The one task a board of directors can’t afford to delegate

March 2015 | SPOTLIGHT | RISK MANAGEMENT

Financier Worldwide Magazine

As concern grows over challenging market conditions worldwide, especially in the extractive industries, boards will be under increased pressure to prove they can perform effectively and guide public companies through this period of adversity.

How would your shareholders respond if they were asked: “How effective is the leadership of your company in the midst of challenging times?” If the answer is anything other than “very effective”, we’d encourage you to keep reading.

Too often, corporate communications can become a routine exercise of checking regulatory boxes and issuing obligatory press releases, leaving companies with the mistaken impression they have ‘communicated’. The problem is that this approach leaves investors with a gap in their knowledge – if the message even reaches them at all – regarding the company’s overall strategy. What is missing is a master narrative that binds all of these one-off communications together to provide context and a strategy that effectively use them to reinforce your core value proposition. Meeting the requirements of regulators is a very different exercise than campaigning to win the hearts and minds of those proxy voters who literally hold your fate in their hands.

So what is a director to do? A clear path forward starts by answering the ‘what’, ‘who’, ‘when’ and ‘how’.

What?

Being clear on your mission, fundamental strategy and core value proposition is crucial but can be meaningless if it isn’t being clearly communicated. One of the biggest reasons companies get into trouble with their shareholders is because of a gap between perception and reality, between what they think the company’s plan is and what management is executing on. That gap often stems from a company’s failure to adequately assert its vision and brand its path to value creation on the public mindset.

Consider all the successful corporate brands that have stood the test of time. The one thing they all have in common is a binding narrative that their shareholders buy into about the long-term vision and story of the company, helping them more effectively weather short-term turbulence. Taking time to not only define the most basic core elements of your strategy but also the best way to talk about them can provide firms with a multitude of benefits. Knowing where to ground your communications promotes consistency and decreases the likelihood you will trip up in the public eye. Having a logical, well-developed narrative for your company, especially as it relates to strategic oversight, managing risk, and governance, can inoculate against or eliminate the perception that a board is distracted by certain issues or has a lopsided or limited focus. For example, with the market down, do you see this as a time of opportunity consistent with your overall strategy to consider acquisitions? Why or why not?

It’s a problem if shareholders hear a good idea for the company from someone other than you. It’s an even bigger problem if they mistakenly conclude something is a good idea because they are unclear on your long-term vision.

Who?

Gone are the days when a board could expect to fly below the radar and leave public and shareholder relations to management alone. If boards are to oversee management and ultimately be accountable to shareholders, then they need a firsthand dose of reality, and to be seen as actively engaged.

When only your chief executive and investor relations professionals are responsible for communicating, a schism can develop leading to serious consequences. While returns and profitability metrics tell part of the story, it is often not the full picture. Shareholders are increasingly interested in issues management can’t speak to, including the need to change management. There is a big difference between the love of an asset and the love of the management of an asset. Shareholders that like the asset may not sell their shares if they think they can replace management.

A board might be doing everything right, but if investors don’t know it and understand it, you can’t expect them to give you credit or support you. Media and presentation training for directors should be included in all board development training to help directors who are now required to move beyond their comfort zone. A well performing, action oriented, accountable board is vulnerable if no one other than them knows about it.

When?

Are your communications done on an ‘as needed’ or ‘as planned’ basis? Military leaders use the term ‘forward leaning’ to describe their willingness to confront challenges and define an engagement rather than to shrink back and be reactive. Many companies would do well to adopt this thinking and be consistently proactive when it comes to communications.

Often companies fall into a cycle of daily issues management where the immediate overtakes the important, and long-term strategic communications objectives get pushed aside as more pressing issues are addressed. Failure to be proactive will result in a cycle of crisis management.

In good times, management is all too eager to get in front of shareholders and hear their praise, but it is during the tough times when interacting with shareholders becomes even more crucial and the visible role of directors becomes more important. Just because your sector has fallen out of favour does not mean shareholders don’t want to see you. In fact, you need to see them more to ensure they understand how you are managing the challenges, what actions have been taken and how can you assuage some of their concerns. It’s easy to ride a wave, harder to climb a mountain.

How?

We live in an age of instantaneous information access. Press releases are no longer the only way to reach your shareholders. For companies that do have their narrative straight and that are being proactive in reaching out, their message may still be failing to resonate for three reasons – lack of repetition, lack of simplicity, and lack of delivery.

Saying something once does not mean it has been heard – let alone understood – by your busy and distracted shareholders. Repetition is key to making your message resonate with your audience. Corporate communications tend to fall victim to fulfilling the expectations of lawyers as opposed to meeting the expectations of shareholders. Time should be spent boiling the fat out of your message to simplify it and using plain language so shareholders with limited time can grasp your key points. Most shareholders aren’t watching the wires for your release and if they are, it is quickly crowded out by hundreds of others like it. Think differently about the tools you use to communicate with your shareholders. Do you have a microsite for investors? Does it make sense to record and distribute a series of short Q&As with your chair? Are there major speech opportunities for your leaders to pursue? If the only time you communicate with shareholders is in your circular, consider special letters at intervals where additional explanation is needed or you want to highlight a particular advancement.

For boards, while the next few months will be a great challenge, it can also be a time of great opportunity to use a period of adversity to elevate market perception and build investor confidence. For individual directors, the reputations built in the challenging times will follow you. The question for both is: Do you want to define or be defined?

Amy Freedman is executive vice president and Ian Robertson is vice president of communications at Kingsdale Shareholder Services. Ms Freedman can be contacted on +1 (888) 683 6007 or by email: afreedman@kingsdaleshareholder.com. Mr Robertson can be contacted on 1 (888) 683 6007 or by email: irobertson@kingsdaleshareholder.com.

Amy Freedman and Ian Robertson

Kingsdale Shareholder Services