By Maureen Wolff, Chief Executive Officer
5 Actions to Take to Earn Investor Trust and Confidence Through an Unprecedented Time
The world as we all know it has changed -- drastically and quickly. The COVID-19 pandemic has moved fast, stocks have fallen sharply, and investor focus has quickly shifted from offense to defense.
During times of instability like these, companies can earn a tremendous amount of equity and trust with their shareholders through open, transparent and proactive communications. While the decision on how to communicate through uncertain times is specific to each company’s situation, increased disclosure and transparency are usually the answer.
Following are five actions you can take right now to build trust with your key stakeholders as you prepare for the upcoming earnings season:1) Be aware that investor focus has shifted. Over a matter of weeks, investor focus has sharply shifted from the offensive strategy of evaluating long-term growth and earnings power, to the defensive strategy of evaluating company durability and viability. Today, shareholders are looking to understand how your company is leveraging its strengths and managing its vulnerabilities during the pandemic.
More specifically investors want to understand:
- What are your balance sheet strengths and risks?
- What are your debt levels, covenant terms, and revolver draw downs?
- How have your operations been impacted (i.e. supply chain disruptions, factory or store closures or re-openings, work from home policies)? Has your business been deemed an essential business?
- What portion of your cost structure is variable and what cost levers are you prepared to pull to preserve profits and cash?
- What steps have you taken (or are you prepared to take) to shore up your financials?
- What is the impact of government stimulus on your company?
- What role has the board played in preparing for and responding to the pandemic?
2) Rethink your IR narrative. With investor focus shifting, your IR narrative will likely need to evolve. Ahead of earnings, consider how to elevate certain underlying company fundamentals to the forefront of your narrative. This may include featuring your financial flexibility, balance sheet strength, variable cost structure, business model resiliency and management team experience. You also will want to highlight your company’s COVID-19 recession plan, including actions you have taken and are prepared to take to protect your core assets. Importantly, be ready to share how you are positioning the company to thrive when the economy and our society recovers.
As you discuss fundamental strengths to position the company well for the future, know that ESG factors remain of interest to investors. The notion of sustainability has perhaps never been more important. For example, investors will see your governance in action, including how effective your business continuity plan is and how you manage risk. And they will take note how your social strategy helps your people, communities and/or customers during this crisis.
3) Consider issuing a COVID-19 business update, if you have not already done so. Looking back to the first half of March, only a handful of companies had issued COVID-19 updates, largely limited to industries that saw the most immediate impact such as the retail and travel sectors. Today the number of companies issuing updates has grown significantly and has spanned across nearly every industry. The focus of company announcements also has evolved from an initial focus on actions being taken to protect employees and customers and the size of the impact from Asia-based revenue and suppliers, to updating or fully withdrawing guidance. Most recently, we have seen a pivot to focusing on the actions a company is taking to leverage its strengths, address its exposure points and strengthen its financial condition, along with sharing what it is doing to help stakeholders during the pandemic.
In considering whether your company should issue a COVID-19 business update, here are a few questions to review with your leadership team:
- Do we have a material update to disclose such as revising or withdrawing guidance? The SEC issued disclosure guidance to provide companies with key considerations regarding material updates. If your business update includes material updates, you will want to be mindful of Reg FD and issue a press release and/or file an 8K. You also can supplement these communications with a CEO letter or video, FAQ and other materials that can be organized on a dedicated COVID-19 section on your website.
- Is there an opportunity to emphasize our liquidity strength?
- Can we articulate our variable and fixed costs and the actions we have taken or are prepared to take to protect our operations, mitigate risk and preserve cash?
- What is our board/governance involvement in COVID oversight and decisions including business continuity planning and risk oversight? Is the board revisiting the dividend distribution, share repurchase plan or executive compensation? How is the board engaging in COVID-related employee health, ethics and integrity decisions, as well as the global risk assessment inclusive of cybersecurity?
- Can we drive awareness for how our company is taking action to be a part of the COVID-19 solution? For example, what are the company’s products doing for the world, and could the company’s social/philanthropy actions during the pandemic reinforce its brand values.
To build trust and goodwill with investors, communications should be balanced -- providing clarity into the factors that you know and the actions you have taken, while being candid in acknowledging the unknown.
4) Leverage all communication tools to make it easy for investors to assess your company in the current environment and to humanize your message. This is a time to have empathy for humanity while also making it easy for investors (both existing shareholders and potential new investors) to find the information they need. Being smart and intentional in how you leverage various communication platforms can help achieve these goals. A few important steps to take include:
- Updating your website, investor presentation, safe harbor statement, Infographics or investor primer to reflect your evolved IR narrative and recent disclosures.
- Aggregating all COVID-19 related information and disclosures to a singular location on your site for easy access.
- Evaluating how you can utilize social media, CEO videos and other communications to reach all key stakeholders and add an important element of humanity and engagement to your message.
- Getting creative. Not all updates warrant a press release. Ford, for example, recently issued an 8K regarding an internal memo on executive pay reductions, rather than issuing a release.
5) Keep the lines of communication open while adhering to Reg FD. Holding investors hands through this period of uncertainty is paramount. For many companies this may mean loosening traditional quiet period policies in this unprecedented time to discuss a publicly disclosed COVID-19 business update, clarify publicly available financial details or help concerned investors bridge current events to publicly available disclosures. If you choose to engage with investors during your quiet period (or anytime), it is important to follow these best practices:
- Establish the rules of engagement ahead of conversations, as necessary. Remind investors that you are limited to discussing historical trends and publicly available disclosures and will not be providing a business update (beyond what the company has publicly disclosed).
- Be prepared to address the topics on investors’ minds. You will want to be prepared with a clear understanding of the disclosures that we know investors are seeking, including covenant terms, debt levels and publicly available operational details such as specific factory closures.
- Take the opportunity to listen. Ongoing dialogue with the Street can be an invaluable avenue for keeping your pulse on investor perception and identifying potential areas to focus on during your upcoming earnings call and investor marketing.
In summary, “trust” is your most valuable asset and a crisis is when it is best built. Consider how you could turn in-bound investor calls into trust-building moments. We recommend: 1) being as open and as candid as possible, including telling investors when you do not know, 2) making it easier for investors to do their jobs – have the information they are seeking easily accessible, and 3) encouraging your company to disclose more information, not less. Feature your foundational strengths as a company inclusive of integrity, balance sheet strength, governance and, if applicable, social contributions you are making in the world’s time of need. Strategically and thoughtfully evaluating how your IR program and narrative should evolve in this new normal can make a meaningful difference.
Companies need to be thoughtful and strategic in how they navigate this unprecedented communications landscape with all of their key stakeholders. Your employees, investors, customers and partners will appreciate and remember your company’s transparency, consistency and the humanity by which you approach this situation. If you need help navigating this complex time, Sharon Merrill is here to help. We have been advising clients on investor relations and crisis communications for decades. Please reach out to set up a strategy call with our senior level team to address your questions and discuss ways that Sharon Merrill can support your strategy and communications in response to COVID-19.
Maureen is an accomplished visionary in the fields of investor relations and crisis communications with 35 years of success counseling C-level executives and directors to raise the level of their communications, build credibility and maximize shareholder value. She has earned a reputation for providing clients with stellar advice on implementing best-in-class Environmental, Social and Governance (ESG) strategies; navigating through proxy contests and activism campaigns; elevating proxy communications; raising capital and developing crisis communication strategies. Maureen has helped to chart the vision for the future of the IR profession in several industry leadership roles, including as chairman of the National Investor Relations Institute (NIRI).
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