In May, the SEC proposed a rule change to offer a new semi-annual option for formal reporting of earnings. That raises all kinds of questions for companies to consider about financial reporting, trading window policies and investor relations practices.
For investor relations, this is a fantastic opportunity for reflection and potential change, because, frankly, the vast majority of companies current voluntary quarterly disclosure processes -- meaning their earnings press releases, quarterly calls, and analyst communications -- are so poorly done.
Don’t believe me? Read the transcripts of a half dozen companies’ quarterly calls, including the questions from the analysts at the end, with these questions in mind.
Do the companies you surveyed spend a lot of the call time reading the numbers from the press release at investors?
Did the CEOs spend more time patting the company on the back than providing any insightful update to future strategy or the industry outlook?
Don’t you think at least several, if not most, of the analyst questions should have been proactively answered in the script?
Finally, did management leave the elephant in the room question to get asked in the Q&A?
Unfortunately, the answer to all those questions is almost always yes.
I’m sorry, but that’s a C-minus process. It doesn’t serve the investors or analysts very well does it? And, to put a sharper point on it, is your own call really any better?
As a final proof point, do you know what many sell-side analysts do when they dial in to most company quarterly calls? They turn the volume way down, start working on their reports, and wait for the Q&A.
That’s where we are today, and why the SEC’s new rule proposal is such an opportunity to change.
How companies respond to this new opportunity for fewer formal reporting periods is going to be interesting to see. Certainly fewer filings will be attractive to a number of company functions. But, I suspect we’ll see that companies who really are committed to having good relationships with their stockholders and analysts will still do fuller disclosure, such as still doing a call and a release every quarter. If you’re the CFO, you know the downside is sell-side analysts’ models getting more out of control.
Assuming you are a CEO, CFO or an IRO watching here, I’m sure at some point here, you’re saying to your screen, OK, Brad, but what do we do about it?
Over 30 years running IR at six different companies, I’ve worked with hundreds of institutional investors and sell-side analysts, written a hundred quarterly calls, listened to complaints and ideas, and done a lot of experimenting.
Before we talk about specific ideas, let’s remember what our objective is.
All our communications with the Street should be designed to increase investors understanding of our business and to increase their confidence in our team’s ability to drive growth. Those are the two goals. If our fundamental strategy and results are solid, those objectives translate into higher valuation and stock price.
Quarterly calls are just one piece of our communications with the street, which as I just described, we are doing a pretty poor job of. I think more communications with the street is a key strategy and objective for the IR function. So to that end, I think quarterly calls are a good thing. What I want to kill off is the bad way we do them.
So let’s talk about a better approach.
Where I think we have gotten off track is misunderstanding the difference between data and interpretation.
Treat your quarterly call like you’re the guys in the booth on Monday night football. Madden didn’t bore you with endless data points, he cut to the chase and talked about the keys to the game and what teams were going to have to do in the second half to win. If you’re going to do a call, make it color commentary. I’ve had CEOs and CFOs do that in 2 concrete ways.
The CEO spends just a couple minutes talking about what they see happening in the industry for the coming 3 to 6 months. You don’t have to spill your secret strategies, but investors love hearing what you are paying attention to.
For the CFO, I suggest they pick the 2 to 4 most important or divergent numbers in the quarter and talk about what drove those and whether they’re new trends or one-offs.
As a third topic, spend a final couple minutes answering the elephant in the room question that you know everyone’s already thinking. Being proactive on this shows you aren’t afraid of it and have answers.
That’s it – a 10 minute narrative before Q&A that provides new information, insight, answers and confidence.
That’s a quick answer for the specific quarterly call question. But, this new self-evaluation opportunity from the SEC also opens the bigger questions about your whole year-long approach to the street.
I suggest 3 key strategies to think about.
1 Talk to the street MORE OFTEN
2. Improve or expand the CONTENT you share with the Street
3. Better utilize your LEVERAGE POINTS, your multipliers to the street
These strategies imply potential changes to your annual investor day, your relationships with your sell side analysts, your conference and travel plans, other people who could talk to your investors, experience or sampling opportunities and other events or technologies you might leverage.
Those are ideas I’ll explore in future videos. So think about killing off your bad quarterly call, and whether you still do four or only two, presenting a BETTER call.
