The world as we all know it has changed dramatically in 2020 due to the COVID-19 pandemic. As this is a crisis without a clear playbook, there are a lot of lessons that are being learned along the way by issuers managing corporate investor relations programs. Perhaps the most important one is that successfully managing through a crisis of this magnitude and complexity is a unique opportunity to build trust, credibility and corporate reputation across all stakeholders. In this paper we will briefly review the supplemental guidance on disclosure the SEC recently provided, review some of best practices companies are taking to keep the lines of communication open with investors and list some of the “Do’s and don’ts”.
For many companies during COVID-19, much of the communication has been a crisis communication. Investors are in the business of assessing risk and making judgment calls based on their belief in a company’s ability to achieve certain results in the future. During times of crisis, it is more important to convey a sense of control and communicate effectively with the investment community
Let’s review the crisis communications steps:
Continually Assess Your Situation
Review the current state of operations, What parts of the business are affected? Disruption due to the pandemic may benefit some businesses, which will continue to operate at a later time and may even be seeing higher demand.
Create a Communication Strategy
Together with management the IR team should create a realistic and actionable communications strategy. Focus on the areas you can control and craft your messaging around those themes.
Craft Your Message
Your messaging will depend on the state of the business and the strategic decisions you made in the planning phase. In general, transparency and prudence must be balanced.
The impact of a crisis situation can temporarily expose companies to opportunistic maneuvers by activist shareholders. It is important to carefully monitor dialogue with investors to understand motives and anticipate threats.
Suggested Do’s & Don’ts in Regard to Pandemic Communication
Here, some standard crisis communications advice is relevant:
- Do not make statements that might be changed or retracted later.
- Serve up problems with solutions. This requires developing current messaging that reflects the current environment and recognizes that the story, which worked during a period of strong economic expansion, may no longer be relevant.
- Focus on what you can control and avoid commenting on things that are beyond your control.
- Stay accessible and engaged with all stakeholders.
What Should Investor Relations Avoid Doing?
- Designated investor relations spokespersons should not provide personal opinion at this time or offering opinions about competition or peers. The audience may not be able to distinguish between personal and corporate positions.
- Avoid guessing what the impact (long or short term) may be. Many companies that did this earlier in 2020 have rescinded many of those comments. We are in a time of unprecedented uncertainty regarding the depth and duration of this pandemic. The Street does not expect anyone to know when this will end. They only need to know your company understand the gravity of it and have a plan to navigate it to the best of your abilities
- It’s also suggested that company’s avoid taking any action that is designed to support the share price. Public comments regarding the business impact today may be inaccurate in a week’s time. Valuations today may appear to be impacted by non-fundamental factors. Risk mitigation is on top of many investors minds.
Recent SEC Guidance
The SEC recently provided supplemental guidance on disclosure, urging public companies to update disclosures to give investors a clear picture of their financial health and ability to survive the pandemic. The SEC previously stressed that in the current environment, forward-looking information can be more valuable than historical information and that these disclosures should enable an investor to understand how management and the board of directors are analyzing the current and expected impact of COVID-19 on the company’s operations and financial condition.
Note that It is particularly important that companies provide robust and transparent disclosures about how they are dealing with short- and long-term liquidity and funding risks in the current economic environment, particularly to the extent efforts present new risks or uncertainties to their businesses.
Practical Steps Companies Can Take Now
Here are some suggested actions companies can take right now to build trust with key stakeholders as they begin to prepare for the upcoming earnings season.
Be aware that investor focus has shifted. 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.
Reexamine the IR narrative. With investor focus shifting, the investor relations narrative will likely need to evolve. Ahead of earnings, consider how to elevate certain underlying company fundamentals to the forefront of the narrative. This may include featuring financial flexibility, balance sheet strength, variable cost structure, business model resiliency and management team experience. Importantly, be ready to share how the company is positioning to thrive when the economy and our society recovers.
Ongoing COVID-19 business update. Looking back to the first half of the year, 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. 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.
Leverage all communication tools to make it easy for investors to assess your company in the current environment. We also note that 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. These may include: Updating your website, investor presentation, safe harbor statement. You may also want to evaluate how to use social media.
Keep the lines of communication open while adhering to Reg FD. Holding investors hands through this period of uncertainty is paramount. Always be prepared to discuss publicly disclosed COVID-19 business updates, clarify publicly available financial details or help concerned investors bridge current events to publicly available disclosures.
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 relations or investor marketing.
Lead Through Uncertainty
Remember that uncertainty is the enemy of confidence, comfort and focus. For example, consider how you could turn in-bound investor calls into trust-building moments or how you can update investors about the pandemic in your earnings call. While the duration of the crisis is unknown, it’s obvious the pandemic and its impacts are not disappearing anytime soon. 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. In summary, “trust” is your most valuable asset and a crisis is when it is best built