Pounding the Table Doesn’t Enhance Shareholder Value
Public companies often see a disconnect between their performance and their valuation. This is especially true for public companies with a market capitalization of less than $10 billion. The challenge for mid-cap companies (and smaller) is that market efficiency breaks down for them due to a lack of awareness and understanding of their story. This in turn causes analysts and investors to assign an inappropriate value to these companies which is detrimental to their cost of capital.
CEOs that pound the table, fervently arguing that their company is undervalued, only succeed in damaging their own credibility. Such behaviour will always fail to effect any constructive change in shareholder value. Instead, leadership should turn to a sound investor relations framework to enhance shareholder value and achieve a fair valuation for their company.
Enhance Shareholder Value Through a Sound Investor Relations Framework:
A sound investor relations program should be:
- Clear – Simplify and distill your company’s story;
- Compelling – Package the story with powerful visuals and content; and
- Connected – Tell the story to the right people in the capital markets.
Your investors expect a compelling story, a bold vision and an authentic message. If you’re thinking “My company’s story isn’t that inspirational at the moment,” that’s ok. All great success stories have humble beginnings. But before any company becomes a great success, there is a vision that inspires employees, customers and investors to be a part of the journey.
Investor relations can enhance shareholder value by stripping away the clutter and uncovering the bold vision that lies at the foundation of your company. You can identify your authentic success story by clearly stating:
- What need your company addresses;
- The size of the market opportunity;
- The niche your company operates in;
- What makes your company unique; and
- Your vision for future success.
And you must do this without drowning your investors in detail. If you would like to learn more about how to do this, read my article entitled Uncover Your Company’s Great Story.
The Five Year Plan
Once you have come up with a compelling vision for your company, you need to articulate how you’re going to get there. This normally takes the form of a five year plan.
Corporate boards have become increasingly risk averse and therefore reluctant to put forward a five year plan. Recently, however, we have seen a number of boards and leadership teams replaced through proxy contests precisely because they failed to articulate a compelling business plan. Failing to lay out a detailed long-term plan to generate shareholder value opens the door to someone like Bill Ackman who will come in and do it for you (Although you might be out of a job).
Once you have established your organization’s five year strategy, launch it using the principles below.
Packaging Matters. Every book is judged by its cover. If your story isn’t packaged properly, it will fail to gain the attention of its intended audience no matter how compelling and interesting it is.
In the preceding step we refined your message, boiling down your company’s story to it’s purest and most compelling form. Now we need to communicate this message with high impact to generate the share of mind, recall and actions we want. There are three tools at our disposal to accomplish this:
- Powerful visuals;
- Graphic technologies; and
- Clear language.
If you fail to use these tools then you are failing your investors. If you would like to learn more about how to do this, read my article entitled The Packaging Matters.
Disclosure in the old days (three years ago?) meant transmitting a news release over the news wire, filing it with the securities commission, and uploading it to the corporate website. While these actions still satisfy your regulatory obligations, if you stop there you will fail to fully engage your current investors and reach new ones.
A strong investor communication platform, capable of expanding your reach and impact, will also include:
- An investor relationship management system;
- A rich content management system;
- Email news alerts sent as soon as a news release crosses the wire;
- RSS/XML feeds; and
- Social media syndication to LinkedIn, Twitter, Stocktwits, etc.
Investor communication channels are rapidly evolving. Is your investor communication platform ready? If you would like to find out and learn more about how to build the right platform, read my article entitled Investor Communication Platforms.
Nothing can adequately substitute for you telling your company’s story in person. If you’re going to launch a five year plan, do it justice by holding a high quality investor event. Hold your event in one of North America’s investment centres. For those that can’t be there, ensure that you webcast your event with accompanying visuals. Commit to holding an investor/analyst day once a year to update the capital markets on your progress against your plan.
It is also important to arrange roadshows to meet one-on-one with your institutional investors after significant news. That said, avoid over-marketing. The maximum number of times I recommend hitting a single market in a year is four. Any more than that and your investors are going to wonder who is running the company.
Does it Work?
So, now that I have provided this framework, does it actually work? The figure below represents a case study of what this investor relations framework, combined with solid operational performance, accomplished over four years.
While this figure is notional, it demonstrates what I believe happens when you layer the following elements from this investor relations framework on top of a base valuation (shown in grey):
- Clear – A clear story about the business and its performance;
- Compelling – Well packaged with powerful visuals; and
- Connected – Told to the right people in the capital markets.
That said, no company that poops the bed strategically or operationally will do well in the capital markets for long. (There is only so much investor relations can do!)
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