Be Prepared

Recently I was contemplating some year-end messaging for a company with operations affected by the late summer 2017 hurricanes that hit the U.S. Gulf Coast.  Happily, company staff were all safe and accounted for after these disasters.  While clean-up and repair costs and significant supply chain disruption, including freight/logistics challenges, negatively impacted EBITDA, through it all the company continued to support customers and delivered quarterly EBITDA growth in a challenging industry.

Coincidence?  Effectively navigating a crisis while still delivering strong results?  Sure, a lot of things have to go right to deliver strong results, but without an effective crisis plan it could have all been derailed. Sadly, not all companies are as well prepared.

CRISIS COMMUNICATIONS READINESSCrisis Comms Infographic - SizedSource: Freshfields Bruckhaus Deringer, Containing a Crisis, 2013

In my view, there are two very broad crisis categories – Operational and Corporate – each with several subcategories.  For example, an operational crisis can relate to a company’s ability to conduct business within its own facilities as well as events at critical suppliers or customers (e.g., supplier performance issues or customer bankruptcies).  Corporate crisises can relate to reputational, financial or regulatory issues, such as allegations of harassment, fraud, environmental violations or an inability to access credit.

Every crisis is potentially a financial crisis with reputational, profitability and valuation implications, that’s why Investor Relations should be imbedded in process.  Companies should have a holistic crisis plan with well-crafted, relevant decision matrixes that reflect key guiding principles such as protecting people (employees, customers and communities), preserving assets or minimizing disruption, etc.  The decision matrixes should be broad and flexible enough to handle an array of contingencies and include an outline of roles, responsibilities and, where necessary, information and work flow.  The crisis team should encompass a variety of disciplines and expert resources to guide and execute a response.  The people involved may be different depending on the crisis and decision matrixes can help identify this.  

Now, having a plan is not enough.  It’s essential to practice it to identify gaps and enable the crisis team to build relationships and trust with each other.  Whether you do a table-top simulation or a robust fire drill, the experience will make you faster and nimbler when the need is real – an important consideration in today’s 24/7 news and social media cycle. 

Practical Tips for IROs: 

  • Crisises aren’t always a surprise. Warning signs often abound. Develop a bullet-point outline for top of mind issues. Yes, there will be holes and you can’t anticipate everything, but it will be faster than starting from scratch.
  • Keep a key contact list with you – at home, the office, your briefcase. Even better, save a PDF copy to your phone, tablet and laptop – you’ll almost always have one of these with you.
  • Be prepared to handle a crisis remotely. Develop a process checklist or reference sheet (see sample template attached) that contains emergency contact information and login IDs for key vendors such as your newswire service. Again, keep a copy with you and on your electronic devices. 

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Lisa Ciota
Lead-IR Advisors, Inc.


Crisis Mgmt Template for Investor Relations

Trust Bust

“Gresham’s Law, based on the 18th century observation that debased currency drives out the good, is now evident in the realm of information with fake news crowding out real news” said Richard Edelman, President and CEO, Edelman at an Executive Club of Chicago luncheon this week.

The cacophony of competing voices, partisanship and inability to discern truth has undermined trust in government, media, business and non-governmental agencies (NGOs) according to Edelman’s latest Trust Barometer. The problem is particularly acute in the U.S., where the decline in trust last year was the steepest Edelman has ever measured.

Trust is a forward-looking metric. It’s an economic lubricant, reducing the cost of transactions, enabling new forms of cooperation and generally furthering business activities, employment and prosperity.[1]

Into this vacuum, business must take the lead. Indeed, the Trust Barometer indicates the public is increasingly looking for business to do so. Supporting this is the fact that in the U.S., trust in business – while not great – is higher than trust in government and media. In addition, trust in CEOs, boards of directors, technical experts, industry financial analysts and entrepreneurs all improved last year.

It’s not just the general public that believe companies should lead on relevant issues, a majority of investors think so as well.  A special Trust Barometer report focused on institutional investors suggested half believe most companies do not fully acknowledge the political risks inherent in the current environment and three quarters believe companies should take a stand on issues relevant to fostering a healthy business environment.

Further, the Barometer indicated a majority of investors are attuned to board composition and quality, care about customer and employee satisfaction and give the benefit of the doubt to innovative or forward-thinking management and strategies.  It appears investor trust is earned by having a clear strategy and purpose that’s focused on the long term.

Investors (customers, employees and other stakeholders) are seeking to be informed and educated.  But communicating strictly about financial results doesn’t necessarily build understanding or trust. You need to create context for your strategies and business decisions by talking about your company’s purpose, culture and operating environment.   To that end:

  • Think how to integrate messages about strategy and performance into the broader company narrative. Be sure internal and external messages are aligned.
  • Internalize your company’s purpose and culture and know what your organization stands for so you can quickly screen for political or social risks and be prepared to help shape the debate. Silence is no longer golden.
  • Consider broadening your spokespeople to include senior-level technical experts such as your heads of technology, R&D or consumer insights as well as independent third-party experts. This can enhance understanding and create context for business decisions and results.

Business thrives in and benefits from an environment of trust.  It is a critical part of the social construct and plays a role in creating, sustaining and growing social trust.  It’s time to step up.

Lisa Ciota
Lead-IR Advisors, Inc.

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[1] Wikipedia contributors, “Trust (emotion),” Wikipedia, The Free Encyclopedia, (4. Economics, February 5, 2018)

And The Nominees Are . . .

If you’ve ever been involved in an activism campaign, you know activists are smart . . . they’re well-advised . . . and they are likely go after seats on your board.  With the director-nominating season in full swing, more than a few companies will be dealing with activists seeking board seats.

Sophisticated activists know the mechanics of your by-laws, understand the director-nomination process and are prepared to request and complete your D&O questionnaire.  So, it’s unlikely they’ll make a technical mistake when nominating directors.  They also understand the importance of passive investors and the role of ISS and Glass Lewis in the proxy process.  So, to garner support for their director nominees, activists are beginning to consider issues of diversity, overboarding and independence when making director nominations or creating a dissident slate. 

To de-escalate an activism campaign or avoid a proxy fight, many boards are engaging and granting activists board seats.  Engagement can give boards certain advantages including the potential ability to: 

  • Better control the agenda;
  • Negotiate director-nominee qualifications and background;
  • Set expectations for activist-director roles and behaviors; and,
  • Enter into a stand-still agreement to mitigate the disruptive effect of an activism campaign.

Of course, once an activist is on the board the challenges don’t end. It’s important for directors to remember the human element:  treat each other with respect; be candid and engaged, and put your fiduciary responsibilities to shareholders first.

Now what’s the role of investor relations in all this? I believe this is where investor relations’ role as a steward of corporate value comes to the fore.  As a steward, investor relations champions corporate value on behalf of the company’s owners under the direction of the owners’ appointed representatives – the board and management. Investor relations hears the voice of the company’s owners and has a responsibility to regularly communicate investors’ viewpoints internally.  This includes providing context around investor perceptions of valuation, management credibility, peer and industry performance as well as the overall competitive environment.  

It’s also important for investor relations to share perspectives on investor behavior – not only about activists and their followers, but how the existing investor base is or may change.  Such knowledge can help inform decisions as the interplay of who enters or exits a stock can affect valuation, signal confidence in the company’s strategies and be indicative of potential proxy fight outcomes. 

In the end, activism brings change on many levels. Investor relations needs to deal with that as the corporate narrative evolves. The notion of being a steward of corporate value can help center investor relations’ focus and approach to navigating that change.

Lisa Ciota
Lead-IR Advisors, Inc.

Passive Resistance

Much has been made about the growth of passive investing.  Today, passive investments (index and exchange traded funds) represent approximately 37% of all assets under management in the U.S. up from 19% in 2009.

Pundits have raised several broad economic and social concerns about this growth, including:

  • Its effect on stock prices and corporate valuation;
  • The implications of the significant cross-ownership levels of passive investors on economic competitiveness, income equality, innovation and corporate investment in research & development;
  • Demand for the IPO of small companies that may not automatically become part of an index.

These are big questions that I’ll let market analysts, economists and philosophers tackle.  Instead, I want to address the implications of the growth in passive investing for investor relations professionals.

First, there is the potential impact on trading and valuation.  On any given day, its estimated index funds, quant funds and ETFs represent about a third of a typical stock’s daily trading volume. It’s also estimated another third of daily volume is generated by automated or high frequency trading.  So, combined, 65% – 70% of a typical stock’s daily volume is driven by programs, bots and algos – not company fundamentals – thereby increasing the correlation between and among individual stocks in a sector as well as with the overall market.

It also means fewer active or fundamental investors are setting price.  As a result, their investment decisions are potentially more impactful given so much of trading can be driven by non-company-specific factors.  Communicating your investment thesis, understanding active investors’ underlying styles and building relationships becomes more important.

Questions to ask:  What does your investor base look like?  What is the mix of growth, GARP, value or momentum investors, etc. and their investment horizons?  If existing investors exited your stock, who is poised to move in? What’s important to attracting these investors? Would a sector rotation change your outreach strategies?

Second, consider the implications of passive investors being your permanent owners.  They focus on both the quality of board and governance practices as well as how the company conducts its business (encompassing operating, environmental and social matters). This reflects their view that strong board oversight is the best way to protect and enhance their investment. Passive investors want communications that articulate and put context around a business’s long-term strategic framework and seek evidence the board is engaged and performing its fiduciary responsibilities.

While passive investors rarely initiate, they do hold boards accountable by actively evaluating issues raised by other investors and their internal and external proxy advisors. Their vote is critical as they often own between 25% – 35% of a typical public company’s outstanding shares.

So be familiar with the strengths and weaknesses of your company’s governance principles and practices.  Understand the governance priorities of your passive investors and the nuances of their views and voting record.  Consider conducting periodic outreach to stay abreast of their perspectives and build relationships before you need them.  Share your learnings with your board.

Wrapping up, don’t be passive about passive investors.  They will continue to play an important function in the markets for the foreseeable future.

  • Understand the behaviors of both your active and passive investors.
  • Develop a comprehensive approach to investor outreach.
  • Be cognizant of the implications for trading and valuation.
  • Think about the strategic importance of passive investors during an activist campaign as well as on matters related to environmental and social issues.
  • Balance your communications to address near-term expectations and results with your long-term strategic framework and corporate purpose as you reach out to all investor audiences.

 Lisa Ciota
Lead-IR Advisors, Inc.

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Between the Lines

It seems the relentless pursuit of alpha leaves no rock unturned. To help inform their investment decisions, investors have long used face-to-face meetings to read an executive’s body language and gauge their confidence, leadership and integrity.  Today, investors are increasingly leveraging linguistics and psychology to analyze every word, pause and intonation on earnings calls to read between the lines of what’s being said.  Technology, machine learning and big data help make this possible.

Some of the work being done in this area is pedestrian (e.g., noting whether the person who speaks the most on earnings calls also gets paid the most).  But other work can potentially be quite powerful.  For example, some use an electro-audiogram system to measure voice intonations to evaluate the speaker’s level of cognitive dissonance or truthfulness.  Others are mining linguistics to identify personality traits that may correlate with company performance or applying behavioral analysis techniques to explain, describe and potentially predict future outcomes.  An excellent example of the type of analysis being done is Business Intelligence Advisorsvideo that dissects a portion of Coinstar’s July 2010 earnings call to identify underlying red flags in what might otherwise sound like a typical Q&A discussion.

The increasing sophistication of these tools highlights that “how you say something is just as important as what you say.”  Issues of nuance are now more important as you have to think about how your audience or stakeholders hears or interprets things.  I know it’s not easy, but here’s some initial thoughts to incorporate into your practices:

  • Capture management’s tone and style to ensure scripted remarks feel and sound natural
  • Rehearse Q&A to help avoid awkward phrases and pauses that may be misinterpreted
  • Practice listening as a critical, impartial observer and be attentive to how language and tone may send unintended signals

It’s tough to read between the lines when you are creating the lines.  However, an enhanced awareness of how investors and others may hear and understand your company’s messages can only help your communications become more effective. 

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Lisa Ciota
Lead-IR Advisors, Inc.

It’s Personal

Shortly before the holidays, news of CSX’s CEO passing renewed the debate on CEO health disclosures.  My sympathies go out to his family, friends, associates and the people who looked to him for leadership.

Seeing the news reminded of my own decade-old experience with the passing of my former company’s CEO.  At the time, I was fortunate to work with outstanding leaders who created the best practice for communicating about a CEO’s health and death.

When it comes to the health of a CEO or any person seen as pivotal to company success, there are no specific SEC disclosure requirements. Indeed, there is no duty to disclose so long as that silence is not misleading or does not result in previous disclosures becoming materially false.  However, public companies are required to disclose known risks and uncertainties that may materially affect future results as well as the departure of executive management. A CEO’s inability to perform his/her duties – depending on the duration – can be perceived to fall under these requirements.  Accordingly, there is an underlying assumption that such news will be shared.

Now, the question of what to say, how to say it and when, is difficult no matter the circumstance.  Complicating matters are the very real personal relationships both inside and outside the company that make such communications potentially fraught with emotion.

Recognizing this, it’s useful to have a disclosure framework that considers:

  • the executive’s importance (both real and perceived) to the organization and its strategy;
  • the nature of the circumstances, the impact on the CEO’s ability to perform his/her duties and expected duration;
  • status of contingency or succession plans.

Be sure to seek out input and perspective from the board, senior management, legal and human resources as well as key external advisors as necessary.  Designate key spokesperson(s) and family liaisons.  Think about potential ongoing disclosure needs and the types of information or permissions that may be needed as the situation evolves.

In the end, these are very personal matters.  Issues of the transparency and disclosure expected of a public company need to be balanced with kindness, honor and respect for the individual.

Lisa Ciota
Lead-IR Advisors, Inc.

(Reference: February 2009 Compliance Week article Rules for Disclosing a CEO’s Unexpected Absence by Harvey Pitt, Founder, Kalorama Partners and former SEC Chairman)

Growth STEM


Yes, that’s me.  I’m helping students understand arches, vaults and domes … the forces that affect them … how they stay standing … and where they are used.  This is part of the Chicago Architecture Foundation’s Science of Architecture workshop that I’m thrilled to help facilitate and support. This STEM-based (science, technology, engineering, math) workshop helps middle school students recognize the basic structures of, and forces that effect, architecture.  Students hopefully gain a greater sense of agency regarding the built environment and the role of STEM in everyday life.

I mention this because the capital markets is a STEM field too.  Math, technology, programming are essential tools to explain, analyze and evaluate the business/financial environment and market/portfolio structure.  Trends of expansion (tension) and contraction (compression) for companies and sectors are forces. Models are built to understand and predict the effect of forces on the structure (or company).

To students, I often describe architecture as being the intersection of art and science.  By leveraging STEM to serve people in the places they live work and play, architecture can enhance the lives we live.  Can the capital markets do the same?  I believe yes when it moves beyond being a purely mathematical exercise and seeks to support business in its role to serve customers, employees and communities.  Like the oil that makes an engine run more effectively, the capital markets create value when it deploys resources to support growth, creates liquidity to allocate capital where it’s needed or lowers the cost to do business and generate returns.  In this way, the capital markets can serve people by harnessing the forces of expansion and contraction.

A final thought:  The photo on top was taken at the same workshop session:  a diverse group of students were reaching up together to form a dome.  Architecturally domes are strong structures often used when you want to create a large open space with no obstructions.  For me this represents ideals related to: diversity … reaching up … strong structures … team work … no barriers.  Leading students through this workshop is one way I help bring these ideals to life.  How do you support ideals important to you?

Happy Holidays

Lisa Ciota
Lead-IR Advisors, Inc.

Form Over Substance

Its year end.  A time for the inevitable year in review summaries and year ahead outlook for proxy and governance matters.

Of all the substantial topics being addressed, I’m somewhat amused with the concern over virtual-only annual meetings.  2017 saw a surge of roughly 40% in number of U.S. companies hosting virtual-only annual meetings to whopping total of approximately 170[1].

Institutional Shareholder Services (ISS), Glass Lewis, the Council of Institutional Investors (CII) and some public pension funds are concerned virtual-only meetings will “hinder meaningful exchanges between board members and shareholders.”[2]  To their credit, these organizations recognize virtual meetings can reduce costs and expand shareholders access.  Yet, in their view, these benefits do not outweigh the concerns.

I think this is a question of form over substance.  Annual meetings are a formality; the end of a process. I’m hard pressed to believe the outcome of a proxy vote depends upon the annual meeting format – be it live, virtual-only or hybrid.  Investors today have many tools to apply pressure to a recalcitrant board beyond staring them down in-person at a live meeting.

The substance of the matter is shareholder engagement.  Managements and boards have a fiduciary responsibility to shareholders.  They should understand investor perspectives and engage on issues meaningful to the creation or protection of shareholder value.  When there’s a break in engagement, the proxy process is a key vehicle to raise issues with all a company’s shareholders.

Now, there should be standards of conduct for virtual-only annual meetings.  These standards should provide essentially the same opportunity for shareholders to make a statement or ask questions as in a live meeting while still enabling the company to control the agenda.  This could potentially be done via a dial-in conferencing number using an authentication process similar to that for accessing the webcast.

A word of caution to companies:  Making it easier for shareholders to participate in annual meetings is a double-edged sword.  Be aware that a virtual-only or hybrid meeting may potentially give shareholders a larger platform and greater reach than just being in a hotel ballroom.  So be thoughtful in your approach.


Lisa Ciota
Lead-IR Advisors, Inc.

[1] Virtual Only Meetings: Streamlining Costs or Cutting Shareholders Out?, November 15, 2017
[2] ISS 2017-2018 Policy Survey Summary Results, pp. 5


It’s not doomsday, but it sure feels like it during a short attack.  I know.  I’ve been there.  (Read my case study here.)

Recently, Jeff Katz and Annie Hancock of Ropes & Gray posted a primer on short attacks on Harvard’s Corporate Governance and Financial Regulatory Forum.  I believe short attack preparedness should be a part of every investor relations professional’s crisis toolkit.

Short attacks – when a short seller(s) actively seeks to profit by driving a stock price down – can be launched by well-known activists or anonymous online bloggers.  These attacks can come swiftly in public or membership-only online investor forums such as Seeking Alpha or Value Investor Club, respectively.

Any company can be a target, but the most vulnerable are those with complicated stories, where the answers and facts are not obvious and require research or expertise to decipher.  The fact is the market often reacts before ascertaining the facts. The company is forced into a defensive position with its reputation on the line.

So, what to do?  Again, I commend the primer to your reading and add a few additional thoughts:

  • Keep your ears to the ground. Aggressively monitor changes in short interest via your stock surveillance firm or retain a market structure analytics provider for timely updates.  Know what’s normal for your company.  Engage with investors, especially hedge funds, as they may catch wind of something before you do.  Another signal could be when seemingly tangential questions begin to crop-up.
  • Assess your company’s risks and vulnerabilities and be familiar with common short seller tactics. This will help you be better prepared because once an attack begins, you may not have time to analyze the attacker’s playbook.
  • Don’t assume a short seller’s blog reaches a limited audience. If your stock is reacting and investors are calling, the game is afoot.  Focus on the best way to respond based on the merits of the short seller’s thesis and company vulnerabilities.  Regain control of the narrative and don’t engage in a public tit-for-tat.

As frustrating as it is, the primer’s authors note companies have been largely unsuccessful litigating claims against short sellers. So, don’t get distracted – devote your energies to defending and protecting the company.

Lisa Ciota
Lead-IR Advisors, Inc.