CHAPTER 21 From Delivery to Dialogue

Each of the three parts of IR—Definition, Delivery, and Dialogue—overlaps

in a cycle that supports management’s objective of continuously defining

and effectively communicating its value to The Street. A lot of intelligent

planning and effort are needed for a company to build bridges with the institutional

community, and once these bridges are established, the company

should do everything it can to maintain them. A misguided estimate, a misspoken

word, or a mishandled situation can break a company’s valuation in

one shot.

Dialogue continues the conversations that were positioned in the definition

stage and planted in the delivery stage and helps companies react to

events on a day-to-day basis. The dialogue stage calls on IR to be flexible

and adapt quickly to the ebbs and flows of the capital markets.

The following chapters cover dialogue and include ways in which IR

should help management:

Maintain and build relationships with the sell- and buy-sides. Maintaining

relationships can only come once management understands the delicate

interaction on The Street between companies, the sell-side, and the

buy-side. Once established, however, effective ties to The Street should

position management to build long-term credibility. New relationships

are also a part of this section as IR reactively manages inquiries from investors

and analysts who have shown an interest in the business.

Meet The Street. The second part of Dialogue includes non-deal road

shows (one-on-ones), company visits, teach-ins, and conferences.

Conduct effective event management, which discusses information flow

and how the proper information is critical to plotting short- or longterm

strategy or reacting to positive or negative events. In this case, the

issues are not only third-party information systems but also investor

perception and feedback.

Adopt the banker mentality. This thinking, which focuses on building

shareholder value, aligns IR’s thought processes with the CEO’s and can

proactively assess value creation strategies, like share repurchases and

dividends, not to mention the implications of a strategic acquisition. In

this case, IR isn’t necessarily impeding on the finance function; it is actually

educating the CEO and CFO how best to position an initiative

like this and how to communicate it over time. Part of that job is searching

for precedent in market reaction to any of these events so when the

decision is made, shareholder reaction is likely known in advance.

KEEPING THE COURSE

Having the right relationships can ease a company’s dialogue with the investment

community. Management and IR can continually garner feedback,

choose a strategy, and address difficult situations in a manner that Wall

Street is accustomed to. Accordingly, because best practices ensure that

management’s communication pattern is in tune with what Wall Street is expecting,

benefit of the doubt is earned. That stored-up value can come in

handy in difficult times when, for example, a complicated earnings miss

might need to be communicated. Analysts and portfolio managers can be far

more forgiving if management had a preexisting pattern of communicating

effectively and transparently.

Regardless of specific situations, though, if IR knows its objectives and

has relationships that help support those objectives, then the long-term journey

should run a bit smoother. To keep the course, IR needs a prize on which

to keep its eye, and it starts with a question:

“Regardless of the event or issue, how can it be handled so that longterm

equity value is enhanced or preserved?”

If this is the over-riding goal, rather than what will happen to the stock

price, the right decision will almost always be made.

BUMPY ROAD AHEAD

The dialogue stage can be the most turbulent, as management and IR deal

with everything that comes their way. On any given day, stocks can rise and

fall with no real explanation, so all companies must be in a position to react.

Anchoring that process is IR, and that person must have enough capital markets knowledge to discern an emergency from a simple day-to-day fluctuation

when there are more sellers than buyers.

The dialogue stage is continuous, but different for each company. For

example, a company that is growing at 20 percent with a 10 P/E, with limited

sell-side coverage and institutional ownership, can be very conservative

with regard to setting financial expectations, because Wall Street is basically

disengaged and the stock is interesting (based on its valuation) without

promising too much. But a company with a 50 P/E, in hyper-growth mode,

with a lot of analyst coverage must be very particular in the dialogue stage,

maintaining a constant flow of communication that allows analysts and

portfolio managers to make their investment decisions. Conservative financial

guidance is certainly a part of that, but for the company is that highly

valued, accelerating earnings are already discounted into the stock in all likelihood,

and other information about future strategy might be needed. For

the investment community, this would go a long way in mathematically supporting

the current stock price.

A CONTINUOUS PROCESS

IR in the dialogue stage is a continuous redefining and repositioning of the

company and its performance. IR needs to manage this process and make it

as simple and time effective as possible, including providing management

with knowledge, experience, and options when engaging the investment

community.

Each of the three parts of IR—Definition, Delivery, and Dialogue—overlaps

in a cycle that supports management’s objective of continuously defining

and effectively communicating its value to The Street. A lot of intelligent

planning and effort are needed for a company to build bridges with the institutional

community, and once these bridges are established, the company

should do everything it can to maintain them. A misguided estimate, a misspoken

word, or a mishandled situation can break a company’s valuation in

one shot.

Dialogue continues the conversations that were positioned in the definition

stage and planted in the delivery stage and helps companies react to

events on a day-to-day basis. The dialogue stage calls on IR to be flexible

and adapt quickly to the ebbs and flows of the capital markets.

The following chapters cover dialogue and include ways in which IR

should help management:

Maintain and build relationships with the sell- and buy-sides. Maintaining

relationships can only come once management understands the delicate

interaction on The Street between companies, the sell-side, and the

buy-side. Once established, however, effective ties to The Street should

position management to build long-term credibility. New relationships

are also a part of this section as IR reactively manages inquiries from investors

and analysts who have shown an interest in the business.

Meet The Street. The second part of Dialogue includes non-deal road

shows (one-on-ones), company visits, teach-ins, and conferences.

Conduct effective event management, which discusses information flow

and how the proper information is critical to plotting short- or longterm

strategy or reacting to positive or negative events. In this case, the

issues are not only third-party information systems but also investor

perception and feedback.

Adopt the banker mentality. This thinking, which focuses on building

shareholder value, aligns IR’s thought processes with the CEO’s and can

proactively assess value creation strategies, like share repurchases and

dividends, not to mention the implications of a strategic acquisition. In

this case, IR isn’t necessarily impeding on the finance function; it is actually

educating the CEO and CFO how best to position an initiative

like this and how to communicate it over time. Part of that job is searching

for precedent in market reaction to any of these events so when the

decision is made, shareholder reaction is likely known in advance.

KEEPING THE COURSE

Having the right relationships can ease a company’s dialogue with the investment

community. Management and IR can continually garner feedback,

choose a strategy, and address difficult situations in a manner that Wall

Street is accustomed to. Accordingly, because best practices ensure that

management’s communication pattern is in tune with what Wall Street is expecting,

benefit of the doubt is earned. That stored-up value can come in

handy in difficult times when, for example, a complicated earnings miss

might need to be communicated. Analysts and portfolio managers can be far

more forgiving if management had a preexisting pattern of communicating

effectively and transparently.

Regardless of specific situations, though, if IR knows its objectives and

has relationships that help support those objectives, then the long-term journey

should run a bit smoother. To keep the course, IR needs a prize on which

to keep its eye, and it starts with a question:

“Regardless of the event or issue, how can it be handled so that longterm

equity value is enhanced or preserved?”

If this is the over-riding goal, rather than what will happen to the stock

price, the right decision will almost always be made.

BUMPY ROAD AHEAD

The dialogue stage can be the most turbulent, as management and IR deal

with everything that comes their way. On any given day, stocks can rise and

fall with no real explanation, so all companies must be in a position to react.

Anchoring that process is IR, and that person must have enough capital markets knowledge to discern an emergency from a simple day-to-day fluctuation

when there are more sellers than buyers.

The dialogue stage is continuous, but different for each company. For

example, a company that is growing at 20 percent with a 10 P/E, with limited

sell-side coverage and institutional ownership, can be very conservative

with regard to setting financial expectations, because Wall Street is basically

disengaged and the stock is interesting (based on its valuation) without

promising too much. But a company with a 50 P/E, in hyper-growth mode,

with a lot of analyst coverage must be very particular in the dialogue stage,

maintaining a constant flow of communication that allows analysts and

portfolio managers to make their investment decisions. Conservative financial

guidance is certainly a part of that, but for the company is that highly

valued, accelerating earnings are already discounted into the stock in all likelihood,

and other information about future strategy might be needed. For

the investment community, this would go a long way in mathematically supporting

the current stock price.

A CONTINUOUS PROCESS

IR in the dialogue stage is a continuous redefining and repositioning of the

company and its performance. IR needs to manage this process and make it

as simple and time effective as possible, including providing management

with knowledge, experience, and options when engaging the investment

community.