Response to IR Magazine’s Question – Does IR Need an Overahaul


Does IR need an overhaul?

The following are our thoughts on the issue Laurie Havelock raised in IR Magazine.
We are a bit slow to the discussion, having only seen this
article today.  YES IR needs an overhaul,
but we don’t think it’s IR as much as the highly conservative, restrictive
environment and fear mongering that limit us in trying to communicate what’s
going on to the people who own the companies we work for.
Fear of class action litigation, SEC reprisals and a strict
adherence to the status quo (the Company’s or its peers) cause far too many
companies to pull their communication heads into their shells.  No amount of leadership or innovation in the
IR role can overcome a C-suite that abrogates its responsibility by following
the advice of its counsel and auditors to take the safe route, admit no
problems or concerns, make no projections and to say little or nothing of real
value to guide those who own the Company. Our function has become
“disclosure” rather than “communication” and yet IR
practitioners have very little power to overhaul the framework to improve our
ability to speak freely about what’s going on. Every aspect of business
involves risk, and generally the riskier the initiative, the greater potential
value it may create. We view good management as needing to listen to all of its
advisors and then make decisions that make the most sense for the Company, not
decisions that eliminate risk.
As counselors who work on retainer, we can’t help but notice
that the most influential people in what becomes the “final word” on
strategy & communications are IN NO WAY measured, judged or compensated in
relation to the creation of shareholder value. Unfortunately and cynically,
their compensation in reviewing communications is in direct proportion to the
extent of their edits. Yes, there are many fabulous, pragmatic attorneys and
auditors – who do understand what IR is trying to achieve and will accede to a
strategy that involves some nominal amount of risk in an effort to enhance the
potential reach and success of a communication and an overall program.
To illustrate how bad things really are, most companies are
even fearful of using quantitative measures or abbreviations in their
headlines, such as “XYZ Q3 Revenues Rise 15% to $525M on Strong Widget
Demand in Europe.” We have submitted headlines like this – which are
intended to differentiate the Company and draw in new investment interest, only
to have them lobotomized into “XYZ Allied United Industrial Corporation
Reports Fiscal 2013 Third Quarter Financial Results of Operations for the
Periods Ended September 30, 2013.”  Not
only does it say little – it take more of an investor’s precious time to slog
through the formality. 
And the people who denied the first version and insisted on
the language of the second got paid by the hour to homogenize any semblance of
communication right out of the release. Their fear, as we have often heard, is
“what do we say if revenues are down next quarter? We must be consistent
quarter after quarter.” That fear makes us unable to communicate about
what’s going well because of some vague fear that a negative event occurs down
the road that will force the Company to publicly discuss it – as if investors
wouldn’t notice if we didn’t put it in the headline!?!  Does the SEC insist that our headlines be
uniform?  Is a headline considered a
standalone disclosure or does the body of the release count?
The same fears keep us off of social media and prevent us
from sharing analyst reports or estimates because of the danger of implied
endorsement. The same fears force us to use overly wordy and qualified
sentences (do we really have to qualify that the quarterly comparison is versus
the prior year’s period when a full P&L is provided in the release? Our
view is that year over year is implied, anything else needs to be clarified.) These
fears also prevent us from taking full advantage of the safe harbor protection.
To we really need to clarify to investors that things might turnout differently
than we currently expect – that we had a one-time, non-cash write down of our
crystal ball to reflect the end of its useful life?
The same legal strictures force us to spend a lot of extra time
and money in every release to reiterate our risk factors, but then leave us to worry
if our other utterances are similarly protected.
In seeking to protect investors and provide clarity – we seem
to have done the opposite. We are damaging the public company’s communications
function, limited what information can be provided, and ratcheted up the costs
in an effort to try to stymie the minority of players with evil intent.
Probably the best way to reboot IR would be to reform our securities laws and
liability – so that a good faith effort to communicate is an asset not a
liability and that investors be given some semblance of responsibility for
knowing what they own, reading our disclosures and understanding that nothing
in life is completely predictable.

A lot is at stake in this question in our view, the costs
and challenges of being a smaller public company have grown increasingly
burdensome at the same time Wall Street – both the sell-side and buy-side – has
been moving away from supporting such companies. Yet small companies have long
been the font of job creation. Yes we need to overhaul IR and a good deal more.