In our view, too many companies adopt a haphazard approach to Investor Relations. At Compass, we know that in order to get to where you want to go, you need to know where you are starting from. Getting your bearings is the first step in embarking on an investor relations program. It is critical when communicating major corporate developments or dealing with a crisis.
Knowing what you want to say sounds simple but, according to one survey the most common reason salespeople don’t make their sales quota is the “inability to communicate value messages” – they go out to sell their product and they can’t get across the reasons why someone should buy it.
Investor Relations professionals need to put their executives in a position to “sell” their position on their company’s stock to investors. What should they do?
- First, what you are selling needs to be stated clearly.
“Lack of clarity is the number-one time-waster.” – Frank Lloyd Wright
What do portfolio managers say is their scarcest resource? Time. You will not be thanked for delivering an unclear message in 25 minutes in a portfolio manager’s office.
COMPASS RULE: FOUR TO SEVEN THINGS.
We can’t cite any research for it, but in our combined 40 years in the business we have come to the view that you should strip down the reasons to invest in your company to between four to seven key points. Complexity is the enemy of clarity. When communicating those things:
- No technical jargon
- Simple sentences with few details
- Simple terms with a single possible interpretation
- Easy to read visual materials in a single format
- A single thread from start to finish. No diversions
- Clarity enhances credibility. If the listener can say “yes I get that” then he has understood what you are saying. Next comes the test for credibility – is he convinced? You stand a much better chance of being credible if a person can connect your message – a new piece of information that he now understands – with something he already knows.
COMPASS POINT: Understand “triangulation.” Investors, journalists, employees and potential partners rarely take your word for it. Even if your arguments were credible to them, they will try them out on people they know and trust to “triangulate” your view, their conviction and the view of a trustworthy third party. In fact it is in your interest to help your investor in this process: “our research shows a $500M potential market for this product in two years,” is one thing. “According to a Booz Allen report, this product will be addressing a $500M potential market in two years,” is quite another. Be ready to reference key opinion leaders who will endorse your claims.
- The impact of any message is clearly affected by the number of people who see and hear the message. However, most messages make more impact when heard more than once. Investor meetings do not always result in the portfolio manager rushing out to buy the company’s stock. Even the most impressive presentations might result in the investor starting to follow your company – your stock is put on a watch list; the investment analyst is assigned to prepare a report; the fund starts to listen to your regular quarterly conference calls; the investor calls and asks follow-up questions.
Imagine then how important are these subsequent interactions. The investor is now interested. Your company has become one of a limited universe of companies he is following for possible later purchase. Any follow-up interaction must reinforce the messages delivered to the investor in the first meeting. Conference presentations, quarterly conference calls, press releases, website updates are all opportunities to reinforce the messages in your investment thesis in a consistent way. Conversely, confused or inconsistent messaging will undo all the good work done in the initial meeting.
- For public companies, information about their performance and prospects is governed by rules from the Securities and Exchange Commission and, if they are quoted on a senior exchange, by that exchange itself. These rules cover what must be said and when (under Rules such as Regulation S-K, and Form 8-K) the additional requirement embodied in Regulation Fair Disclosure or “Reg FD,” that covers who must be told and by when.
We at Compass are not securities lawyers. However in our combined 40 years of financial communications for public companies we know enough to call our rules of messaging readiness not “the 3Cs but
The 4Cs: CLARITY | CREDIBILITY | CONSISTENCY | COMPLIANCE
COMPASS RULE: Conduct the occasional audit. Take all of your messaging opportunities over the last 6 months (your annual report/10-K; conference PowerPoint presentations, quarterly earnings call scripts, quarterly report on Form 10-Q, press releases, website content). Look at your investment thesis (the 4 to 7 things). For each opportunity, rate the messaging against “the 4Cs.” Be especially critical of how consistent the messaging was with the investment thesis. You may conclude your various spokespersons could use some training updates on the thesis and how important it is to communicate it consistently.
 SiriusDecisions PMM 2010 Survey