By Tony Samson
CHIEF Financial Officers (CFO) are not hired for their communications skills or verbosity. Their task is to submit the data on time, and translate corporate operations into numbers. They thus tend to just let the numbers do the talking when explaining corporate performance. The new function of investor relations, which listed companies now give importance to, requires the ability to also highlight numbers with the right words.
Numbers need to be interpreted, related to each other, deep-dived and, yes, explained in words too.
That this function of briefing investors on the company’s performance ends up under finance rather than corporate communications often means that the numbers will not always be delivered with a strong corporate story.
The recitation of ratios and percentage change year-on-year can be like performing The Taming of the Shrew with a single actor who does not separate the different roles and delivers the lines in a monotone. For a complicated Shakespearean comedy (similar to corporate intrigues), a shallow rendition of plot with a few characters in disguises, some verve and flashes of insights are called for. The CEO can jump in.
Disclosure rules of the stock exchange and the inherent secretiveness of finance people (that’s confidential) as well as a built-in reluctance to explain anything, except revenue projections with banks, conspire to belittle the importance of a compelling narrative behind the numbers.
Even mutual funds with managed assets in the tens of billions and a fully functioning research department tend to characterize companies they track, buy, sell, or dismiss outright with a single phrase. The caricatures can be sweeping and even unfair — too much debt, opportunistic acquisitions without an overall plan, affiliates leaking money, no succession plan, quarreling siblings in a family corporation, or disrupted business model. These quick labels can be applied to countries too when foreign funds with hot money are involved — smirking spokesperson, delayed infra projects.
These characterizations, especially when negative, are the result of what the 1967 movie Cool Hand Luke calls a “failure to communicate.” Without an overarching communications plan, numbers can’t really do much talking. A high debt level, for instance, needs to consider the maturity of the loans, the cash flow to service them, and the comparison of the leverage ratios to peer companies. Thus “high” is not an absolute value but relative to other factors which a good financial communicator should address with investors.
As in regular PR, it is important to be constantly communicating to put the company in a favorable light. It seems that only in a crisis when firemen and bomb squads are needed is the need for PR invoked, if only to get the CEO out of the line of fire. Then, it is crisis practitioners, usually lawyers and opportunists, that take over the narrative line. As these are a different breed of communicators used to frenzy and mayhem, they cost the besieged company more in money and reputation.
Financial communication is really directed at a small and knowledgeable audience of researchers and large funds. They do their own enterprise analysis outside company sources. Sometimes, this lot requires even more numbers and ratios than the company releases and they don’t much care for storylines.
While majority stockholders of listed companies may scoff at the cosmetics of communication (I know what my company is worth) some appreciation of the value of the function begins to sink in when the stock price is trapped in a 52-week low as the total market is rising. Then, it is perhaps ego and the grating realization that other less worthy companies are trading at premiums that spur the CEO to give financial communications a second look.
The “theory of efficient markets” states that even if the market is wrong, it is still right. Its players are presumed to have enough information to make efficient judgments, including the decision not to bother with more information and simply switch investments.
Still, giving the market the right information can only contribute to a better valuation of the stock. Good numbers always need to be accompanied by words. Of course, bad numbers are a different kind of problem. Not all words can change the color of the ink.
Tony Samson is Chairman and CEO, TOUCH xda.
