On October 25, 2001 headlines flashed across screens with a dire profit warning for Massachusetts-based software maker EMC. Traders began hitting the ‘sell’ button, sending an already weakened share price crashing. Indignant calls came flooding into the investor relations office of EMC, which just a few weeks before had warned that the September 11, 2001 attacks on the US would dent sales.
But EMC had not issued a second profit warning – it was a mistake. The headlines should have read ‘BMC Software’.
This is an IRO’s worst nightmare: inaccurate information with credibility streaming across a screen viewed by the company’s largest shareholders and sending panic into the market. Although it was quickly corrected and there was nothing EMC could have done to prevent it, it demonstrates the awesome power of newswires in the market.
Top IROs already know how important newswires are and how to deal with them but there are still some simple rules any company can follow to improve the quality of coverage it receives from newswires. Although direct dealing with newswires is normally left to the PR department, a good IR approach is crucial. It is the IR department that normally drafts, or helps draft, news releases with market-sensitive information. And it is often the IR department that is responsible, at least in part, for policies about access to information that can improve or hurt the quality of coverage.
There is no better argument for the need for integration than in the case of newswires. ‘In the US, companies are generally better at integrating, in part because the regulations mean you cannot prevent journalists or investors from listening to what you tell analysts. In Europe, many companies do [prevent this],’ explains Jonathan Birt, a partner at London-based Financial Dynamics and a former Reuters reporter. ‘One reason there is such an unnatural divide between PR and IR in European companies is because big companies can get very bureaucratic. They mark out their territories and protect them.’
The companies that are getting it right are those that approach all communications in a unified way. ‘Where we have tried to stand out in a positive way is in our belief that all of our audiences are equal,’ says Lynn Morgen, group VP of corporate development (which includes responsibility for global investor relations) at top semiconductor maker STMicroelectronics. ‘We don’t believe that investors are more important than media, customers or employees.’
Snap decisions
All traders have terminals on their desk with news streaming out from Bloomberg, Reuters and/or Dow Jones. They make instantaneous decisions about buying or selling often based purely on the headlines – called snaps or flashes – put out by these newswires. And newswire stories are picked up directly by newspapers for print the following day or, at the very least, set the tone for coverage.
Newswires often attract highly competitive types with above-average pay and some of the largest audiences in media. So for the newswire journalist, every unexpected release is an opportunity to win or lose. Each of the hundreds of bureaus worldwide receives a report everyday detailing who had the news on screen first, measured in seconds, not minutes. So newswire journalists, whose career advancement depends on consistently beating the competition, flash without hesitation. When the release lands, the journalist has composed a snap and hit the send button within seconds. There’s no time to ring the company to ask for clarification.
Laying the groundwork
Normally a journalist who is an expert on a specific company or sector will handle earnings results, so the odds are high he or she will understand complex financial data and know the company’s history. But it often happens in the case of unexpected news stories that whichever journalist is on duty will handle the story. Given the proper amount of warning, however, you can increase the odds the specialist who understands your company will handle your news.
‘Journalists don’t like surprises,’ says Birt. ‘If you can warn people to stand by, that is helpful. Obviously that can be tricky because it requires you to have relationships with journalists you can trust and not to breach market rules on disclosure.’ Although most newswires operate on a shift system, most company specialists are always available by mobile phone. And most will come in early or stay late if they know an announcement is coming, or wake up in the middle of the night for a good story.
One of the companies at the forefront of increasing the role of IR in relation to newswires is global consumer goods giant Unilever. Journalists give the company high marks for having improved the access they get to detailed financial information, which in many companies is presented to analysts, but not journalists, in clear violation of SEC rules.
‘We never really made a decision that Bloomberg, Dow Jones or Reuters could talk to IR and that other journalists could not, but we realize the financial press needs very specific answers,’ notes Unilever corporate communications chief Tom Gordijn. ‘As a press officer, I’m more generally informed.’
At news conferences, Gordijn makes sure someone from IR is present to answer financial questions he cannot. He has also worked in conjunction with IR to lay the groundwork ahead of time, making sure financial journalists understand the company’s business. ‘At Unilever we believe when reporters understand the financials, they do better reporting,’ he says. ‘To illustrate how much importance we attach to good financial reporting, we organized a workshop in September 2002 where we invited the Unilever watchers to come to our headquarters for a day. IR, along with someone from accounting, went through our method of results reporting in detail with the journalists. The CFO even took part.’
When the journalist who normally covers a particular type of company is not available, however, firms have to ensure their message can be easily understood by someone who is not a specialist.
‘Newswire journalists’ primary goal is to get a good, accurate piece written as quickly as possible,’ explains Pam Small, associate partner at Brunswick, a financial communications agency. ‘It’s in their interest to have a good understanding of the company in order to be able to digest the news announcements quickly. The difficulty in doing that might be when they are asked at short notice to cover a company they don’t normally follow. ‘Companies should be aware that while some newswire journalists have a deep understanding of the company, the firms should expect occasionally to have to explain their story to a journalist who doesn’t know their background.’
Writing clear messages
The clearer and more direct a financial press release is, the less opportunity for mistakes. Usually the focus, in the case of earnings, is on net profit or loss, or other numbers the market is expecting. In the case of non-earnings related releases, the journalist scans the release to see what market-moving news might be buried in the text of the release. When firms lead with good news and bury the bad news in the middle or at the end, it takes good reporters only a few extra seconds to find that bad news and snap it. Termed ‘shit sandwiches’ by journalists, these releases seriously antagonize newswire staff, and they are much more common than logic would otherwise suggest.
The bureau chief of a bustling European financial newswire says: ‘Give us the bad news. Put it up top and tell us what you are going to do to resolve the problem. It makes us respect you and trust you. When you write a glowing press release and we discover on page 37 that profit fell 56 percent, then it only makes us wonder what else you are hiding. And it really pisses us off.’
Most companies with good communications policies realize that they have to be honest with the bad news. ‘We don’t only put positive things in the subheading,’ comments Morgen. ‘[In the third quarter report] a $193 mn pre-tax charge was the second bullet point. We are not there to tell a story that doesn’t exist. This release is who we are.’
The easiest way to make sure your press release is clear and easy to read for all journalists is to tailor it for time-pressured newswires. Firstly, use bullet points at the top of the release to indicate the most important points. Secondly, include a short financial table with comparatives. Thirdly, always include a CEO quote that encapsulates the outlook, which is – in more cases than not – more important than the actual numbers. Of course you will have a more detailed outlook later on in the press release, but there should be some indication on the front page.
Also, although this sounds quite basic, most newswires want to know net profit, pre-tax profit and revenues. Even when a company wants the market to focus on a number it defines, it is still essential to place those standard numbers and their comparatives up high, rather than making the reporter hunt for them.
‘Numbers excluding currency affects cannot stand on their own,’ points out Victorina de Boer, a former Bloomberg reporter who now advises companies on financial communications. ‘Companies have to put the number that also includes the currency affects. Or if a company has exceptional charges every single quarter, those charges are not exceptional any more.’
One way to make sure the press release answers all the questions investors, analysts and journalists have is to involve the key communications professionals in its preparation. ‘Corporate communications and IR work hand in hand with the financial releases,’ says Morgen. ‘We sit down together and try to anticipate the key points – not just what we want to say, but what the key issues are. We follow very carefully what the journalists, analysts and media are saying.’
Follow-up calls
After a completely clear release has hit the wires, the next step is to make sure the journalist has immediate access to someone who can answer financial questions. In many cases, the PR department will have arranged a conference call with the CFO or a senior IRO to answer detailed questions. Although some companies offer individual phone interviews of ten to 15 minutes to newswires early in the morning, one call that covers all the newswires will also do the trick.
‘One call for all of the newswires levels the playing field and doesn’t give anyone a time advantage over the others,’ explains Small. ‘It’s also partially logistics – management members often don’t have the time on the morning of an announcement to have five separate conversations with individual newswire journalists.’
Most newswires have their first earnings story on the wire within 15 minutes of the initial snaps. But they update the story throughout the day, including information from conference calls, press conferences and additional reporting. IROs can monitor those stories as they hit the wire to check for any inaccuracies. Newswires are normally quick to correct any mistakes that work their way into the text, but they often will not know there is a problem without a call from the company.
Equal access
Sometimes IROs, management and PR people fear newswires. And although it is a legal necessity to give news to the wires – in most cases it flows directly from exchange reporting systems – many IROs would prefer not to give any additional information to newswires that could end up streaming across the screen. The stated, or de facto, policy of most large companies is not to give interviews to newswires, for instance. And this can easily be justified as complying with strict SEC regulations about proprietary information.
But good financial journalists get the information anyway, particularly the bad news. Good newswire reporters are often chummy with analysts, brokers, labor officials and even disgruntled employees, so keeping them out of the loop is impossible. These often scoop-oriented journalists are left getting the news second- or even third-hand. Of course PR can always deny a rumor or refuse to confirm it, but once the rumor has already splashed around the world, the damage has been done – as EMC discovered.
Most companies allow journalists to listen in to analyst or investor conference calls, but few invite or allow journalists to attend analyst days, where detailed and often technical information is discussed. Others are more forward thinking. ‘We have an analyst field trip once a year and we always invite key journalists,’ confirms Morgen. ‘We definitely want the media to be as informed as they want to be. It only helps.’
