Rob Swystun, Pristine Advisers
Delivering bad news isn’t an art form. It’s just something we all have to do from time to time and there are ways of doing it that are better than others.
For investor relations, the best way is the straight ahead approach, where you proactively tell investors what’s going on rather than hiding away and hoping the situation blows over, which can be a natural, self-preservation instinct.
But, don’t take my word for it, that advice comes from Neil Williams, CFO of Intuit. He tells, in a CFO Magazine article, how he learned during one of his early CFO gigs that being straightforward with investors actually earns their respect and admiration because they’re not used to the companies they invest in being that open and honest with them.
“I learned early in my career that facing issues head-on is the best way to manage them, and that proactive communications about financial issues builds credibility and successful long-term relationships,” Williams says.
He learned this from an unnamed CEO at a bank holding company in Louisiana that, after many years of successful growth, had hit a bumpy patch. Instead of waiting for investors’ calls to come in, the CEO implemented a different strategy and met the problem head on by calling investors and telling them the bad news that the bank could not avoid a sharp decline in revenue and an increase in loan losses.
What I came to understand from this experience is that when things go wrong and people are left to their own devices, they will assume issues are worse than they appear.
The investors’ reactions? Williams describes them as “priceless.” They appreciated the forthrightness and it helped to differentiate the company in their view, building it a solid reputation with investors, ratings agencies and regulators.
“What I came to understand from this experience is that when things go wrong and people are left to their own devices, they will assume issues are worse than they appear,” Williams says. “That is why it’s so important to be candid and visible, especially as the CFO of a company.”
Williams suggests being quick to return calls and emails, being open to meeting face-to-face and being conservative with your promises. Do your best to minimize the current damage and discuss what can reasonably be done in the short-term.
Of course, investor relations don’t just happen during the bad times. They happen all the time. You can learn a lot about the perception investors have about your company by asking them questions and listening unflinchingly to their answers. You may also consider an investor perception audit for that purpose.
Williams suggests asking: What part of the company story rings true to you? What causes you concern about the company?
The Intuit CFO champions transparency, especially at investor days, where a lot of analysts have become accustomed to a sort of company pep rally where all the news is great. Set your company apart by sharing both what worked well over the past year, but also what failed. And it’s best to have the CEO share this, so that investors can see that transparency is embraced at the highest level of the company.
“CFOs must expect that they are going to hear things they don’t like and encounter problems they can’t always fix,” Williams says. “It’s the CFO’s responsibility to tell investors when things don’t turn out as planned or when they go wrong — for reasons that could have been controlled and reasons that couldn’t. They are not fun conversations to have, but you will gain more credibility and build better relationships if you face the music.”
He suggests being candid about problems while also being realistic about how big the problem is. And, it’s important to always end a meeting by telling investors what you’re going to do to fix it.
For those times when you have to deliver bad news, Mark Kyte, writing for About Leaders, suggests the following three techniques to try.
Much like the name implies, this method involves putting the bad news between two pieces of good news, or, at least, two positive messages.
Start with something positive so your audience has some positive energy built up and then deliver the bad news in a straightforward, factual way. End off with something positive, such as analysis of what was learned from the bad news. Avoid making excuses or pointing fingers when employing this method.
Compare and Minimize
This technique is often employed when you are at fault for the bad news and want to justify the reasons for the poor performance.
Identify common reference points by finding other problems or sources of bad news that are similar to yours (like if your profits are down by 20% but the market in general is down 25% or you’ve suffered a loss, but so have your competitors).
Then, once you’ve shown your audience that your situation is similar to what else is happening in general, list off any positive achievements over the year and focus on the future, highlighting how the positives provide a foundation for positive things to come.
The Spin Technique (aka The Politician)
A tricky one to pull off well, this one involves finding the positives within the bad news and presenting it as good news. As an example, Kyte says, instead of saying customer satisfaction dropped from 80% to 50%, you would announce that 50% of customers are extremely happy with your products.
To perform this particular method well, you have to know your subject well and have as many facts and statistics as you can handle. Pick the facts that best support your position. Know your subject inside-out so that you appear convincing to your audience. Appear positive and be prepared to defend your position, as at least some people will recognize that you are only providing a narrow view of the company position and will call you on it and question you about it.
Communicating bad news is never a fun thing to do, but it doesn’t have to be too detrimental. By choosing the right delivery method and being honest and forthright with investors, bad news will seem more like running over a speed bump rather than running into a wall.