INVESTMENT COMMUNITY PERSPECTIVE

There is a scene from the movie Forrest Gump where Forrest says, “… it happens”, which gets misquoted and becomes a famous button with a similar phrase. The lesson for readers of this article is that things do go wrong, can be misinterpreted, and anyone on the frontline of IR must deal with issues – typically quickly. We have talked in the past about crisis management, but in light of the current market situation, it is worth repeating. And we tailored our comments for economic situations like today.

Don’t Hit the Panic Button

A knee jerk reaction is never appropriate and often causes more harm than good. Investors, customers, suppliers and staff deserve better. Even if you see your stock price sinking and you think something must be said, don’t panic. Like animals with the ability to smell fear, some investors will spot a poorly thought out response; such an action could actually exacerbate your problems. Do not make problems worse and undermine credibility.

Clearly Identify the Issue(s)

Rather than panicking, gather your internal troops together, ensure you have everyone’s undivided attention, and then as a group focus on clearly identifying the core issues. This is the best way to plan a response. Consider that problems in the corporate world can have different ramifications for different aspects of the business, so it’s best to think collectively.

Have a Plan of Action, Then Consider the Communication

Once the key issues affecting the business are identified, the solutions are more easily determined. Remember that most in your group will focus on what the corporation must do. You, however, will be thinking about what the company will say, and how it will communicate.

Be Measured and Honest

Like the advertisement, “What happens in Vegas, stays in Vegas”, remember that what goes on in internal meetings stays in internal meetings. There will be lots of debate as to the core issues, as well as appropriate plans of action, and likely a range of viewpoints. The internal debate should never ‘leave the room’.

The level of information provided to the public must be considered carefully, as not enough detail and too much detail can both work against you. For example, saying that the company will sell a division by the third quarter for $2 billion can create new issues if the fourth quarter rolls around and there is still no sale announcement, or if the division is sold for $1.2 billion.

For a corporation to maintain market credibility, being honest is critical. Be honest and measured about the issues at hand, and about your plan of action; know that what you say will be compared with what you do.

Communicate Clearly and Consistently (Internally and Externally)

In today’s technological world, all corporate communications eventually work their way to all stakeholders, so save yourself aggravation down the road and communicate clearly and consistently. The messaging to your shareholders should be the same as to your staff, suppliers, creditors, government agencies, and any other stakeholders.

I cannot stress enough how important clear communication is in problematic times. So be prepared to draft and redraft until the right mix of clarity and thoughtfulness is achieved. If something can be misinterpreted, it likely will be. Also consider that problems usually do not get resolved overnight, so the messaging will likely be repeated in press releases, marketing materials, quarterly reports and annual reports.

Getting the Message Out

The severity of issues faced will determine how best to deliver the message; let logic and regulations dictate. I have written in the past about rolling out materials to the public by way of conference calls and follow-up marketing meetings. Please refer to these articles as a guide.

Everyone Sticks to the Script

Remember the importance of consistency and clarity in messaging; everyone must stick to the script. That doesn’t mean that all communication must be scripted, but everyone must stay on message. Winging it, pontificating or pondering aloud can actually add confusion and inconsistency, which can lead to audience misunderstanding. Avoid this like the plague, especially during Q&A. Learn from politicians; some are terrific at answering questions in ways that effectively repeat the key message.

Know your Milestones and Provide Updates

Any plan of action will require milestones. Know them, regardless of whether they are public information, because achieving these milestones will be important catalysts for communication in the future. Markets tend to like updates because some investors wait out the early part of a turnaround, which tends to be the riskier period, and will happily participate once some risks are alleviated. Progress reports are important. However, if matters get worse, you will need to reassess your communication plans.

Many Measure a Company’s Abilities by How it Deals with Adversity

On a sunny day, with calm seas and a light breeze, everyone is a sailor. But when the winds whip up, the seas roil; the true sailors stand out from the posers. For many investors, times of trouble separate the strong companies from the weak ones. These can be times when your company stands out from the crowd, and today’s market underperformance can turn into tomorrow’s outperformance if your company can clearly demonstrate its ability to weather the storm, or even gain ground on the competition.

The Chinese word for crisis is frequently considered to be composed of two Chinese characters signifying danger and opportunity. Remember that “it happens” to even the best.

Dirk Lever is Managing Director, Institutional Equity Research, AltaCorp Capital Inc.