Homeric Guidance

If you’re like most people involved with capital markets, you watch the forward guidance provided by the U.S. Federal Reserve and other major Central Banks.  Investors, analysts and journalists wait with baited-breath for each news conference, statement or meeting minutes, hanging on every word.  Then, pundits try to explain, second guess or prove they are smarter.

I find the Fed’s communication process fascinating.  The high visibility of each communication … the extreme care crafting the message … how context and decision points are framed … it’s incredible and daunting.

Why do it?  Charles Evans, Chicago Federal Reserve President, said it well:

“Clear and transparent communications help both the public and the policymakers. Information about the likely path of future policy helps shape the public’s expectations of key economic factors that, in turn, influence their spending and investment decisions.”
 European Central Bank Conference, November 2017, Frankfurt, Germany:

Swap out words like “public” and “policymakers” with “analyst” and “investors” and investor relations professional can relate.

IROs at companies that provide guidance (and most do) share similar challenges.  IROs understand the need for clarity and transparency. They understand how analysts anticipate guidance and gut-check it against models.  They know the quality of guidance influences credibility.

In this context, I think the Fed’s distinction on types of forward guidance is a useful thought exercise.  Harkening back to ancient Greece, the Fed categorizes forward guidance as either Delphic or Odyssean.  Here’s how I translate that for the IRO:

Delphic communications – named after the oracle at Delphi – are those when the environment is functioning well and the business and its competitive framework is understood.  The vast majority of corporate guidance is Delphic in my view.  Generally, the headwinds and tailwinds affecting sales, expenses, earnings, etc. can be anticipated and a range of outcomes estimated.

Yet, stuff happens.  This is where Odyssean communications come in.  Named in reference to the otherworldly obstacles Odysseus encountered, these communications arise during the unexpected, when decisions are made and adjusted for in real-time.  Think crisises, transformational events or unprecedented volatility.

In such situations, your credibility matters.  Can you articulate a targeted end-state?  Can you provide situational context? Can you outline a decision-making framework?  What and how much can you do upfront?  A key to success may be focusing on outcomes and explaining the context for those outcomes, thereby potentially moving Odyssean communications toward the Delphic.

Lisa Ciota
Lead-IR Advisors, Inc.

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