‘The market doesn’t understand.’ Too often we hear a CEO – especially of a mid-cap or small-cap company – criticising the investment market for underestimating the significance of an announcement or undervaluing the company’s shares.
Most CEOs are articulate, used to communicating regularly with customers and employees, as well as with key shareholders and analysts who cover their company. They listen to these shareholders’ and analysts’ requests for information – whether on trading performance, corporate developments or achievements – and design their investor communication accordingly. If investors don’t ‘hear’ what they say, they presume this is the market’s fault.
But, in tailoring their communication to the requirements of those who already are familiar with the company, CEOs of many mid-cap and small-cap companies are ignoring the different information requirements of other investors and brokers. These want high level information to help them to decide whether to delve further and, perhaps, buy shares or recommend investment; they want to understand the company’s ‘story’ – i.e. the dynamics of its business and its strategy, goals and competitive strengths. Without this information, they have difficulty appreciating the strategic or operational significance of an announcement and may place a company in the ‘too hard basket’, particularly if it is in a complex sector.
Attracting the interest of investors, analysts and client advisers, and persuading them that they should find out more, is particularly important for mid-cap and small-cap companies which have to compete with large-caps for attention. They cannot rely on media coverage to communicate their news, and announcements on their or the ASX website only reach those who are already interested.
This is where an experienced specialist investor communication consultancy – as distinct from a public relations consultancy – can contribute great value. Through acting as a ‘critical sounding board’, it can help a company’s investor relations team to structure its ASX announcements, presentations and reports so they attract new investors, while providing the detail required by shareholders and analysts who already follow the company.
A consultancy can also save executive time by providing an independent, external perspective and helping to get releases right from the start, so the investment market ‘hears’ the messages a company wants to communicate.
A third benefit of involving a specialist investor communication consultancy is that it is ‘up-to-speed’ with a company’s operations and able to add value immediately if there is an unexpected occurrence such as a hostile takeover bid, an earnings downgrade or an environmental or OH&S crisis. It can draw on experience of overcoming similar communication challenges and advise on the most effective response.
While it is common practice in the United States and the United Kingdom for a company to augment its investor relations team with an experienced external consultancy – as a company with an in-house legal counsel may have a relationship with a law firm – many Australian companies have been reluctant to outsource any part of their investor communication. This, however, is likely to change as competition for the investor’s dollar grows – especially among mid-cap and small-cap companies – and as increasingly CEOs become aware of the value of communicating the right messages in the right way at the right time.
The result should be a better informed market, more share prices in line with reality and less CEOs grumbling that investors don’t understand their company.