How to Prepare for Nasty Questions

Nothing tests the mettle of a CEO and Chair of the Board like investor Q&A. Standing before a group of shareholders at the annual meeting can be an exercise in self-flagellation, especially if insufficient time, effort or imagination were invested in preparing for nasty and probing questions.

The job of the IRO as Q&A drill sergeant is well established, but just what should be drilled is itself an open question. The answer lies in being able to see company-specific issues from the perspective of the beholder.

In other words, IROs need to cast themselves into the role of inquisitor, imaging what topics will trigger shareholder (or analyst) queries.

As an example, at a recent shareholders’ meeting, the Chair of a public company took the opportunity in his prepared remarks to enthusiastically report that the company’s share price had risen substantially over the past year. In response, one shareholder stood during Q&A to report that she had been an owner for 10 years and even with the recent rise in price, her holdings were still worth less than they were when she acquired them. This caught the Chair off guard and led to an embarrassing (for the Chair) exchange.

While this underscores the importance of preparing all speakers – not just your CEO and CFO – for Q&A, it also points to the need to find the triggers in their prepared remarks that may give rise to shareholder questions. Every statement or claim made can stimulate a shareholder query or comment. That’s not to say it will, which is why narrowing the list to perhaps the top 10-20 or so questions is both necessary and advisable.

Such winnowing down takes considerable knowledge of: current shareholder/public sentiment and areas of interest; and, your executives’ comfort level with the subject matter that is likely to be discussed. For example, while it is possible that a shareholder will ask about your company’s competitive advantages, it should not be necessary to put a related question on the list for preparation as your CEO should find it easy to answer.

More difficult questions, made so in part because of the need to avoid inadvertent disclosures, are usually under the heading ‘outlook.’ Some recently observed questions in this regard:

• “If you published guidance, would you be lowering it now?”
• How many customer contracts are up for renewal over the next year, what’s their value and what percentage do you think you will renew?”
• “If your backlog lasts 12 months, does that mean revenue in the next 12 months will be $x and if not, why?”
• “You repaid $x of debt last year, how much do you expect to repay this year?”

Another good source of potential queries is to review the questions asked recently of your executives during one-on-one meetings and the questions asked of your peer companies during their recent quarterly or annual meetings. This not only gives you a window on current topics of interest, but also on the way the questions are posed. Oftentimes, shareholders roll more than one thought into a question, which demands good listening skills by your executives and the ability to interpret exactly what is being asked.

Some executives subscribe to the strategy of answering the question they want to answer, not the one that was actually posed. This can work in certain circumstances, but a strategy like this used universally will soon make the speaker look evasive.

Presenting your top nasty questions provides your Chair or executives the opportunity to focus their preparation on topics most likely to come before the meeting. Furthermore, it is helpful to divide key expected topics among your speakers, so each presenter can become the subject matter expert at the meeting. A division-of-labour strategy reduces stress for the presenters and ensures they do not speak at cross-purposes.

Many IROs think in terms of a matrix that might look something like this for an annual meeting:

Best practice is to give the speakers your list of questions at least one week in advance, preferably two if the meeting coincides with a heavy work schedule. If data need to be gathered to formulate answers, this will provide time to do so. Each speaker should be given time to formulate the perfect response and encouraged to write out bullet point answers.

All of this preparation, however, is only truly valuable if the speaker is required to articulate the answer aloud during a dress rehearsal. Responding verbally is different than responding in writing because it puts different skills in the spotlight. For example, there is a certain theatrical quality that is necessary to look and sound comfortable even under a barrage of nasty questions.

As Q&A drill sergeants, IROs can monitor and correct non-verbal (body language) traits and paraverbal (voice tone) characteristics that are as important to message delivery as the content of the answer. This includes, for instance, pointing out to your CEO that nodding his head yes to a particularly gruesome question is not sending the signal that he understands the question: it’s showing that he may agree with the sentiment being stated.

Similarly it’s quite common for speakers to respond to a query with “that’s a good question.” At best, this response is patronizing. At worst, it suggests the speaker never thought about the topic. This seemingly innocuous response mechanism can be cured during a rehearsal.

Generally, the best responses are those that are short, positive, fact filled where possible, bridge to a key message in conclusion and are delivered confidently. Short is necessary as long as answers can get the speaker into trouble and leave the questioner confused. Positive statements, even when the topic is tough, are best. We all remember quotes like “I am not a crook”, “I did not have sexual relations with that woman” and “Read my lips, no new taxes.” While U.S. Presidents Nixon, Clinton and Bush Sr. might have had a hard time shifting public discourse over their activities to a positive, it might have made their quotes less likely to be the butt of jokes years later.

Including facts in your answer displays knowledge, which builds shareholder confidence, while shareholders will also take confidence from a statement strongly and emphatically delivered.

Also note that if your disclosure regimen dictates that your executives cannot divulge a specific fact then coach them to say “we don’t comment on that” not “I don’t have that information.” Reporting that they don’t have the information makes the executive seem ill-informed and suggests that in future, the information will be disclosed, when it fact it won’t.

Recall as well that different audience groups will likely bring different perspectives and attitudes to bear in formulating their questions. Employee shareholders, for example, may take a completely different tack than a retail shareholder. This makes preparation for an annual meeting different than preparing for an institutional one-on-one.

Ideally, you should hold two Q&A rehearsals: one in advance of your meeting and one on the ‘day of’ in a formal setting with microphones, spotlights and the lectern. Coach your executives to always speak into the microphone when answering questions and if there is more than one audience microphone, to turn from one to the other after each question. This is a subtle signal to the questioner that his time is up and that the questioner at the other microphone is now welcome to start.

As well, insert language into the prepared remarks to the effect that you will limit shareholders to two questions per turn to allow as many voices to be heard as possible. While questioners may not heed this request, it gives the meeting Chair the opportunity to cut the questioners off – politely – if they are trying to dominate the meeting.

At your Annual Meeting, do you typically get questions about executive compensation? Please take a moment to click on your answer on the right side of this page.

While there is no magic bullet that will see you through your upcoming annual meeting, remember the old U.S. Marine saying: “The more you sweat in training, the less you bleed in battle.”

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