Words on Paper

Is that what your company’s purpose, vision and values are – just words on paper? Or do they inform and shape your company’s strategies and actions?  Are they reflected in the everyday behaviors of the people who work there and reflected in how the company adapts as business dynamics and competitive realities evolve? In other words, are they embodied in your corporate culture?

There’s been a lot of talk about corporate culture lately.  More often than not, it’s about dysfunctional cultures where the impact is obvious and negative.  But culture has a direct, positive impact on productively, profitability and employee relations according to research which correlated data from the Great Place to Work Institute’s surveys of employees at more than 1,000 U.S. firms with market performance[1]. Not surprisingly, this research also infers that financial markets (and companies) often underestimate the value of integrity capital (inherent in corporate culture) and its only over time – as the profits come in – is its value appreciated.  This is a problem.

First and foremost, acting with integrity and treating others with respect and dignity is non-negotiable.  Second, in a world where intangible assets represent more that 52% of the average company’s market value[2], culture matters.  In other words, things like intellectual property (patents, trademarks, copyrights, proprietary methodologies), goodwill and brand reputation – things created, nurtured and optimized by culture – have a significant and material influence on valuation.  This is why some of the world’s largest institutional investors care.

So, what is your company’s culture?  How does it support and align with its mission and strategies?  If an investor asked, could you describe it or talk about where and how you communicate about it? Not easy questions.  Even boards – who are charged with monitoring corporate culture as part of their risk oversight responsibilities – have a hard time with it.

Many companies have already articulated the guiding principles of its corporate culture and continuously work to extend, reinforce or enhance them.  Congratulations if you work at such a company.  But if you don’t, not all is lost.  You may find that your corporate culture, while not formerly articulated, is reflected in your company’s position within the market place, i.e., are you a disruptor, innovator, trusted brand, efficient operator?

You may also find your corporate culture embedded in core communications like your proxy statement, annual and/or sustainability report and governance section of the website. For example, your company’s code of conduct, the compensation discussion and analysis section of your proxy statement and the charters of your board’s audit, compensation and governance/nominating committee charters all contain varying aspects of your corporate culture from behaviors expected … to compensation philosophy (including how performance is evaluated and rewarded) … to the board’s role in overseeing risk.

Use this information to create a matrix of what information is where.  Then, to help prove your culture is more than words on paper, identify the processes used to assess the current state of your culture.  This could include examples or descriptions of how your company adapts and responds to employee survey results or customer/vendor feedback, manages its compliance training program and whistle-blower hotline as well as other initiatives that reinforce desired behaviors or manages culture-related risk.  This effort will help you develop a cohesive narrative and put your culture in context when the inevitable investor questions arise.

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

[1] Guiso, Luigi; Sapienza, Paola; Zingales, Luigi, The Value of Corporate Culture, 2013, National Bureau of Economic Research

[2] Dettman, Joe, Culture Ate Strategy For Lunch — Now It’s Eating At Your Value, April 12, 2019, CEO Magazine

Who’s Got the Power?

The most powerful person in the world is the storyteller.  The storyteller sets the vision, values and agenda of an entire generation that is to come.
                                                            – Steve Jobs

Are you a storyteller?  Can you create a compelling narrative about your company, its strategies and results?  If you’re in investor relations (IR), do you think it even matters?

I know some will say NO – investors are rationale beings and only (expected) results matter.  Others will point to the rise of passive and quant investing strategies or increasing use of big data, analytics and artificial intelligence (AI) to guide investment decisions as evidence a company’s story doesn’t matter.

But, the idea of being data-driven cuts both ways as investors don’t just look at financial results.  For example, some are using nascent AI applications to mine linguistics and behavioral analytics to explain, describe and potentially predict future outcomes or evaluate a speaker’s level of cognitive dissonance or truthfulness.

Then there’s the increased investor scrutiny of environmental, social and governance (ESG) factors.  In my view, this ESG focus is really about investors wanting to know the “how” of a company:  How does the company manage risk (environmental, social or other) … how does the company source/produce/operate and the impacts thereof … how does the company interact with key stakeholders (employees, customers, communities, etc.)?  In short, how does the company conduct itself?

It’s in answering the how that a company’s story is told. When it comes to financial performance, the story puts context around how results are achieved:  Was it great strategy … fabulous marketing or customer relationships … disciplined execution or operating efficiency?

So, in every earnings release and call, investor presentation or roadshow meeting, a story is being told.  With that in mind, here’s some tips:

  • Be clear and concise: Establish context and convey results via effective headlines with supporting bullet points – this is something IR practitioners are well-versed in doing.
  • Master the narrative structure: Most stories have a story arc consisting of a main character who faces a journey or challenge which leads to an outcome. In business, the story arc goes something like a company with a business opportunity/problem executing strategies to address that opportunity/problem which creates operating and financial results.
  • Engage the eyes: A picture is worth a thousand words, or rather graphs, charts and infographics can get your point across with few words.
  • Make connections: Use examples to make your business narrative resonate. Highlight customer benefits of your products, innovations that create new market opportunities or employee initiatives that enhance productivity and efficiency.
  • Build on outcomes: Offer some direction on how the company expects to build on, extend or sustain performance long term in a given environment.

A memorable and credible business story can build confidence in a company, its management and strategies, thereby breaking through the clutter, attracting investor interest and potentially enhancing valuation.  Indeed, storytellers have the power.

Tell me a fact and I’ll learn. Tell me a truth and I’ll believe.
But tell me a story and it will live in my heart forever.
                                                         – Native American Proverb

 

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

Laser Focus

You know that uneasy feeling that gnaws in the back of your head?  Well, I’ve got it bad right now.  I talk with a lot of people and what I’ve been hearing over the last several months has contributed to a growing sense of unease about the future of the investor relations profession.  Of course, the National Investor Relations Institute’s (NIRI) Think Tank survey on the future of investor relations did nothing to allay those worries.

Change is nothing new.  IR has weathered changes and evolved over the years and I believe has come out stronger and more influential as a result.  However, from the rise of private equity, the dearth of IPOs and decline in number of public companies … to the pressures of short-termism and growth of algorithmic/robotic trading … to the impact of MiFid and the secular decline of the sell side … it somehow feels like we are on the cusp of a paradigm change.

Will these changes further elevate IR as a strategic function or will IR become more tactically focused? Anecdotally, I’m hearing companies are upping their focus on financial disclosure, analyst projection models/estimates and capital allocation.  The notion is to focus on the same things analysts and investors do and use the quarterly earnings process as the milepost for driving valuation.

What I’m not hearing is a focus on communicating about company purpose, market opportunities, strategy, operations or reputation – factors that create value – with analysts and investors.  Nor does there appear to be any priority being placed on developing relationships or having a dialogue with analysts and investors.  Maybe this is because this is the easy part and it’s all been done.  Maybe it’s because “soft” subjects are hard.  Maybe it’s because investors aren’t interested.  Maybe its all of this, or none of this.

What worries me is the laser-like focus on the financials may narrow IR’s sphere of influence.  When there’s a matter related to strategy, operations or reputation, will the C-Suite seek counsel from IR?  Will IR have a seat at the table or simply serve as the messenger?  Will this laser-like focus limit IR’s ability to sense a shift in investor perceptions or develop the supportive long-term investor relationships important during challenging times?

I have no crystal ball to answer these questions. IR as a profession has proven resilient in the past and may continue to prove such long into the future.  But as we look ahead, I want to paraphrase something I recently heard: “Facts (i.e., financials) are like bones, but there’s a lot more to life.”

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

Supporting Role

Let’s start with the obvious: strong board dynamics and processes appear to go hand-in-hand with financial outperformance, according to a recent McKinsey & Company board study.  What piqued my interest was McKinsey’s efforts to dissect board performance across three dimensions: board processes, internal board dynamics and strength of the board’s relationship with the C-Suite.

It’s the latter I want to focus on.  In particular, how stronger interactions between CFOs and Boards can contribute to better board dynamics and how investor relations can play a pivotal supporting role.

The study indicated the board activities that most support corporate outperformance includes:

  • Assessing management’s understanding of the drivers of value creation;
  • Overseeing the development of a comprehensive strategic framework;
  • Assessing the adaption and evolution of strategy in view of the business environment, and
  • Debating strategic alternatives internally within the board itself as well as with the CEO.

CFOs add critical perspectives and insights to these processes, McKinsey contends in a supplement to the board study.  Through their interactions with the board, CFOs can provide:

  • An objective view of business results and future outlook as a whole and by business unit;
  • Context on overall and business unit performance in view of the market and industry environment;
  • Perspective on investor perceptions and their view on key value creation drivers.

By going beyond pure financial reporting to providing qualitative information about the company, its industry and markets, CFOs help inform board dialogue and increase its effectiveness.  In a way, CFOs should think of their role as helping improve board/C-Suite collaboration by identifying, surfacing and answering questions (often well in before the board meeting).

Investor Relations is primed to support the CFO in this regard.  With its finger on the pulse of investors, Investor Relations can:

  • Provide context around investor perceptions of the company, its strategies, management team and the market drivers of valuation;
  • Advance awareness of the company’s performance and strategies relative to peers and the corresponding implication for valuation multiples;
  • Offer perspectives on investor behaviors that may signal a risk for sector rotation, activism or proxy voting.

With insights such as these, Investor Relations is poised to win in the best supporting role category.

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

Enjoy these posts?  Sign up to received them via email
and like them on LinkedIn or Twitter.