triple check. But sometimes it’s not possible to have the perfect answer at the exact moment you need it. It’s ok. Tell them you’ll come back to them on it.
• Successful crisis management requires seamless collaboration between communications, finance, and legal teams, with each bringing their expertise to the response. It’s up to the Board to decide if the situation is big enough to warrant a “crisis” response.
• With regard to budgeting for the communications function, the assumption is that it’s about people. How does that resource impact the strategy of the business? Where does that fit into what the CEO and management team are focusing on? What does that resource allow you to do if you get them, or prevent you from doing if you don’t get them? That demonstrates thoughtfulness and a strategic approach.

Value-Drivers & “Street-Informed” Communications

Michael Fox, Chief Client Officer, ICR

• Credibility of management teams with the investment community is built on a mosaic of data points, from all corporate communications, across all channels.
• Effective corporate messaging must align all stakeholder communications with key “value drivers” that matter to investors, while avoiding communications that might dilute the core value proposition.
• Identifying and understanding the “value drivers” is the key to ensuring Street-informed communications. Tracking analyst reports of the company and its peers, carefully examining Q&A during conference calls, attending non-deal road shows, and spending time with and asking questions of the CFO and IRO are all ways to gain insight into the value drivers and how investors think about them.
• Street-informed communications require balancing the need to build excitement among some stakeholders while managing expectations for investors, who are constantly assessing risk and downside. Sometimes the PR and IR instincts are not aligned, and the proactive positive success-oriented PR approach might be at odds with what investors are looking for in terms of meeting and beating expectations over the long term.

Traditional PR instincts may miss the mark with investors. They often include:

1. The impulse to “sell”

Communicators are hard-wired to advocate, persuade, promote and tangibly influence outcomes through their work. Investors are averse to promotional commentary and focused on actions, metrics, KPIs and results. Worse than being ineffective, being overly promotional can undermine credibility with investors.

2. The inclination to set high expectations

Ambitions, goals, and high expectations can help attract and motivate employees, garner media attention and industry recognition, appeal to policymakers and others.  Investors value a slow-and-steady, consistent execution against measurable and achievable goals over time.

3. The temptation to accentuate the positive (and downplay the negative)

The natural tendency of communicators is to find the silver lining in every dark cloud.  Clearly understanding the downside potential of an investment is even more important to investors than gauging the upside and critical to maintaining long-term credibility. 

4. The instinct to circle the wagons around bad news

When bad things happen, we want to run and hide: maybe it will go away, perhaps we can deflect responsibility or avoid blame, and let’s definitely avoid talking about it until we have all the answers. Investors detest finger pointing and lack of accountability.  They respect companies that accept responsibility, explain what they are doing to fix the problems, and are equally visible in good times and bad. 

5. The affection for detail and complexity

Complexity can be comforting. It implies we have something unique, compelling and hard for others to imitate or compete with. Explaining it in excruciating detail only reinforces that point. Complexity equals risk, so “keep it simple, stupid.” Identify what matters and strip out the clutter.

6. The habit of over-explaining

As communicators, we are often tempted to address every possible angle to every question and go to great lengths to ensure our message is heard.  With investors, less is more.  Apply the discipline to refine your messaging, anticipate scrutiny and effectively preempt it from the outset. Stick to it and repeat it consistently.

7. The urge to declare victory

There is nothing wrong with celebrating success! Even an occasional victory lap is warranted after achieving a major milestone. However, on Wall Street, positive developments do not exist in a vacuum.  Each accomplishment simply raises the bar of future expectations. As the saying goes: “It’s okay to look backwards, just don’t get caught staring.”

Ultimately, it’s critical to be disciplined about prioritizing and aligning investor communications across channels in a way that comes top-down from the strategic plan.

The 5 steps to ensure Street-informed communications are aligned by investor value drivers are:

Learn more about communicating effectively with investors by attending one of our events designed specifically for senior communications professionals and CCOs. Get more information today.