Given unprecedented gyrations in financial markets, a brutal ending to the longest bull run in living memory and unabating volatility and fearfulness, it is crucial for companies to continue to show leadership to their investors.
Only by continuing to communicate in a constructive and proactive manner can they offer any measure of reassurance or framework for managing expectations, however tentative that may be. How you respond to this crisis will be a key measure of your long-term success and pivotal influence on the support of your major stakeholders.
With some focus shifting to sectors now oversold against a backdrop of dynamic government action, there is scrutiny as to whether some valuations have reached a floor. Many investors will be seeking value opportunities, and all will prize companies with stable dividends. But stock selection aside, any institution with a substantial holding in a company is looking for dialogue, a base of understanding, a scenario to work with, evidence of action being taken. Many of the moving parts are inevitably fluid for as long as the extent of the coronavirus and its ramifications continue to morph unpredictably. But all businesses are in damage limitation, safeguarding and planning mode and investors need to know this. The most dangerous course of action is silence.
Many companies feel understandably wary about offering ‘guidance’ in the most challenging times and in such a fast-moving scenario it is difficult to get any meaningful visibility. So qualitative evidence of what is being done to address the multiple challenges posed by the virus is probably more appropriate. This will show company awareness, action and outcomes to date. What does this mean practically?
- CEOs should be in close, rolling dialogue with their major investors to explain what is being done and its impact. This demonstrates an engaged, serious approach to managing the crisis
- Insights should be given into the principal impacts, be they supply chain, productivity, innovative changes to products used, geographic dynamics, staffing levels. Equally important are factors which are less affected and providing some continuity, or unexpected upsides
- Weekly updates should be provided on the website to give a snapshot and incremental view of the evolving situation and how the company is responding
- Thought pieces and case studies should be posted on the website illustrating how particular parts of the business are faring, what’s changed and what the impact of this is to date. These could focus on members of operational management giving their view as to how their part of the business is responding, or any particular product, business line or geographic market
- It is helpful to differentiate between key geographic areas, as the dynamics of the virus and its stage of development vary. For example, challenges in China may be beginning to ease somewhat, while Europe is at its most stretched
- Evidence of a continued strong commitment to ESG priorities is crucial and can be illustrated through the preservation of operations as far as possible and fair treatment of employees. This will set companies apart for a long time to come
- At the Q1 reporting stage, companies should give a meaningful, more granular financial update on the impact of the virus to date and how this affects existing or revised guidance, as far as possible. You can report on exact impact to date and project forwards key factors and sensitivities affecting performance. It is constructive to be as forward-looking as possible to help manage expectations
- Consistency across all media and communications conduits is vital to retaining credibility. Hence every effort should be made to achieve consistent messaging to avoid anomalous commentary which could put management statements into question
- AGMs may see postponements or webcasting rather than physical events. In the case of postponement, it is even more important that proactive dialogue be maintained with investors. Potential Q&A should be prepared assiduously
- Messaging must be evolved with an eye to keeping some balance between a realistic representation of the impact of the virus and all initiatives being taken, and a reiteration of your long-term investment case and credentials
Honesty, pragmatism and dialogue are what will set apart stocks which are well understood and whose management are respected even in a crisis, from those who ride continued waves of volatility unchecked, without any management of expectations or investor confidence. As BlackRock commented this week, “Companies can still demonstrate that they have effective leadership. In times of crisis that becomes more apparent, not less apparent”.