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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Face North

CEOs as global statesmen? CEOs as moral compasses?  That appeared to be the implication of a New York Times Deal Book article (October 16, 2018, Sorkin) about the decision of several very prominent U.S. CEOs to not attend Saudi Arabia’s Future Investment Initiative (aka Davos in the Desert) in October 2018.

All the withdrawing CEOs had important, ongoing business relationships with Saudi Arabia that a company wouldn’t normally jeopardize.  But the decision to withdraw stemmed from a decidedly non-business reason:  unresolved questions about possible Saudi government involvement in the disappearance of journalist Jamal Khoshoggi.

Now, when these decisions were made there were a lot of unknowns (there still are), but in making their decision each CEO was forced to face their true north – how to best act in accordance with their values.  Some might call this CEO activism.

Admittedly, this is may be an extreme interpretation. Some would say it’s not an example of CEO activism at all but reflects a basic moral decision.  But isn’t that what CEO activism is all about:  CEOs leading, communicating and making decisions based on a set of core values?

Today, there is vigorous debate about the theory of shareholder primacy, how to best create long-term value, the role and purpose of business in society and what is real leadership.  The fact of the matter is expectations of CEOs and their companies have changed as has the business, social and political climate in which we all operate.

The general public and institutional investors increasingly look to companies and their CEOs to take a stand on social or political issues relevant to fostering a healthy business environment according to the Edelman Trust Barometer.  At the same time, leading institutional investors like Larry Fink, Chairman & CEO of BlackRock, are encouraging managements and boards to have very fundamental and thoughtful discussions about a company’s purpose, values and cultures and to communicate such to investors.

Most CEOs (likely the vast majority) have no desire to be an activist. Still, smart CEOs choose their issues and don’t want to be caught flat-footed when the vortex of a social or political issue hurls their way.  Knowing whether and how to step in requires a deep understanding of a CEO’s and company’s purpose, values and culture. CEOs, their management teams and boards should identify their true north via disciplined analysis that:

  • Identifies relevant issues that may affect the company’s ability to serve customers, source materials, attract and motivate employees or operate effectively;
  • Evaluates the implications of an issue in view of stakeholder perceptions and potential business or reputational impact.

Based on this analysis, develop a framework to guide your approach and vet it with the board.  There are several paths available. For example:

  • When a quiet or behind the scenes approach is preferred, consider tactics such as lobbying, affiliating with appropriate trade or industry coalitions, or making targeted charitable or political contributions.
  • If visible leadership is important, think about options to weigh-in via social media, public statements or op-ed pieces. Of course, slowing or halting a planned expansion or relocating certain business activities are forceful signals of commitment that should be carefully vetted before using.

Some may say the business of business is business, but real leadership often requires something more.  If, or when, a CEO or company decides to express a view, here’s some thoughts on how to do so in a manner that supports understanding and acceptance:

  • Be Transparent: Stakeholders typically accept a company’s position if they believe a CEO or company are open and forthright and will walk the talk.
  • Be Consistent: Companies should be true to what they stand for and predictable in their actions.  Surprises weaken trust, leading stakeholders to doubt a company’s real intent.
  • Materiality: Stakeholders understand and expect CEOs and companies to take positions on issues relevant to its business, employees, customers or communities, just be transparent when expressing a perspective.
  • Leadership: By being transparent, consistent and presenting a forthright business case for its perspectives, a company will more likely be respected even if stakeholders don’t agree.

 

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

Resources:

Stay or Go?

“Should I stay, or should I go?”, asked The Clash back in 1981.  “If I go, there will be trouble, and if I stay it will be double,” they concluded a few lines later.

Trouble or double.  When your company gets caught in the vortex of a social or political issue, it can certainly seem that way in today’s polarized environment.  Could we/should we make a statement? Could we/should we take action?  Each situation is unique, but one thing is true: you can’t just stay … still.

Even if you decide to do nothing, that decision is something.  Only a few years ago, companies could stay out of or minimize their role in the social and political discourse.  It’s not so simple anymore.  Expectations have changed and the concept of what creates value has broadened.  Shareholder primacy is no longer defined by an exclusive focus on driving sales and profits.  Consideration is now given to how sales and profits are generated: Is it in a manner consistent with company purpose and values? Have the impacts/implications for customers, employees and communities today and the future been considered?

It is this essential understanding of what the company is and does that serves as a basis for deciding whether to enter the fray.  Communications experts agree companies should have a disciplined approach for deciding what issues are pertinent and relevant.  Spend some time hashing-out company values and convictions to develop a framework for making the “stay or go” decision.  Some questions to ask yourself include:

  • Does the issue impact the company? If yes, how so?  Does it affect the company’s ability to serve customers, attract and motivate employees or operate effectively?
  • What are the implications in view of the company’s core values?
  • Does it potentially affect perceptions of the company? If yes, how so and with which stakeholders? How may the potential change in perceptions impact the company and its prospects?

Even with a framework, many executives, boards and lawyers will want to remain neutral for fear of alienating customers, communities or influencers. However, the days when companies can stay on the sidelines may be over.  That was a conclusion of a Harvard Business Review article, (March 7, 2018, Korshun & Smith), which outlined how an understanding of what stakeholders look for can help moderate the potential fallout of expressing a view: These include:

  • Transparency: Trusting relationships are built on openness and transparency. Stakeholders typically accept a company’s position if they believe the company has been forthright.
  • Consistency: Companies should be true to what they stand for and predictable in their actions.  Surprises or changes in direction weaken trust, leading stakeholders to doubt a company’s real intent.
  • Materiality: Stakeholders aren’t naïve.  They understand and expect companies will take positions favorable to its business. It’s more important to be upfront and true to your word when sharing the company’s perspective.
  • Leadership: By being transparent, consistent and presenting a forthright business case for its perspectives, a company will more likely be respected even if stakeholders don’t agree.

A recent example of a company doing this well is JP Morgan Chase.  As discussed in a previous blog post, CEO Jamie Dimon addressed several relevant public policy topics in his annual shareholder letter, increasing transparency and better positioning JPM to respond should it get caught in the crosshairs of debate.

While senior management has the primary responsibility for addressing relevant, material issues (political ones included), the board should be aware of the company’s framework for addressing such issues and be kept apprised as situations evolve.  I suspect that Dimon’s letter was vetted at several levels of the organization – board included – to ensure all were comfortable with the perspectives shared.

On a final note, I’ve approached this topic from the corporate vantage point.  However, it shouldn’t come as a surprise that some CEOs have strong personal perspectives on a variety of topics, not all of which are pertinent to their company.  In such cases, it’s important to carefully delineate when the CEO is expressing a personal opinion or the company’s position.

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

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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
President/Founder
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)