CHAPTER 4 Employees, Suppliers, Customers

Though the buy-side and the sell-side influence stock price, both sides can

agree that others in the equation are equally important to the ongoing operations

and profitability of the company. These are the catalyst constituencies,

the groups that in and of themselves can make or break a company.

THE STARTING TEAM

Employees are the most obvious catalyst constituency because they are a

major contributor to the success of a company. In addition to developing,

executing, and growing the business, they are also an active voice for the

company. Aggregated, their words and deeds can carry far into the capital

markets. Not only can employees have an influence on investors, in most

cases they are investors.

For senior management, it’s not only important to develop a long-term

business plan and thesis but equally important to have employees embrace

that thesis. This buy-in is essential to keeping the team on a cooperative,

purposeful, and energized route to accomplishing the company’s goals. Employee

communications must effectively integrate with IR so that internal

communications regarding business performance, outlook, competitiveness,

and challenges are consistent, if tailored from investor-speak to

employee-speak.

All public companies should assume that employees and team members

listen to quarterly conference calls and Web casts. Employees represent the

company to the outside world, in their neighborhoods and communities,

as well as to important strategic partners such as vendors, suppliers, and

distributors.

VERTICAL AND HORIZONTAL STAKEHOLDERS

Strategic partners in a company’s supply channel are most effective if they understand

the objectives and goals of the companies with which they are working.

Clear and consistent communication is the key to this understanding.

The need exists to relay the company mission throughout the supply

chain, from raw materials to retail. The balance of power in the supply and

distribution channel varies from industry to industry and company to company.

Sometimes the relationships are greatly interdependent, with all players

equally reliant on the others for their very existence. Sometimes one

player dominates; for example, when Wal-Mart sneezes, multiple consumer

product companies catch a cold.

Management should recognize the effect that a major customer or supplier

can have on the way the company is perceived, based on the company’s

reliance on that customer or supplier. When the lead dog is the company,

IR’s ability to communicate well is vital. Regardless of which organization

weighs heaviest on the supply channel, every function has the direct or indirect

capacity to enhance or detract from a company’s value. Everyone benefits

if IR is informed, understands these relationships, and works with PR or

Corporate Communications to set the context for the flow of communication

between the company and its strategic partners.

THE COMPETITION

Though communication to the competition is rarely direct, a company’s

peer group in any industry is going to see its press releases and financials,

learn its strategy, and understand its business. Public company disclosure requirements

necessitate that material financial information be disclosed in a

timely manner, although what is and what isn’t material can be a confound-

A telecommunications company has disclosed to investors on a conference

call a cost-cutting plan without simultaneously communicating

this plan to employees or preparing them for the news. Not only did

the company set up the employees to hear the bad news from elsewhere,

but the company disenfranchised its team members by referring

to employees as “heads,” stating they’d be “cutting heads” to reduce

costs. Productivity and moral naturally suffered, and resume activity

increased dramatically.

ing process. In fact, there is no bright-line standard for materiality. The definition

relies on case law. Companies want to disclose as much as, but not

more than, they should, while investors and analysts increasingly demand

more information. Getting this fine line right is important for all constituencies:

regulators, investors, and analysts. Distributing excessive information

can provide competitors with more knowledge than makes management

comfortable.

THE GOVERNMENT—SEC, FASB, AND INDUSTRY

REGULATORS

Created in 1934 to restore public confidence in the capital markets subsequent

to the stock market crash of 1929, the Securities and Exchange Commission

(SEC) was established to promote stability in the markets and protect

investors. As the Commission states, “the primary mission of the U.S.

Securities and Exchange Commission is to protect investors and maintain

the integrity of the securities markets.” In this vein, “the SEC is concerned

primarily with promoting disclosure of important information, enforcing the

securities laws, and protecting investors who interact with these various organizations

and individuals.”

The Securities and Exchange Commission is the overseer of all public

disclosures. The SEC sets the template for, and provides the public with access

to, these company-specific filings. The precise guidelines for SEC disclosure,

as well as the rules and regulations of the Federal Accounting Standards

Board (FASB), lends a uniformity to all financial statements and helps

streamline and simplify the process for financial communications. Almost

every business must claim regulators as an important constituency. These

can be government (e.g., Food and Drug Administration [FDA], Federal

Communications Commission [FCC], or Environmental Protection Agency

[EPA]), labor (e.g., unions), or industry (e.g., the Direct Marketing Association).

All these third parties closely examine the operations and output of a

company, aiming to protect whichever aspect of the business they represent.

Regulators are best served if they are being consistently heard and clearly

addressed. Along with the other catalysts, IR’s input into the communications

with these groups can make or break valuation.

Though the buy-side and the sell-side influence stock price, both sides can

agree that others in the equation are equally important to the ongoing operations

and profitability of the company. These are the catalyst constituencies,

the groups that in and of themselves can make or break a company.

THE STARTING TEAM

Employees are the most obvious catalyst constituency because they are a

major contributor to the success of a company. In addition to developing,

executing, and growing the business, they are also an active voice for the

company. Aggregated, their words and deeds can carry far into the capital

markets. Not only can employees have an influence on investors, in most

cases they are investors.

For senior management, it’s not only important to develop a long-term

business plan and thesis but equally important to have employees embrace

that thesis. This buy-in is essential to keeping the team on a cooperative,

purposeful, and energized route to accomplishing the company’s goals. Employee

communications must effectively integrate with IR so that internal

communications regarding business performance, outlook, competitiveness,

and challenges are consistent, if tailored from investor-speak to

employee-speak.

All public companies should assume that employees and team members

listen to quarterly conference calls and Web casts. Employees represent the

company to the outside world, in their neighborhoods and communities,

as well as to important strategic partners such as vendors, suppliers, and

distributors.

VERTICAL AND HORIZONTAL STAKEHOLDERS

Strategic partners in a company’s supply channel are most effective if they understand

the objectives and goals of the companies with which they are working.

Clear and consistent communication is the key to this understanding.

The need exists to relay the company mission throughout the supply

chain, from raw materials to retail. The balance of power in the supply and

distribution channel varies from industry to industry and company to company.

Sometimes the relationships are greatly interdependent, with all players

equally reliant on the others for their very existence. Sometimes one

player dominates; for example, when Wal-Mart sneezes, multiple consumer

product companies catch a cold.

Management should recognize the effect that a major customer or supplier

can have on the way the company is perceived, based on the company’s

reliance on that customer or supplier. When the lead dog is the company,

IR’s ability to communicate well is vital. Regardless of which organization

weighs heaviest on the supply channel, every function has the direct or indirect

capacity to enhance or detract from a company’s value. Everyone benefits

if IR is informed, understands these relationships, and works with PR or

Corporate Communications to set the context for the flow of communication

between the company and its strategic partners.

THE COMPETITION

Though communication to the competition is rarely direct, a company’s

peer group in any industry is going to see its press releases and financials,

learn its strategy, and understand its business. Public company disclosure requirements

necessitate that material financial information be disclosed in a

timely manner, although what is and what isn’t material can be a confound-

A telecommunications company has disclosed to investors on a conference

call a cost-cutting plan without simultaneously communicating

this plan to employees or preparing them for the news. Not only did

the company set up the employees to hear the bad news from elsewhere,

but the company disenfranchised its team members by referring

to employees as “heads,” stating they’d be “cutting heads” to reduce

costs. Productivity and moral naturally suffered, and resume activity

increased dramatically.

ing process. In fact, there is no bright-line standard for materiality. The definition

relies on case law. Companies want to disclose as much as, but not

more than, they should, while investors and analysts increasingly demand

more information. Getting this fine line right is important for all constituencies:

regulators, investors, and analysts. Distributing excessive information

can provide competitors with more knowledge than makes management

comfortable.

THE GOVERNMENT—SEC, FASB, AND INDUSTRY

REGULATORS

Created in 1934 to restore public confidence in the capital markets subsequent

to the stock market crash of 1929, the Securities and Exchange Commission

(SEC) was established to promote stability in the markets and protect

investors. As the Commission states, “the primary mission of the U.S.

Securities and Exchange Commission is to protect investors and maintain

the integrity of the securities markets.” In this vein, “the SEC is concerned

primarily with promoting disclosure of important information, enforcing the

securities laws, and protecting investors who interact with these various organizations

and individuals.”

The Securities and Exchange Commission is the overseer of all public

disclosures. The SEC sets the template for, and provides the public with access

to, these company-specific filings. The precise guidelines for SEC disclosure,

as well as the rules and regulations of the Federal Accounting Standards

Board (FASB), lends a uniformity to all financial statements and helps

streamline and simplify the process for financial communications. Almost

every business must claim regulators as an important constituency. These

can be government (e.g., Food and Drug Administration [FDA], Federal

Communications Commission [FCC], or Environmental Protection Agency

[EPA]), labor (e.g., unions), or industry (e.g., the Direct Marketing Association).

All these third parties closely examine the operations and output of a

company, aiming to protect whichever aspect of the business they represent.

Regulators are best served if they are being consistently heard and clearly

addressed. Along with the other catalysts, IR’s input into the communications

with these groups can make or break valuation.