Myths Of Investor Communications

Myths Of Investor Communications

Busting communication myths that hold you back.

During my career, I have had the distinct pleasure and honor to serve on and/or chair many boards of directors in a variety of industries, and one constant is the need to communicate clearly and honestly to investors. Yet here’s another truth: It’s not easy to do and often is not done well.

Board members and CEOs frequently ask me for advice about communicating to investors, and I usually find myself debunking myths that have permeated their minds. In today’s litigious environment, there is so much confusion about what’s allowed and what should not be said it takes me back to my days in a fraternity when we had a secret handshake and spoke in codes.

So if you are a board member or an executive wondering about the most effective way to communicate to your investors, you might want to consider the following five myths of investor communications.

Myth No. 1: The company should do all the talking; investors should do all the listening.

Many boards and executives seem to believe that communications to investors should be mostly one-sided, with the company spoon-feeding tightly contrived messages or presentations to investors, who are afforded little chance for questions or to engage in discussion. This type of relationship forces investors to be heard only through shareholder activism, meaning resolutions, institutional sales and falling share prices. Then boards and executives wonder what’s happening on Wall Street or NASDAQ, like it’s a big mysterious black hole.

To the contrary, boards and executives who build active give-and-take relationships with investors will be rewarded with goodwill and trust. Remember that as owners of your company, investors’ interests are aligned with yours and they just want a voice. So make a point of allowing adequate time for engaged question-and-answer periods in your investor meetings and phone calls. Also, make a point not to do all the talking, but actively listen. Remember, we were given two ears and one mouth for a reason!

Myth No. 2: Required quarterly and annual reports or SEC filings are good enough.

A well-known investor communications strategy that busted this myth was IBM’s. It created a model for investors that was a rolling multiyear “road map” for earnings growth and cash generation. Under then-CEO Sam Palmisano, IBM committed to increase earnings per share from $6 in 2006 to $10 in 2010 (“Managing Investors,” Harvard Business Review, June 2014).

Palmisano developed the idea to communicate to investors that a short-term 90-day outlook, or “shortermism,” was not a sustainable way to manage his company, and that a long-term outlook was needed and in the best interests of the company, ergo, its investors. IBM gave total transparency to portfolio managers from its largest institutional investment firms (within disclosure regulations), with several day-long meetings per quarter. Investors had access to the entire management team to ask questions, and management in turn asked investors for input into its strategies, operations and capital allocation decisions.

Shareholders were skeptical of the IBM model at first, but over time, as IBM proved it could do what it said it would do, large investors became believers. The example shows what can happen when companies go beyond simply relying on quarterly or annual reports or SEC filings to investors.

Myth No. 3: Information to investors must be tightly managed and controlled.

While it’s true that effective investor communication is built on a clear and consistent story, that’s different from controlling information so tightly that investors feel manipulated. Transparency has become an overused word, but in this area it is appropriate. Provide real information, not just data, which helps investors understand your company, its markets, its competition, its vision for the future and how you plan to get there. Share standard industry metrics and where your company fits into them. Create easily understood, measurable goals and then be consistent with reporting progress and performance against those goals. The asymmetry in information between boards/executives and investors is huge, and companies need to figure out how to bridge that gap.

Myth No. 4: Avoid delivering bad news.

Nobody likes surprises, especially bad ones. The old adage “If it looks like a skunk, walks like a skunk and smells like a skunk—it’s a skunk” really applies here. If everything always goes perfectly according to plan, investors may become suspicious that the company is not being transparent. Nobody escapes mistakes, and admitting to them when they happen makes you real and credible to your investors.

If you ’fess up when having problems, explain what happened and why, and then share your solution, investors will have more confidence in your leadership and likely keep their money invested in your company. Building trust and confidence during minor problems is also the best way to get through major problems if you hit a really big roadblock in the future.

Myth No. 5: Investor communications should be left only to the CEO and CFO.

Because boards and senior executives fear that someone on the management team may inadvertently disclose confidential, non-public information, and because they desire to communicate a consistent message, CEOs and their CFOs are usually designated as the only ones to communicate with investors. But by giving investors access to selected board members (e.g., board chair and/or audit chair) and a broader group of managers, companies will build stronger, deeper relationships with investors and show the investment community they have a quality group of leaders. The risk of disclosing a company secret is small compared to the risk of failing to gain the trust and confidence of investors.

Investor communications don’t have to be a mysterious process; mostly it just takes common sense. Investors are generally not out to “get you.” Rather, they have bet their money on you and your company and want you to succeed. Building relationships with investors that are based on honesty, listening and sharing good and bad news will win and sustain their support—and thems are the facts, folks!

Mark W. Sheffert ( is founder, chairman and CEO of Manchester Companies, Inc., a Minneapolis-based performance improvement, board governance, and litigation advisory firm.

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