CEOs Heal Thyselves!

by Michael Whitlow

Since its placement on the investor relations firmament, the earnings conference call has been a focus of the CEO.  As the quarter ends, and disclosure committee meetings, preliminary numbers and general internal optimism or pessimism takes hold, CEO intensity is amping up.

But, as sure as there is one quarter behind you; there is another coming.  Now is the time to review what you did right and what you didn’t do so right last time and plot your path to improving the next earnings call.

Here are a few tips for CEOs as they prep for the call and conduct the very serious business of reporting the quarter:

1. Understand and practice your headlines for the quarter – Listeners didn’t dial in to have you or the CFO read the numbers. Most analysts already have their color commentary in mind.  What’s yours? “We can pretend like we have a choice about transparency, or we can recognize the fact that almost everything that is being done is being exposed,” says Jeff Swartz of Timberland in Christine Arena’s Fast Company blog. Jeff Swarz Provides Context about brave brands – good read.
2. If you don’t understand it, don’t deliver it -  While you don’t want to exhibit undue optimism or pessimism on the call, you do want to have enthusiasm and energy for the story.  Exude leadership in the call by showing them an informed, engaged, enthusiastic spokesperson for the company. On the other hand, use your role particularly to moderate and balance the conversation when expectations soar a bit too high – you owe it to your team and to shareholders to keep an even keel.
3. Listen to criticism; use it to prepare – Many CEOs still make the mistake of not reviewing past performance to improve the next call. With all of the information readily at hand in the form of transcripts and call recordings, there is no excuse for repeating mistakes of the past.  Spend time with your IRO reviewing the good, the bad and the ugly to improve. The Huffington Post described Ken Lewis’ departure at Bank of America as “succumbing to nearly a year of strife.” Listening for ways to improve your transparency can prevent strife.
4. Look forward – With all the strictures affecting today’s financial reporting, it is tempting to say as little as possible or, worse, to present a data-packed; intelligence-void view of the company and its progress. You spent money getting your attorneys to craft the perfect safe harbor language to be used at the start of the call.  Yes, there is risk in speaking of the future.  But, shareholders expect you to do so in order for them to understand where the business is headed and how progress is being made. Use your caveats, but don’t fail to speak about the future.
5. Provide context – The only way that communications takes place is within a common frame of reference. To help shareholders separate excuses from reasons, good CEO communicators use key performance indicators for their companies, their industry sectors and the general economy as they relate to one another. Michael Pizzo tweeted about the CEO as storyteller recently, as have others.  I like the image.
6. Relate your plan – Your plan is the key to knitting general and company-specific messages together in a form that can be related to your audience. Keep shareholders in touch with it. The key question in their minds is “Does management have a plan for taking advantage of opportunities in good times and bad in a way that increases shareholder value?”
7. Provide reasons; not excuses – I was advising a company early in my investor relations career that offered up “timing of shipments” as a reason for performance lags in about every quarter that dipped below the comparable quarter a year earlier. The right question from an analyst about our plan for dealing with this recurring issue brought us out of our reverie.  Put these (as paraphrased from analyst reports) on your watch list:

• Guest traffic slowed due to the consumer economic environment (variation of “it’s the economy”).
• We were faced with aggressive promotion by a competitor.
• Last year we dropped a coupon; this year we didn’t.
• The weather in (fill in month or quarter here) was horrible
• We have a very good business with a bad balance sheet.
• There were ongoing challenges with our store-level execution.
• The Fed made me do it.
• Supplier production challenges slowed our lines.
• Destocking/inventory corrections had significant impact.
• Government policy changes have changed the environment.
• We had been managing to a yardstick that turned out to have a bit of rubber in it at the end of the quarter. (couldn’t resist an exact quote)

Following these seven tips won’t help you overcome all of the challenges of the quarterly duty to report to shareholders and stand for questioning, but making the right changes in your approach certainly will go a long way to increasing your effectiveness in this important investor relations activity.