‘Careless talk costs lives.’ Today’s corporate chieftains may not live under quite the same threat as this 1940s slogan but many have discovered that careless talk can cost your stock price dear – especially when you’re talking to a journalist. In fact, it’s not just that your stock price might plummet and the value of your stock options take a nosedive in tandem; in investor relations terms, careless talk can be just as dangerous when it’s used to inflate market expectations over and above reality. You can bet – when the truth is finally discovered – that the crash back down will be more dramatic than any upward shift in stock price. Trust and integrity are easily lost and are much harder to win back. In today’s fast-moving information world, almost as soon as those careless words have slipped out the impact on stock price can start. Competition between the newswires to get the story out as fast as possible can mean that accuracy and fact-checking go out the window. Unfortunately, by the time mistakes are made it’s often too late – the damage has been done. A careless whisper in a journalist’s ear, a flippant remark, an aside made once the tape is switched off. There’s no time to make amends, no time to withdraw, no time to erase what’s already been said.
Cost concern
Kiran Bhojani, vice president of investor relations at Dusseldorf-based conglomerate Veba, knows this only too well. He and his colleagues had to take swift action to shore up a sliding share price last year after chairman and CEO Ulrich Hartmann attended a conference in Munich. The prospects for US subsidiary, MEMC, a producer of components for the semi-conductor industry, came up during a casual conversation with a Reuters journalist. ‘They talked about Germany, about politics and so forth,’ Bhojani explains. ‘The difficulties caused by the crisis in Asia also came up and our CEO mentioned that it was going to be difficult for MEMC to achieve its target for double-digit growth this year, in view of the Asian situation.’ What Hartmann did not bank on was his comments being reported on Reuters news screens the next morning. The share price dropped from over DM100 to a lowly DM 79. Bhojani had to take swift action. ‘I got the CEO and CFO out of a meeting because I knew the situation was very serious,’ he reports. ‘Because they had a board meeting to go to, I was authorized to start speaking to shareholders as well as arranging for a teleconference with over 100 key investors around the world.’ The management team was able to reach most of its shareholders during this emergency session because around 80 per cent of the group’s shares are in the hands of institutions.
Veba has since made overt reference to MEMC’s prospects in the group’s official nine-month statement – a bitter pill, sugared by reassurances about the group’s overall health. ‘It was a lesson for all of us,’ reflects Bhojani. ‘Now we are extremely cautious about what we say to the press and are all too aware of its effect on the stock price. What pulled us through was the fact that we have always worked well as a team and were able to communicate with one voice. Now many people are saying that it is a buy stock because the risk associated with MEMC has been discounted.’ Bhojani accepts that what should have happened was for the company to have made an official profits warning to avoid shock waves hitting the market. Today’s newswires are hungry for fresh angles to ‘sell’ to their subscribers. Ulrich Hartmann’s comments were clearly ‘fair game’, despite having been expressed during a casual conversation outside an official interview. Indeed, it wasn’t even officially off-the-record – which in itself should not be taken as complete protection against publication by any spokesperson.
Not alone
It’s not only captains of industry like Hartmann who feel the razor-sharp incisors of the hungry newshound. All publicly-quoted companies, regardless of their size, should beware the baying press pack. US-based AgriBioTech has learned that lesson too. The forage and cool season turfgrass company has annualized revenues of around $460 mn. It distributes to 50 states and 51 foreign countries but is still a minnow by comparison with Veba or other blue chips. But when two Bloomberg journalists scented blood, AgriBioTech’s relatively small size and vulnerability to share price fluctuations did not deter the scribes from going in for the kill. The story published on October 29 last year alleged that there were inconsistencies between the company’s recent filing with the SEC and a conversation its CEO, Johnny Thomas, subsequently had with a Bloomberg journalist. The Nasdaq-listed stock dipped dramatically by around 20 percent, as 3.5 mn shares changed hands. IR director John Francis points out that the share price swiftly recovered and that the story was later criticized in some quarters as lacking Bloomberg’s usual objectivity. He claims that many analysts had already begun to realize that two Bloomberg journalists, in particular, had ‘lost their sense of objectivity’ in the wake of a series of ‘vindictive’ articles. Relationships with analysts, developed over a considerable period of time, were AgriBioTech’s secret weapon. They helped avert a longer-term dip in the share price. Thomas was allegedly quoted about the SEC filing when he thought he was talking about the results for the end of the fiscal year. Here was a reporter, claims Francis, who was effectively making an editorial comment, rather than leaving readers to decide for themselves by presenting an objective two-sided report. ‘What we try to do in these circumstances is always be responsive to any type of comment on the company,’ Francis explains. ‘We try to make sure our message is clear to our shareholders, to our customers and to the investment community. As fiduciaries of a public company you have to tell it the way it is.’
In normal conditions, AgriBioTech’s main investor communication vehicles are the chairman’s update on the web site and letters sent out directly to shareholders. But when the going got tough, the company was ready to stage a conference call within 24 hours, involving as many participants as possible, with a recording of the call accessible for two weeks after the event. Before the Bloomberg story in August last year, Francis reports that there was ‘a lot of misinformation placed on the internet chat lines’ causing a sharp decline in the stock. At that time, the company had 500 people at once involved in the same conference call. ‘A lot of companies our size usually spin you off to a PR firm or to a lower level executive who really doesn’t have a clear picture of what exactly is taking place. We made a commitment early on in the development of the company to avoid that. The result is that we have increased our shareholder base from virtually zero to several thousand,’ adds Francis. ‘Obviously we’re doing something right.’ So how do outside observers view AgriBioTech’s media relations? Berry Summerour an analyst at Stephens Inc in Little Rock, Arkansas, supports the view that the Bloomberg articles ‘seemed to take an unusually negative stance.’ However, he is quick to add that on the whole he doesn’t take journalists’ comments as seriously as information from companies or markets. For companies like AgriBioTech, with a considerable Street or retail shareholder base heavily dependent on what’s coming out of a newswire, he suggests there may be less stability in the share price than those with a larger proportion of institutional shareholders. Institutions are typically in constant, direct liaison with the company so they can weigh-up news coverage alongside other information available. ‘It can be very frustrating for someone like myself who likes a company and recommends a company only to be faced with the kind of volatility experienced by AgriBioTech, but that sadly tends to be the case with companies like this that trade on news, rather than tangible results,’ observes Summerour.
Reel’em in
Such observations are no consolation whatsoever to investor relations officers faced with a renegade chief executive who insists on speaking ‘off message’ on a regular basis. Perhaps the cleverest way to deal with such a situation is to treat the newswire and other media as an ally, rather than an enemy. This is a tactic repeatedly employed by Swiss-based textile machinery manufacturer Saurer. Luckily, the volatility of Saurer’s share price has more to do with demand for a limited supply of stock and the unpredictable nature of the textile industry than with the CEO going off message. However, some time ago when the CEO mentioned an operating profits figure that had not been made public, the share price fluctuation was minimized because investor relations manager Edwin Van Der Geest was able to jump in and rapidly communicate the newly-released figures to the newswires. This was a proactive move which he and the other members of its close-knit management team have used again and again to minimize big fluctuations in the stock price. Saurer constantly deals with a lot of media speculation, in particular ongoing rumors about a possible merger with one of its competitors, Rieter. ‘In the case of any rumors or negative coverage of this kind, my immediate response is to call the newswire services and invite them to do an interview with me to put the record straight,’ explains Van Der Geest. ‘What we don’t do is issue a press release in order to respond to rumor. I use the big networks such as Bloomberg or Reuters to help, if there is something unclear in the market. With the newswire it’s better to be interviewed.’ Â
On the record
Judging by his comments, Matt Winkler, Bloomberg’s editor-in-chief in New York, would seem to agree with Van Der Geest’s tactics. ‘Business is dynamic,’ he says. ‘And people who are following companies closely, and asking questions and anticipating all those sorts of things are bound to come across occasions when they have a chance to break some news.’ And it’s not only when the chief executive says more than he should. Winkler cites the recent example of US-based Foundation Health Systems Inc. It had long been rumored the company would sell some of its health management organizations (HMOs) and Bloomberg suggested in an article that the CEO was serious about the decision to sell. The stock rose that day when prices in the HMO sector as a whole hardly changed. The next day Foundation Health Systems confirmed in a press release that it was going to sell the HMOs and its shares soared higher ‘We wrote This guy is serious, he’s probably going to do it – and here’s why,’ explains Winkler. ‘And then it went ahead and happened. This is just enterprise reporting – it’s journalistic knowledge, intelligence and skill combined.’
No cover
In Winkler’s view, there is nowhere to hide if information has already been leaked or there are any scraps around for newshounds to savor. ‘A company should make sure that all information is disclosed as soon as possible, but a company can’t anticipate the questions that will be asked of it, and, sometimes, when it answers those questions it unwittingly says something that is news,’ he adds. He also cautions that companies have no alternative but to speak to the newswires, that it’s not sensible to maintain radio silence. ‘They have to talk to us because we’re the agent to their shareholders. The shareholders have us on their desk and they want to know what’s going on. Trying to be Kremlin-like doesn’t work. Once you put your stock in public hands you can’t have it both ways.’ Winkler is probably right. Openness and swift remedial action seem to be the best weapons for IROs to combat any public relations blips. Perhaps it’s also best to assume, during conversations with journalists, that everything is ‘on the record’ and that, while careless talk may not cost lives, it certainly can cause share dives.
