Corporate Eye

Setting The Debate Tone Via Investor Relations

There are varying schools of thought when it comes to dealing with potentially unfavorable information. One school advocates simply ignoring such information, or at best, only reporting or mentioning it when absolutely necessary.  Another school holds that sooner or later such information will find its way to the right (wrong?) people and blow up anyway.

Considering the rate at which information moves these days, the idea of simply hoping for the best is becoming ever more quaint.  While certain facts may have been known for a long time, there is a difference between “out there” and being widely publicized by important media outlets or public figures.  Even worse is the fast word-of-mouth spread of information that may or may not be correct, all with no single person or entity to point to with corrections or defenses.  In these instances, often called “viral news”, companies are left with no way to counter either misinformation, or just out of context inferences.

Much like vaccines that only work before one is infected, information to counter the various types of “viral” dissemination can only be effective if it exists before the negative information starts to spread.  A contrary opinion, useful fact, or even just an acknowledgment of something as a problem, but not one you are concerned about can be enough to nip such PR blow-ups in the bud.

IR and the Corporate Information Castle Defenses

Consider the recent failure of US investing giant, Lehman Brothers.  Subsequent investigations and reporting have shown that the failure of Lehman Brothers was caused by the refusal of lenders to extend their traditional overnight lines of credit to the company as the banks had routinely done prior for Lehman Brothers and other investing companies.  The reason for this refusal was the fear that Lehman Brothers was running out of cash.  Ironically, from all available evidence, it seems that no such shortage ever existed.  Whether bad sources, mistaken calculations, media failures, or poor company response caused the rumor is up for debate.  What is not, is that in the days the firestorm grew, nothing Lehman said was worth anything because it was too late to counter the whirlwind.

While Lehman Brothers is an extreme example and no amount of IR information may have made a difference, it is certain that stopping bad information from starting is the best strategy.

Consol Energy

CONSOL Energy, a large US energy provider, and mining operation, has conspicuously posted its “Risk Factors” in plain view on its website.  Each risk, ranging from current economic conditions, to the impact of various government action, is delineated and then given a frank response by the company.

While each of these items is properly titled a “Risk Factor” what they really are, are possible investor concerns, raised either by the investors themselves, or by some outside source.  A happy CONSOL Energy investor living in California, for example, may have no idea that the state of Pennsylvania is considering a severance tax on natural gas.  But, a single forum post, or investor group comment might cause the investor considerable distress.

However, instead of having to rely on any unverifiable information floating around the Internet, or on whatever info comes out of the brokerage house, the investor could simply scroll through the list of risk factors and determine that while such a tax could impact the company’s operations, the investor might take solace in the information that 12% of production was from Pennsylvania.

While not an insignificant number, it may be much less than any viral report declares the percentage to be.  Indeed, if our intrepid investor were to perhaps reply to the same forum post that caused him so much worry, by saying that although such a tax would be a concern, the fact that it affects just 12% of production made him comfortable with keeping his investment.  Such information injected at the beginning of any potential blow-up might nip it in the bud as 12% is nowhere near as dramatic as say 33% or even 50%!  Thus, IR averts a PR problem without even knowing it existed.

IR Best Practices

While it may be impractical for IR to respond to every possible concern, or even to go to the level that CONSOL Energy has managed to do, it is feasible for companies to address their investor’s biggest concerns and potential concerns in an easily accessible and retrievable format instead of relying on the text buried inside of last year’s annual report to provide solace to the concerned.

Additionally, placement on the company website adds an important dimension to the information, linkability.  On the Internet, nothing is worth the screen it is displayed on until it is linked.  An investor citing the company response in an annual report might be met with an “I’ll believe it when I see it,” attitude from skeptical users, while the same investor who is able to cite a particular web address might be given more benefit of the doubt.

As always, the more public information that Investor Relations can provide, the better.  Consider adding a Risks or Concerns section to your IR site.  Include a form or link that investors can use to contact you about these concerns or other concerns.  If the number of contacts from such a form is significant, you’ll know that you’ve hit the nail on the head.

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Brian is a small business owner, consultant and freelance writer. Brian began his professional career in the computer industry as a consultant where he became keenly aware of the internal workings of companies from Fortune 100 giants to small two-man shops. While working with a mutual fund company, Brian developed a strong interest in finance and became a Certified Financial Planner. As a financial professional, Brian specialized in working with small business owners. Brian is the co-founder of ArcticLlama, LLC a premier business writing and consulting firm. He also runs a real world personal finance blog. Brian lives in Denver with his wife and daughter.