Taking Stock

It always happens at the end of the year – people take stock of the past 12 months and measure what was most important, popular, read or viewed.  Not to miss out, below is Lead-IR’s top 5 blog posts of 2018.

Lead-IR Advisors
Top 5 Most Viewed Blog Posts of 2018

  1. Ahead of the Curve, April 18, 2018
  2. Replay: New Kid in Town, September 26, 2018 (Original post: February 21, 2018)
  3. Face North, October 31, 2018
  4. Long Days, Short Stint, October 10, 2018
  5. Its Personal, Redux, August 1, 2018 (Original post: January 5, 2018)

In reviewing this year’s top posts, three key themes emerged:

Beyond Business Issues
Should CEO’s and companies address public policy, political or social issues? If so, when and how?  In the past, such topics were considered beyond the normal scope of business and companies and CEOs could stay out of the fray.  However, the general public and investors increasingly believe it appropriate for companies take a stand on issues relevant to fostering a healthy business environment. Both the Ahead of the Curve and Face North posts offered perspectives and best practice pointers on doing just that.  The former outlined how Jamie Dimon, Chairman & CEO of JPMorgan Chase discussed public policy issues in his annual letter to shareholders.  The latter highlighted the importance of having a deep understanding of company purpose, values and culture to guide decisions on where when and how to take a stand.  While not in this year’s top 5, the Stay or Go post from early May 2018 also addressed this topic.

C-Suite Transitions
From the sudden passing of Fiat Chrysler’s CEO Sergio Macchione, to Pepsico’s CEO Indra Nooyi’s retirement and the surprise ousting of GE’s former CEO John Flannery, CEO transitions were a hot topic in 2018. So, it’s no wonder readers found It’s Personal, Redux’s discussion of key disclosure considerations related to CEO health matters and Replay: New Kid in Town’s pointers on introducing a new CEO to investors, particularly relevant.  If you’re working with a new CEO, I suggest reading October 2018’s Just Being post and reflecting on what “becoming” a CEO means in the full sense of the word.

Focusing on Tomorrow
Or rather, there’s not enough of it – focusing on the long term, that is.  Everyone and their brother complain about the short-termism prevalent in the markets today.  Yet, as discussed in the Long Days, Short Stint blog post, it seems every solution to counter this is focused on what companies should or shouldn’t do.  Certainly companies can do some things to counter this as suggested in the Give No Quarter post.  But, as outlined in the Easter Bunny blog post, the current market structure is designed to support investors who drive a big chunk of trading today and have short-term investing horizons.

Lisa Ciota
President/Founder
Lead-IR Advisors, Inc.

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The Easter Bunny and Other Wish Fairies

I was having tea with the Easter Bunny the other day … Well, that’s how I felt after reading the CECP’s letter to CEOs urging for a more strategic, long-term presentation that integrates a discussion of social and environmental risk at their Strategic Investor Initiative (SII) Investor Forums.

Hallelujah, I initially thought.  An opportunity to talk about where we are going … the forces shaping how we get there … and the framework to manage risk, evolve and create value while on our journey.  I applaud the SII’s goal to shift the investor communications paradigm away from a relentless short-term focus.  Past Forums were attended by major institutions like Vanguard, BlackRock, Dimensional Fund Advisors, CalSTRS, NYCERs as well as Clearbridge, Neuberger Berman, Gabelli Funds and Starboard Value.  Presenting companies have included:  IBM, Humana, Aetna, Unilever, Merck, Johnson & Johnson and Medtronic.

Will this SII effort work? Time will tell, but it’s important to note that so far, the Forum has primarily attracted investors whom would likely own the presenting companies anyway, regardless.  Further, I suspect the Forum had no impact on investor outlook, did not attract new investors to the companies or result in a material change in investor positions.

The reality is most investors are under just as much pressure to deliver short-term returns for clients as CEOs are to create short-term value for shareholders.  Further, the factors that support a short-term focus (some of which are identified below) are pervasive.  I’m not sure there are any wish fairies who can change that.

Factors Supporting Short-Termism

Short Termism Slide

In the competition for capital, most companies need to adapt and respond to a market that will continue to focus on quarterly results and 1- to 2-year valuation time horizons. Recognizing this, the SII suggests “repositioning quarterly earnings performance guidance from the ‘finish line’ to the starting line.”  Essentially, in their view, quarterly earnings should become the “building blocks of longer-term plans and disclosure rather than the central focus.”

This is good advice.  While short-termism won’t go away, by consistently providing a longer-term perspective on the company’s framework for creating value and managing risk in a dynamic environment, you’ll be better positioned to earn investor patience as the company evolves and invests for the future.

So, as you get ready for your next quarterly earnings, think about:

  • How current initiatives, tactics and results are stepping stones moving the company closer to its long-term performance zone
  • How relevant trends related to customers, suppliers, competitors and/or operating environment shaped strategies and impacted results; How are these trends expected to evolve

Weave the answers to questions like these into your earnings materials.  It’s likely only a matter of repositioning some comments throughout.  It will take thought, but in long-term it may be worth it.

 

Lisa Ciota
President/Founder
Lead-IR Advisors, Inc.
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Tags: short-termism, institutional investors, CECP, Strategic Investor Initiative,