We have previously written about the importance of undertaking investor relations. Here, we look at why you might want to consider engaging an agency to assist you with investor relations.
When marketing your business to investors, you can opt for in-house investor relations expertise, you can look to outsourcing to a specialist communication agency with investor relations expertise or you can use a blend of the two. Managing and controlling external opinion about your business can often be the difference between success and failure, with significant upside potential if communication strategies are implemented successfully.
Here are five compelling reasons to opt for an agency.
A consultancy’s prime focus is communication and stakeholder relations. Through focusing on specific tasks and skills, the agency develops considerable expertise that is hard to replicate in-house. Through deeply focusing on its activities, the consultancy is able to improve its specialist knowledge and enhance its abilities. In addition, a company which needs to build in-house capacity risks losing focus on its primary business.
2. Improved communication and greater trust
An investor relations consultancy can manage expectations proactively through ensuring consistency of message and ongoing communication. This results in better stakeholder relations and improved interaction. Trust is built between the entities when there is greater information flow and improved quality and integrity of disclosure. And establishing and maintaining trust is one of the key issues that face corporate executives. Trust means more accurate pricing of a company’s shares and it means more stable and confident investors. Greater transparency leads to less disruptive investors and better relationships.
3. External perspective
A consultancy has the ability to step back and view a situation from the outside, providing an independent point of view, the ability to “see the wood from the trees” as well as looking holistically at the business and the work that it does. It’s easy to get tunnel-vision when working within a company. It can be challenging for employees to view things differently or objectively, to raise new ideas or concerns from the inside, especially if they might fear for their jobs.
4. Leverage relationships
With an intense knowledge of and relationships with the media, an external consultancy will be able to leverage those relationships across different clients. A specialist agency is able to identify and engage with the most appropriate media for a particular story and knows how to manage the media.
In our consultancy, for example, we find that the media often approaches us to source input for an article or a spokesperson for an interview because we have a range of clients. We effectively become a one-stop shop for the media, obtaining content from a variety of sources for them.
For the equivalent of – or even less than – a modestly paid employee, a client has access to an entire team that can move the needle on important projects. Each team member brings different skills and backgrounds to the table and an agency will provide strategic input, planning and management skills. This, together with innovation and fresh insights, can be secured for the business at a far lower cost than could be achieved in-house.
There are, of course, also benefits to maintaining in-house capabilities and often the most successful campaigns are the result of bringing together a strong internal team and a great agency. While this may not always be an option, especially for a smaller company, having a quality, professional agency on board is the best option.
We’d love to have your thoughts on the internal/agency debate.
It’s job-hunting season at the country’s universities and businesses are all out wooing the best graduates.
It has been fascinating to watch this at a time when more than a quarter of the population unemployed, there are companies vying with each other to employ the best talent. The brochures that they produce, the presentations that they give and the way that they are going all out to present themselves as attractive to the soon-to-be new graduates is enthralling.
I sat with a few of the students going through the prospective employers and it was most enlightening – the businesses that were household names, ones that they were most familiar with, were all high on their list to apply to. The others that no-one had heard of barely featured for them.
As with customers, media and all other stakeholders, the stronger a company’s reputation with prospective employees, the better its situation is. In the case of finding top talent, the better known and the more potent the brand, the greater the talent pool available to it.
Economic downturns are a fact of business life. However, those businesses that maintain a public profile – that stay in the public eye – are the ones that will have the best chance of surviving an economic downturn.
Hunkering down and waiting for the bad times to pass may not be the best approach so here are 5 tips to help your business ride it out.
If others around you are cutting their marketing spend while you retain yours, you will be ahead of the curve when the economy turns, leaving them to play catch-up.
Invest in the future now and it will enable you to perform better later on.
We can take two important lessons from the December 2017 Steinhoff accounting scandal.
1. When a crisis hits, the results can be sudden and spectacular
Warren Buffett is widely quoted as saying: “It takes 20 years to build a reputation and five minutes to ruin it.” There is no such thing as overnight success, but there certainly is overnight failure.
In the case of Steinhoff, the company was in the making for 50 years. It had reached the Top 40 on the Johannesburg Stock Exchange, making it one of the 40 largest market cap shares on the bourse. The price peaked at over R95 in 2016. From November that year to October 2017, it traded in a relatively narrow band between R60 and R70.
In November 2017, it broke below R60 but the real damage came during December 2017. The share began the month on R55.81, lost R10 in two days and then plunged 61% the following day. In the first five trading days of the month, the Steinhoff share price fell 89%. And it has yet to recover.
Once a crisis takes hold, the reputational damage can be swift and ruthless.
2. You can’t communicate enough
Alec Hogg put it succinctly when looking at the disaster, saying that “… when a crisis hits, you simply cannot over-communicate. Steinhoff’s response has been an almost perfect inversion. Since detonating that sparsely worded bomb last Wednesday, the company has issued just two short statements. In the two previous months it had published eight strong denials of allegations which now appear to be true.”
He’s quite correct. When a business (or any other entity) is in a crisis, the first thing that needs to be done is to communicate with stakeholders. This is Crisis Communication 101. Silence merely creates a void in which speculation becomes rife and once that happens, it becomes increasingly hard to separate the facts from the fiction. The “fake news” phenomenon likes nothing more than a lack of information in which to breed. Even a month after the crisis broke, the board did little to clarify or elaborate on the situation for stakeholders, resulting in the share price languishing at about 5% of its peak for the month.
Preserve your reputation
Reputations are precious and need to be managed. Negative headlines can – and do – impact the bottom line. Take some time to review your reputation management practices and incorporate issue management protocols, procedures and guidelines within them.
What other lessons does this crisis offer us?
Although communicating with all stakeholders is enshrined in the King IV Code of Corporate Governance, there has been some spectacular bungling by companies of their communication with the investment community. In a world where confidence in the corporate sector has been eroded by dramatic failures there is clearly the need to create an understanding of a company’s affairs by investors.
In 2003 Nedcor’s reputation suffered an enormous dent and a plummeting share price. After touching giddy highs of R150.00 in 2002, Nedcor shares tumbled to the R60 level in 2004. A bonus scheme focusing on short-term performance saw bonuses of R18m paid to directors in 2002, in respect of the 2001 financial year – a year in which the group earned net profits of only R13m. A press exposé saw heads roll. Rob Rose summed it up in Business Day (9 Dec 2003): “New CEO Tom Boardman will take over the reins today and attempt to restore the bank to prosperity after a traumatic year, in which its share price dropped 40% amid a slump in its earnings and reputation.”
When BP’s Deepwater Horizon oil rig exploded in Gulf of Mexico on 20 April 2010 causing an oil spill, BP's share price was 648.20p (GB). At first, CEO Tony Hayward tried to downplay the impact of the disaster on both the company and the environment, stating that the impact will be “very, very modest”.
By 30 May, Hayward had reached a nadir in his media engagement stating: “I’d like my life back.” From this point, there would be no going back for him. By 29 June, the price had collapsed to 298p. Throughout the crisis, Hayward seemed overly defensive and revealed little. It came as no surprise when his resignation was announced on 27 July, in spite of the leak being successfully capped earlier in July. The share price never really rose above 500p after the incident, in spite of the then booming oil price and a subsequent collapse in oil has seen the share price slide to below 350p.
And who can forget the rout that Pinnacle Holdings experienced in March 2014? After peaking at over R26.00 in August 2013, the share price drifted to around R23.00 towards the end of February 2014. The arrest of an executive director for alleged bribery in March 2014, saw the share close at R13.90 on 30 March 2014 and by mid-August, the share was trading below R10.00. In the two days after the announcement, Pinnacle’s market cap fell to R1.95bn, from R3.4bn — a total loss of R1.5bn.
But the issue was not so much the arrest – the charges were subsequently dropped – as the communication vacuum in which it took place. It took Pinnacle 20 days to announce the arrest, during which time several directors sold Pinnacle shares equivalent to about 1% of the company. And even once the announcement was made, management seemed reluctant to have much interaction with the media. In spite of an uptick following the charges being dropping, Pinnacle’s share price continues to languish in the R11.00 to R14.00 range.
By contrast, the handling of the Pick ‘n Pay poison scare in 2003 resulted in a relatively small impact on both the share price and company sales, in spite of a decision to keep silent on the matter for seven weeks. Once the company went public, CEO Sean Summers handled media attention with aplomb: always available, always proving information and keeping the public informed. Shareholders rewarded the strategy with a share price that held its own, only dipping 3.6% in the week after the announcement, after reaching an all-time high the previous week. Not only that, but some customers were actually going out of their way to shop at Pick ‘n Pay as a means to support the group: in a survey at the time, 87% of all respondents polled indicated that they would support Pick ‘n Pay and would make a point of shopping there.
What is clear from these case studies is that investor sentiment plays an enormous role in determining share prices. An open channel of communication with investors is essential to keep them well informed and able to base investment decisions on facts rather than speculation and it behooves a company to undertake sound investor relations.
It is in a company’s interests to maintain a share price that is consistent with an accurate view of its performance as well as its future prospects: too low and the company is an easy target for a takeover while making fund raising expensive and inhibiting its ability to purchase other entities; too high and the risk of shorting and lack of appeal for new share options hamper the company.
Engaging with shareholders may be a JSE listing requirement and important from a governance perspective, but it is equally important for keeping shareholders well informed and in the best position possible to make investment decisions.
*This article first appeared in "Directorship", the official publication of the Institute of Directors Southern Africa
Hot off the press
Economist, data translator, communicator and fascinated by the world around us.