Inside Investor Relations – Volume 10 – What to avoid doing for investor relations management
(Source: Freepik)
Effective investor relations management can help you achieve different capital market goals, including attracting high-quality long-term investors, enabling a premium valuation, allowing a stable shareholding structure, and reducing funding costs. To ensure effective two-way communication with investors and achieve desired capital market goals, you should consider a lot of Dos and Don'ts when establishing external communication policies. This article discusses the practices to be avoided in order to accumulate long-term credibility in the capital market and investors' confidence in the quality of your management team. After all, "trust" is the most basic element for investors to support your company for the long term.
1) Avoid not communicating negative news with investors
Investors appreciate that you can continuously offer transparent communication in both good times and bad. It is common that when a company’s operating performance is strong, the management team actively increases the frequency of communication with investors. However, it is sometimes inevitable for a company to deliver dissatisfactory results, or even face structural changes in the industry which brings material negative impacts to the company. At such times, avoiding communications with investors or evading relevant issues in discussions with investors is not appropriate, in our view. Without proper communication, two consequences may occur. Firstly, the market will be full of speculations and different interpretations when the negative news becomes public, consequently, investors may over-react to the news. Secondly, you will leave investors with the impression that you report only the good news rather than the bad, which makes it difficult to attract high-quality long-term investors or may even lead existing shareholders to dispose of their holdings.
We recommend that you articulate the issue in an honest manner as soon as possible after conducting an internal assessment on the impacts so that investors can fully understand the problem you are facing, the potential impact caused by the problem, and your subsequent actions to mitigate the impact. Our past experience suggests that honesty is the best policy. Although investors do not like to hear negative news, they appreciate transparent and timely communications. They often would continue to pay attention to the company's subsequent development, and even become the company’s long-term investors.
2) Avoid multiple representatives for external communication
Investors care about the consistency of the information you provide so that they can track your business progress in the long term. Many small and medium-sized companies do not have a dedicated representative for investor relations. Their external communication representatives rotate among sales managers, financial managers, or other managers depending on their availability for different investor events, such as investor conferences, conference calls, and one-on-one meetings. However, different senior management have different access to company information. If they are not aligned in how to respond to investor questions, they might provide inconsistent answers to the same questions from investors, which makes investors confused and the communications ineffective.
We recommend that you assign one primary representative for external communication, and this person should compile a list of “frequently asked questions and answers” when communicating with investors, ensuring consistent answers to the same questions from investors. In addition, the list should be updated with the release of quarterly results and cover the progress of the company's major strategic developments. Regarding how an investor relations representative can cooperate with senior management to answer all kinds of questions from investors, please refer to "Inside Investor Relations – Volume 5 – How should an IRO work with the C-suite management?"
3) Avoid revealing material non-public information in order to answer investors’ questions
When communicating with investors, it is important that you should always provide transparent information without violating laws and regulations. Investors often want to gather a lot of information before making investment decisions, but sometimes to respond to their questions it may require you to disclose material non-public information. Especially in one-on-one private meetings, some companies may choose to reveal material non-public information in order to answer investors’ questions. In fact, high-quality professional investors do not expect you to answer these questions at all. Disclosing material non-public information is not only illegal, but also makes investors doubt whether you have been disseminating such information to everyone privately and question your credibility. Therefore, when facing these questions, you should always avoid revealing material non-public information. This is also one of the basic principles to gain investors’ long-term trust.
4) Avoid overly emphasizing short-term operational performance
The way you communicate affects the investors you attract. Taiwan's listed companies report revenue on a monthly basis, and Taiwan holds a critical position in the global technology supply chain. As a result, many investors in the capital market like to chase data points and ask monthly order changes. If you provide a lot of short-term operating metrics to please investors, it is often that the conversations will be dominated by discussing short-term market noise instead of long-term growth strategy. The attracted investors will also tend to be short-term oriented, which creates trading volume and share price volatility, but cannot bring in long-term investors and earn premium valuations.
In addition, overly emphasizing short-term performance metrics will put more pressure on your management team, making it difficult to reach a balance between short-term financial performance and long-term growth, thereby neglecting or failing to execute long-term strategic goals. Consequently, we recommend you should firstly elaborate your mid-to long term strategy when communicating with investors to properly position your investment story, and then follow with some discussions on short-term performance. For how to focus on communicating long-term strategy, please refer to "Inside Investor Relations – Volume 9 – Key Elements of a Successful Meeting with Long-Term Investors."
5) Avoid providing too much or too little information in an investor presentation
Before meeting with investors, you should be well-prepared to present your key messages and make your investment story clear. Sometimes we see companies include as many business details as possible in their investor presentation because they are unsure what information is relevant to investors. Or in many cases, companies choose to include very limited information or vague description in the presentation as they are concerned to let competitors know too much information. In fact, including too much or too little information cannot help you accurately describe your business model, market positioning, and growth potential. If your presentation makes your core value difficult to understand, your company may not stand out from others in the capital market.
Our suggestion is that your investment story should be as accurate as possible, and you should set measurable milestones for your long-term growth strategy. By doing so, investors can understand which metrics are key to monitor the progress of your business development. In addition, you should consistently report the relevant data of these metrics for investors to clearly follow your long-term execution, accumulating investors' trust and attracting high-quality investors who are willing to support your company for a long time.
It is important for listed companies and their IRO to communicate with investors accurately and effectively. QIC advisors consist of experienced professionals that have worked in major sell-side and buy-side companies for many years. We help companies to formulate their strategies through our understanding of the industry and in-depth interviews with the management team. We also help facilitate the meetings with various types of investors. If you are interested in learning more about our services, please reach out to us.
Contact: yvonnehuang@qtumic.com