To investors, trust in management is of paramount importance. When investors trust the stewards of their capital, they sleep better at night and show their appreciation by awarding a higher multiple to the shares. Even during periods of lackluster financial performance, a stock’s multiple suffers less if investors have confidence in the business’s leadership – this is because shareholders “keep the faith” in teams they trust and conversely, run for the exits if they hold any doubts. Does your investor relations officer or your IR services firm know this and do they push you to be humble?
As a corporate leader, what you say and how you say it strongly influences the perception and reputation of your company in the eyes of the Street. Institutional investors are highly adept at assessing your word choices and analyzing the tone in which you communicate your vision, strategy, and progress towards your stated goals. In fact, most institutional investors consume your prepared remarks and question/answer sessions via transcripts – therefore providing them with the precise phraseology you used during the live broadcast. And make no mistake – they discuss these word choices with each other and compare your commentary and tone with your prior calls.
To properly convey a sense of honesty, trust, and respect, taking a humble and measured approach sends the most desirable message – in both good times and bad.
Earnings calls and investor conferences are important forums to build confidence with the investment community, as they provide opportunities for them to associate a voice and an identity to your financial statements. These numbers and quarterly filings only communicate so much; the real message comes from the narrative you weave when telling your story, responding to sell-side analyst questions, and addressing investor concerns. Whether you realize it or not, the ways in which you answer – and not just the answer you give – can play a significant role in establishing confidence in both your business as well as in your own capabilities.
Tell your story and address investors’ concerns up front by gathering input from your investor relations department or investor relations consultant. What have people been asking lately? What are their chief concerns? What don’t they seem to be understanding? What are your competitors saying about you and the overall market? How does what you plan to say compare with what you’ve said in the past? These are all crucial questions to answer and any good investor relations professional should be able to help you weave these topics into your prepared remarks and script your Q&A document.
To nearly all institutional investors, there’s a difference between highlighting your company’s strengths and boasting about your accomplishments. While it’s often compelling for executives to do the latter in hopes of attracting positive attention, the former carries far more credibility. Investors don’t want to hear the superlatives about how “awesome” you’re doing, how “great” the numbers were, or how you’re “beating expectations.” Similarly, most discerning investors are trained to see through “non-answers” and excuses. In fact, services exist to assist the investment community to do just that – former law enforcement and espionage agents regularly consult with major shareholders to help them analyze management’s answers to difficult questions, helping investors spot convenient omissions, lies, and unusual superlatives.
Investors simply want to hear the truth about how your business is functioning. They strongly prefer facts to opinions, and evidence-based claims to rosy projections. Even when your business is operating at “full tilt,” they still want to hear a balanced view including the risks that lie ahead and the acknowledgement of your competitors. Realize that most investors have heard far too many “fantastic stories” that just didn’t pan out and therefore approach each new situation with an aura of skepticism. Bragging when times are good only creates vulnerabilities when the tables turn, leaving trusting investors blindsided reticent to “return to the altar” with you when things ultimately improve.
Although it may seem counterintuitive, remaining even-keeled, and candid, even in the face of hardship or missed expectations, is more important than attempting to paint a picture of perfection. Staying authentic and humble will keep your investors calm and help them focus on the groundwork you’re laying for future performance. Conversely, glossing over poor results or obscuring metrics that tell a potentially troublesome story nearly always achieves the opposite in the end. While taking responsibility in such a public forum can seem scary, doing so enables investors can look beyond minor missteps (not to mention how scary the end result is when investors realize you hid the truth from them).
If you’re seeking to improve the bonds with your investors and communicate in a credible, reliable way, enhancing your existing approach to investor relations is one way to yield positive results. Even a company with a history of challenging performance can regain the support of past investors with the proper focus on tone, word choice, and perspective.
When evaluating your existing investor relations strategy, consider the goals and incentives of your team. Make sure your IR department or IR consulting firm knows what you want to accomplish and is prepared to provide honest feedback to keep discussions focused, candid, and forthright.
In a leadership role, the way you communicate with the Street sets the foundation for trust. Without humility and integrity, you put both investor retention and your own reputation at risk. However, a humble and genuine approach to reporting results and explaining management decisions creates an aura of loyalty and confidence that keeps investors committed.