Managing communications for growing companies
by Peter Curtain
In the days before AIM and PLUS Markets emerged to enable ambitious firms to court investor cash, a certain type of company stood out for its inability and unwillingness to communicate.
The same theme could be applied to many businesses, but let's imagine a company, based in the North of England, and involved ("active" would be the wrong word) in manufacturing. It had gone to the market reluctantly, to raise cash while the heirs of the founder retained their majority holding.
This company would issue the bare minimum of information, any announcements came on a Friday night, after the market closed, and phone calls went unreturned. It seemed there were no attempts to court new investors, let alone equity analysts from houses other than its own broker, nor, perish the thought, journalists.
Like the selfish child at a birthday party, the attitude seemed to be, "You've given me my presents - why are you still here?" Needless to say, neither shareholders nor financial journalists were impressed.
Of course companies are bound by fairly strict rules on what they should disclose. AIM companies must waste no time in announcing financial results, director share dealings, new-share issues, board changes, substantial transactions or any price-sensitive information.
While the rules are clear, a glance at the published information records of any two similarly-sized companies in the same sector is likely to reveal significant differences in the number and frequency of announcements and the level of detail disclosed.
Investors need information to understand better the risk associated with a particular investment. Like anyone seeking to avoid unnecessary risk, they will avoid companies that appear unwilling to communicate. Silence is likely to be seen as evidence of either a lack of interest in shareholders, incompetence or worse. A perceived willingness to communicate by itself provides a reason to buy a stock.
Even when the news is bad, investors are more willing to give the benefit of the doubt to a company if it shows a willingness to communicate fully, widely and at first opportunity. Conversely, sometimes good news will knock down the share price of a company that has shown an unwillingness to communicate. Whether they are looking after their own or clients' money, investors tend to dislike surprises.
Opinions will often vary on whether or not an announcement is likely to affect a company's share price. What is important is that it produces news clearly, accurately, and without delay. That means not waiting until the results to "bundle up" news on orders, office openings or other positive matters.
In those times when there is no news, it is important to show a willingness to keep communications channels open, whether in briefings to journalists - whether trade or financial, equity or industry analysts, of with investors directly.
That is because with more than 1,600 companies on AIM alone, growing companies have to compete to ensure their voice is heard. That does not mean talking for the sake of it, or repeating the same news to the same audience. It could mean targeting a particular journalist with an interest in your sector and briefing them at a time when you are not producing news. That way, commentators are much more likely to cover your company later, when you have something important to say.
Companies traded on a stock market must work closely with their corporate advisers, both financial and public relations, in communicating, not least to avoid falling foul of provisions such as the Financial Services and Markets Act concerning financial promotion.
There are some occasions, or course, when a company would rather avoid the limelight. In the life of any growing business, the occasional disappointment is to be expected, and investors are smart enough to appreciate this. What they will not forgive, however, is any attempt to suppress negative information. Certainly bad news can knock a share price but directors must look to limit any damage to both share price and a company's reputation. Dealing with such challenges is an opportunity to build trust.
One food manufacturer in Australia won widespread public praise for its handling of a potentially disastrous poisoning scare. However the share price fared in the short term, the management team won admiration for their efforts, helping to secure the long-term future of the business. Bad news is a chance for responsible managers to show they can deal with disappointment as well as the good times - a more challenging task.
Planning, as ever, brings results. Smaller companies especially should map out a simple 12-month communications calendar - nothing set in stone (running a growing company usually involves an element of surprise) - but a template, something to increase understanding both internally and with corporate advisers.
As in all other elements of your business, it is important to manage expectations.
This article appeared in QCA Voice, a publication of the Quoted Companies Alliance.