Jean Jarvis, vice president of investor relations at Times Mirror Company, has long maintained that girls who were popular in high school make the best investor relations officers. ‘They know how to say no, no, no, no and no but keep the boys coming back for more,’ she explains. While demurring on the question of her own popularity in high school, Jarvis does admit, ‘I say no all the time.’
Saying no to an analyst or investor seeking data, a projection or simply some color commentary on a past or upcoming event is one of the trickiest aspects of investor relations. Analysts unanimously agree that they have untold admiration for IROs who say, ‘I don’t have that information – let me go find it for you.’ But when told they cannot have access to certain information ‘it does absolutely enrage them,’ says Brad Allen, vice president of investor relations at Imation Corp. He adds solemnly, ‘And we get punished for it.’ So just how does a good professional save face – and reputation? Different situations call for different tactics.
The first rule is to refrain from any temptation to be blunt, curt or rude, no matter how ridiculous the information request may be. An outright no is almost always inappropriate. In general, saying that the company doesn’t release that piece of information for competitive reasons may be adequate but is often perceived as a weak excuse – especially if competitors do release that information themselves. A corollary is to avoid hiding behind the corporate meanies who won’t let you tell analysts what you know they want to know. ‘My CFO/lawyer/mother-in-law won’t let me release that information’ only serves to put the messenger in a bad light – appearing too intellectually feeble to advocate the analysts’ point of view with superiors.
Silicon Valley high tech consultant Marilyn Lattin suggests first evaluating the information request on its own merits. In her experience on the corporate side, she often found that ‘some analysts were looking for information they thought was insightful but was in fact irrelevant.’ However, trying to convince them of this is another ball of wax. ‘You have to step back and explain why you’re not going to tell them. Perhaps you say, We’re not communicating that release date because there are so many factors affecting its accuracy. Providing them with your thought process goes a long way to getting them on your side.’
Buddy system
Still, no matter how sympathetic analysts are, if they are determined to find a piece of information they will stop at nothing to get it, perhaps turning to far less reliable sources inside or outside the corporation. One IRO recalls a company where an analyst knew personally a senior executive and, upon failing to get an answer through the regular investor relations channels, called up her buddy and got what she needed. Unfortunately, it was blatantly obvious from the published report that an inside source had been used and the executive had his annual bonus docked as punishment.
Corporate investor relations executives also intone that they are especially vulnerable when their company undertakes a strategic alliance, marketing agreement or the like with another (often smaller) corporation with looser (or no) disclosure standards. Unless the prohibition on disclosure is specifically written into the deal as part of the negotiations, one company may find itself at the mercy of another when analysts discover the soft spot. One investor relations officer tells of being overconfident that a key number wouldn’t be released by either her company or its partner only to open the paper and discover the bankers on the deal had leaked it to analysts.
A kinder, gentler way to deflect impossible information requests is suggested by Jane McCahon, vice president of corporate relations at Eastern Enterprises. She says that analysts are usually reasonable when she can’t release information for competitive reasons. ‘They may not like it, but they do understand,’ she comments. But she also appreciates their needs and goes the extra yard to assist them. ‘Try and help them get the information they need, because if they start digging persistently they’re going to find it anyway and you may be worse off.’
Indeed the analysts themselves may be the ones worse off. Marilyn Lattin offers an illustration from her days at Silicon Graphics: An eager analyst grilled trade show sales people who indicated the quarter was looking a little soft. In fact, business was soft only for that particular region. When the analyst extrapolated his narrow findings, his projections came out well below the actual numbers, making him look foolish and creating ex post facto a new disclosure policy for the Silicon Graphics sales department.
Walk don’t run
McCahon also believes it’s necessary to sort the wheat from the chaff when it comes to evaluating analyst requests for information. ‘It’s one thing if you’ve got a sharp analyst who’s really beating the bushes and wants the information because he needs to use it and will use it responsibly. But those who just call and ask if their number is on target, well…’ For the latter, Times Mirror’s Jarvis has developed a ready formula. ‘I’ll say the First Call consensus is x, and the range is from y to z.’ She does caution, however, that IROs must be sure they’ve done a good job of keeping expectations in line. For the genuinely concerned, Jarvis will offer to walk through their model. ‘I’ll ask about their revenue assumptions and discuss those factors that don’t drive earnings. That way they’re forced to work over their models.’
Because analysts are by profession (and often by nature) analytically-driven, they find it irritating when a set of peer companies do not offer the same metrics on the same timetable. For example, in the retail industry some stores issue monthly ‘comps,’ or comparable store sales. Others don’t. Robert Burton has experienced both sides of the proposition. At Kmart, where he served as divisional vice president for investor relations until February 2000, monthly comps were issued. At Home Depot, Burton’s new employer, they aren’t. While some might maintain that Home Depot, by sheer force of its powerful position in the industry, can get away with just saying no, Burton takes a more philosophical attitude: ‘It doesn’t make a difference how frequently you report sales, because people are always going to call you and want to know how business is between those reporting periods anyway. So whether it’s quarterly or monthly, there is always the opportunity to talk in general between data points without offering quantifiable information.’
Offering not the numbers but the words is a strategy others advocate. Karen Warren, senior vice president of investor relations at State Street Corporation, points out that while she often has to say, ‘I’m sorry but we don’t provide that level of detail,’ she works hard to give as much information as she can. ‘We try to answer their questions without quantifying, hoping to create some comfort, impart some knowledge and give the analysts some sense about how things are going.’ While she concedes it may not completely satisfy them, it does help and many times what analysts really want to hear is some degree of confidence about a project, a business unit or a projection.
There may be an even better way to finesse the sidestepping tactic, as offered by corporate communications consultant Mary Conway, whose experience with the financial media grilling CEOs has taught her a trick or two. ‘I generally advise clients to use the opportunity to answer the question they want to be asked,’ she says. It’s her counsel when asked something you can’t, or won’t answer, to say, ‘Well, you know we don’t share that information but I know what you’re trying to get is a better sense of our business so let me talk a minute about…’ This way information is imparted even if it’s not exactly what was being asked for. Still, Conway cautions this may work better for media interviews than analyst grillings. ‘A reporter can’t afford to get hostile with an interview subject, but an analyst sure can,’ she notes.
Although he modestly insists he does not have all the answers – ‘In the interest of full and fair disclosure I’m not so sure we do such a great job of saying no at my company’ – Imation’s Brad Allen does have a suggestion for dealing with aggressively inquisitive analysts. He suggests creating, and using a policy approach. ‘If you say, It’s not our policy to disclose release dates, it gives the refusal a whole new light,’ he says. ‘It implies that management has considered it, talked it over but for strategic reasons can’t. This relieves the pressure on both the asker and the askee.’ Of course it requires careful consideration of exactly what will and won’t be disclosed, as well what analysts really need to know.
Home Depot’s Burton takes it one step further. ‘There are really two things you can say,’ he reflects. ‘One is to indicate that as a matter of policy the information isn’t given out; this gives a sense of active management of the business. The other is to say, Gee, I haven’t heard of that request before – give me some time to check it out. This way I can buy time to make a considered decision about releasing the information.’
No matter what solution an investor relations officer finds comfortable, the golden rule of consistency in all discussions still holds. ‘Once you establish a threshold, there’s no turning back,’ reminds Karen Warren. Plus you always have to be prepared for constant testing of whatever limits you’ve set, corporate policy notwithstanding. ‘If you give them monthly data, they’ll want weekly, and if you give them weekly, only daily will do,’ laughs Jean Jarvis. ‘It’s just like high school all over again – they’re always trying to get a little further. Just hold your ground.’
