Making sudden changes in strategy without first laying the groundwork with investors is sure to cause problems.
Based on our discussions with CFOs, investors and executives with experience of investor relations, we believe these are some of the elements of effective investor communication.
1. Know when to disclose to the market.
If a CFO is asked the same question more than three times by different investors, it is probably time to think about communicating that message to the market more broadly.
2. Admit when things don’t go to plan.
Investors will be suspicious of a CFO whose company never seems to make a mistake. By admitting to investors when problems have occurred and explaining what actions have been taken to rectify, and learn from, the issue, finance leaders will earn the confidence of investors.
3. Build relations with investors in good times as well as bad.
During good times when markets are stable, it is tempting to let investor relations slip down the agenda. But this is precisely the time when companies can build goodwill and ensure that investors remain committed when times are more challenging.
4. Be transparent about sources of funding.
Investors and rating agencies are critical of companies’ current disclosure on sources of funding and committed lenders. At a time when the banking sector is under stress, this is important knowledge to impart.
5. Be consistent with investment criteria.
Investors like predictability, so it helps to maintain discipline over the criteria for making investment decisions. A clear and consistent risk appetite and thresholds for investment give investors certainty about how the company reaches its decisions.
6. Give investors exposure to a broader group of individuals.
At most companies, the CEO and CFO handle the bulk of investor relations. But by giving investors access to a broader group, including the board and local, rapid-growth market management, companies can build greater trust and confidence among the investor community and demonstrate the quality of the company’s broader management.
7. Bear in mind the local competition.
In many rapid-growth markets, local companies are growing in stature and ambition. To compete effectively for scarce capital, overseas companies will need to articulate to investors a clear set of advantages over their local peers or their plans on how they plan to compete.
8. Articulate a “Plan B.”
Both investors and CFOs hope that the strategy will prove sound. But in some cases, it may fall short of expectations. Explaining to investors what the plan would be in case of a shortfall shows openness and a willingness to consider alternative scenarios.
9. Avoid surprises.
This is perhaps the most important tip of all. Although investors will celebrate strategic choices that lead to sustainable growth, they will expect to be informed about key decisions. Making sudden changes in strategy without first laying the groundwork with investors is sure to cause problems.