Fill in the blanks: Your share price has dropped x percent over y months, victim of the general market backlash. With fragile investor confidence and an absence of clear strategic direction, investors are reading major trends into the scantiest morsels of market intelligence and your quarterly results are seized upon as runes for the global economy as a whole. Never has direct contact with company management been so important. Never has the conference call been so important.
There’s no doubt conference calls are a significant part of the IR world. How significant? ‘Absolutely essential,’ is Shawn Southard’s simple answer from his experience as director of IR for US Interactive. Whether speaking to hundreds of analysts and shareholders, as is the norm for Zac Nagle of Dell Computer, or merely a handful, which is the experience of Julie Theriault of Steinway, conference calling is an integral part of modern IR. At last count, the National Investor Relations Institute found that 88 percent of US companies conduct quarterly conference calls.
The growth of conference calls has been widely reported and the IR community is all too familiar with them. However, as with all technological innovation, it’s not the technology that’s interesting, but the way it gets used. All companies have their own idiosyncratic approaches to preparing and running conference calls to reflect their particular needs. Many have discovered the unexpected spin-off benefits that can come with the adoption of teleconferencing, from providing a better service to certain investor segments to opening up new IR opportunities or even influencing the culture of the IR department. The following case studies show some of the experiences IROs have had in coming to terms with this medium.
Lockheed Martin:
Discipline & media friendliness
The initial impetus for Lockheed Martin taking up conference calling was external facing – the view that conference calls represented a more efficient and effective method of communicating to a wide investor audience. Experience has not only borne out this initial view but also delivered in other unexpected ways as well. The challenge of adopting teleconferencing has in effect provided a catalyst to wider cultural change which James Ryan, VP of Lockheed Martin’s IR, sees manifested in two key areas: increased focus and discipline and a more welcoming attitude to the media.
He discusses the added focus conference calls have given his team: ‘One of the reasons I believe our conference calls have been successful to date is the amount of preparation we put into them.
We provide as much detail as possible in the press release and try to anticipate all the questions in advance so we can ‘answer the mail’ in the prepared sections, leaving the Q&A to focus on strategy and not the details of the previous quarter.’
While these objectives are not new to IR presentations, the dynamics of the conference call medium create an increased urgency to ensure every possible detail is meticulously covered. ‘A pause of a few seconds sounds like hours on the phone and you don’t want dead space in a conference call,’ says Ryan. Avoiding even a few seconds of dead air on a broadcast to a global audience of analysts has raised the stakes and hence driven Ryan’s IR team to greater discipline in their preparation of the quarterly earnings release. It has also brought about an innovative approach to making the information available to the senior executive in the hot seat. ‘We spend four or five days preparing useful data and answers and then literally wallpaper the room with them so everything is immediately accessible to the person who is answering any questions.’
Ryan strongly welcomes the role conference calls have played in breaking down the barriers between the IR community and the media. When Lockheed first started using conference calls for quarterly results, no-one considered inviting the media. In fact Ryan goes as far as to say, ‘In the investor relations community as a whole there was a desire to keep the media separate.’
However, this stance had to be abruptly reconsidered once third- party web sites started publishing conference call transcripts. And if that didn’t persuade companies, Reg FD certainly did. ‘Leaving the media out was not an option once conference call transcripts were being published anyway. The media are now invited to our calls on a listen-only basis. More importantly, I think the knock-on effect is that investor relations in general is becoming culturally more welcoming towards the media, which is as it should be.’
Greater professionalism and a more inclusive approach to the media were not top-of-mind when Lockheed began teleconferencing, but they are welcome influences on Lockheed’s IR culture.
In the heat of the moment
1. Prioritize analysts in the Q&A. Give the operator a list of the analysts you definitely want to ask questions. The first few questions can set the mood of the Q&A, so if you know a certain analyst will pursue a negative line of questioning, ask the operator to relegate them to later on.
2. Limit the number of executives who answer questions. You can prepare a smaller number of people more thoroughly. It avoids the problem of analysts targeting questions to specific members of senior management who may not always be the best person to answer.
3. Prevent the Q&A from being monopolized by a single questioner. Q&A can sometimes be dominated by analysts asking multi-part questions or individual investors rambling on with unfocused comments. Either formally limit the questions to a main query and one follow-up, or be vigilant about cutting in on lengthy questions and suggesting a fresh one.
4. Have support staff get answers for questions for which you haven’t prepared. Sometimes you may not have the answer at your fingertips. Having support staff on standby to get any missing answers allows you to return to a question before the end of the call.
5. Make background information accessible during the Q&A. James Ryan of Lockheed Martin actually wallpapers the conference call room with data and vital information. Blair Christie of Cisco Systems puts together a huge binder for her CEO and CFO. Dell’s Zac Nagle has a deck of data slides on a laptop and his support team projects appropriate information onto the wall as questions come up.
6. Note down the questions as they’re asked. Analysts love to ask multi-part questions, and senior management should be used to this quirk. But how many times have you been embarrassed to hear your CEO utter, ‘Um, can you repeat the second part of your question?’ Make sure someone is writing down questions as they’re asked. Answering a multi-part question smoothly and confidently impresses the audience.
Gateway: Controlled messaging
As one might expect from a technology company, Gateway was an early adopter of IR conference calls, presenting quarterly results this way since 1993. As a new communications medium increases the reach and scrutiny of a company’s IR message, so must a company increase the focus it puts on the messaging. Gateway’s conference calls are put together with significant input from the PR and legal departments as well as the CEO and CFO.
Striving for greater consistency in corporate messaging, Gateway’s in-house PR department leads the work on the quarterly earnings release message. Marlys Johnson from Gateway’s IR department explains: ‘Work on the preparation for quarterly conference calls is split between the IR and PR departments.
IR organizes the logistics and provides feedback we’ve had about market sentiment and the issues on the minds of analysts; meanwhile PR works on the messaging to ensure it is consistent with our broader corporate communications.’
Gateway always has legal counsel and finance staff in the room during a call. ‘There have been times when senior management were asked questions it was inappropriate for them to answer,’ Johnson says. ‘For example, Gateway was one of the companies called to testify in the recent Microsoft case, and in one quarterly conference there was a question from the audience asking us to comment on it. Having legal advice on hand during the question and answer section is a precaution against making mistakes with these sorts of issues.’
Conference calls are now a very public platform for your company’s communications, which means getting a consistent message right is more important than ever. Gateway’s approach has been to consider carefully what inputs are required to successfully shape the IR message and formally bring those skill sets into the mix with the IR, PR, finance and legal departments.
It ain’t what you do, it’s the way that you do it
A conference call can do more than just convey financial and strategic information; it is also an opportunity to express the personality of your company. Branding is key here; and some IR departments make a conscious effort to express the personality of the company. Granted, the core message is factual and the audience takes it seriously, so getting Ronald McDonald to talk about future growth strategy may go down poorly. But that’s not to say you can’t put a little style into the proceedings. ECI Conference Call Services reports that Disney gets them to play Disney tunes as the ‘on-hold’ music during conference call registration. Meanwhile, Anheuser-Busch plays conversations between the lizards and frogs from their recent advertising campaign as on-hold entertainment.
Over at Dell, scripts for the prepared sections reflect the ‘professional but laid back’ personality of the company. Gateway is wide open with its Q&A session, allowing anyone to ask anything on a first-come-first-served basis in contrast to the more controlled, prioritized Q&As of other companies. All these elements are touches that don’t undermine the importance of the messaging but add flavor, color and personality to a company over and above graphs and numbers.
US Interactive:
Calling retail investors
US Interactive has found open calls ideal for dealing with its big retail investor base. The company went public in 1999 and is 50 percent owned by individual investors.
Although calls are open, not everyone can ask questions because US Interactive wants to maintain a high level of discussion. IR director Shawn Southard explains: ‘When it comes to the Q&A section, you want the analysts to lead the conversation as opposed to less sophisticated investors. Prioritizing the questioners allows you to guide the debate towards the questions that will have the widest interest and yield the most important answers.’
Southard recognizes the appeal of conference calls to investors of all sizes. ‘In a conference call, tone comes into play. It’s not just a quote in a press release – you can actually hear the enthusiasm in the voice of the speaker. Often a conference call is the only direct contact individual investors have with the company and it gives them the chance to put color and personality to a name, and this goes a long way toward making them happy.’
Dell – Leveraging content
The teleconference itself represents just a minor portion of the expense of a quarterly earnings announcement. Indeed, most of the effort, and hence cost, goes into the management time to prepare. Dell Computer has increased its return on this preparation investment by rolling out variations on the message in further conference calls to the media. Dell’s senior IR manager, Zac Nagle, explains: ‘We have already done the messaging for the quarterly earnings call, so the communications department takes it and tailors it for a particular media audience. And using a conference call allows us to put senior management in front of the financial media for less cost of management time and get out our IR message with greater consistency than when individual executives did separate meetings with journalists.’ The relatively low-cost conference call provides a simple and cost-effective opportunity to repackage the work done for the quarterly earnings release for greater effectiveness.
The speed with which a conference call can be set up and the large numbers of analysts and investors who can be reached make it an idea medium for swift response. Nagle uses conference calls to quickly get a message out to the analyst community if news has been released that is causing the market concern. ‘Say we had to revise our earnings upwards or downwards. We can issue a press release and follow up with a conference call an hour later with excellent attendance from our shareholder base. Quickly putting on a conference call can shut down any speculation. Compared to just a press release, a call lets us disseminate information more clearly by giving more tailored communications through the Q&A section. Also in a situation like that, the more personal nature of a conference call helps significantly in calming the waters.’
Bloopers
What’s the key to a successful call? Preparation, preparation, preparation. But you can’t prepare for everything.
Bina Thompson, VP of IR at Colgate-Palmolive, recalls a time when she was working for a technology company, before she joined Colgate: ‘In the early days of conference calling you polled everyone on the call, with everyone announcing their name and company. We were going through them all one by one as the analysts gave out their names when suddenly a sergeant from the LA police department announced himself. This caught everyone by surprise until we all realized he was there by mistake having dialed a wrong number.’
Shawn Southard listened in to US Interactive’s conference call just before joining the company. ‘The prepared speeches were over; the Q&A started. But the conference call company had clearly never done a quarterly earnings call before and they switched to an open mike so the entire audience went live simultaneously. The next day I was asked what I thought of the call. I said my first action was going to be firing the conference call vendor.’
Southard was later managing a call that highlighted a truth all IROs know but rarely face so openly. ‘We all know the competition listens in to our calls; it’s part of the job. But it’s not something you advertise. During one call we were in the Q&A stage and an ‘investor’ asked a question. Our CEO wasn’t familiar with the name so asked for his name and organization. It turned out the guy was an IRO working for the competition.’ Still, ‘We answered his question, as we do all questions, but the analysts were laughing about it in the follow-up calls afterwards.’
Dell’s Zac Nagle had to be out of town during an analyst meeting but he listened to the webcast in his hotel room. ‘The meeting was broadcast live and during the breaks the mikes were supposed to be cut off. But during the first break you could still hear the guys chatting casually. I called straight away and told them they were broadcasting small talk around the globe. They were able to sort out the problem.’ Nagle says it’s essential to have someone monitoring every call, hearing what the audience hears, in case real-time adjustments are needed.
The Cooper Companies: Coloring Q&A
The conference call is now an established IR event for almost all public companies, but it’s still a unique communications medium with its own voice and dynamics to be
considered. For example, speaking to an unseen audience is something anyone would find a little unsettling to begin with. Norris Battin, the VP of IR with The Cooper Companies, learned that lesson. ‘Our CEO is an articulate man who naturally warms to a crowd and works well with them. But the lack of immediate feedback with a conference call deprives him of this sense of his audience.’
It’s not only senior management who feel under pressure – analysts do too, which can affect the way they approach the Q&A. ‘The analyst is also on stage in front of their peers and sometimes you feel they are trying to make a point to the audience too,’
Battin suggests. ‘They may feel a pressure to publicly support a position they have made by asking questions that support their original conclusion. They may want to find out something without giving away information they know but which they don’t want their peers to know. They still want to differentiate their coverage. Analysts don’t always communicate in a conference call the same way as they do face-to-face. It can help you understand what they are really after and how to answer if you are aware of that.’
Conference calls, with all the add-ons from webcasts to internet slideshows, interactive polling and online call controls, are firmly established on the IR map. Globalization extends the geography of the IR message, while analysts have grown used to the convenience of not having to travel to a results meeting and demand teleconferencing as matter of course. And, of course, IROs will go on finding ways to use the technology to provide a better, faster service to investors and a stronger corporate image for their enterprise. So as with all technology stories, what’s interesting is not the technology, but how people respond to it.
Battle-hardened preparation tips
1. Deal with the detail up front. If you anticipate and answer all the obvious questions in the press release, you can free up the call’s Q&A for meaningful discussions regarding strategy. It is this forward-looking element which is likely to be of greater interest to analysts and investors and more use in positioning your company.
2. Ensure senior management understands and actively buys into the key messages. They may read their scripts obediently but unless they are active advocates of the content, they could go off message when it comes to the Q&A. Answers in the Q&A should serve to reinforce the main messages.
3. Debrief everyone after the call to improve the next one. This includes internal and external surveys: Do follow-up questions from analysts or investors who were on the call suggest any parts of your message were unclear? Were there questions the team wasn’t prepared for? Learn from past calls to improve preparation.
4. Make sure there’s enough capacity for internal employees to access a webcast. Employees accessing a call from their desks can comprise an important part of the audience. But having everyone accessing streaming audio or video simultaneously is likely to strain your network, unless your IT department has made provision.
5. Pre-registration can improve your anticipation in the Q&A. Understanding general market sentiment and specific analyst issues allows you to better devise your message and prepare senior management. Even just getting analysts to pre-register gives you an idea of who will be big players on the call (an enthusiastic analyst or pessimistic short-seller) and may yield clues as to possible lines of questioning.
6. Have a separate second line between you and the conference call operator. This is a vital back-up in case something goes wrong and an increasingly important tool for the normal running of the call. For example, find out how many participants have logged on before you start – you may wish to delay if you are expecting a lot more. You can also find out who’s in the queue to ask questions and pick and choose. Teleconference vendors are now handling many of these functions online so you can see the question queue on-screen.
