THOUGHT LEADER: Corporate America must recalculate financial comms plans to overcome scandal

Without question, the present age of business scandal is nothing less than an ongoing PR nightmare for corporate America. How do companies even start rebuilding corporate credibility when investors, continually battered by terrible news and plummeting stock prices, take a deeply cynical view of all public company pronouncements?

Without question, the present age of business scandal is nothing less than an ongoing PR nightmare for corporate America. How do companies even start rebuilding corporate credibility when investors, continually battered by terrible news and plummeting stock prices, take a deeply cynical view of all public company pronouncements?

It's never easy for a public company to establish - and maintain - credibility with investors, as well as customers, employees, and other interest groups. These days, that challenge has become even more complex and daunting due to more restrictive laws, greater regulatory scrutiny, and higher standards of corporate governance. In the current environment, financial communications - especially management's relations with Wall Street and shareholders - are more sensitive and important than ever. Why is this so? First, corporate credibility has vanished, along with trillions of dollars in market value. It will take a lot of hard work, new strategies, and a rededication to ethics, integrity, and full and open disclosure for corporations to overcome the present negative climate. Moreover, the manner in which a company communicates with Wall Street shapes its image, and is integral to building corporate credibility, investor confidence, and, ultimately, shareholder value. After all the turmoil and trauma, missteps and faulty judgment will not be tolerated in this area, nor will "puffery" and "spin doctoring." Ideally, releases (as well as filings and conference calls) must be candid, timely, complete, and clear. They need to provide realistic perspective and guidance so that investors can make informed decisions. They must also make proper disclosure under US securities laws, SEC regulations, including Fair Disclosure (FD), not to mention the recently enacted Sarbanes-Oxley Act and additional reforms expected in the present climate. In terms of what to say, and when and how to say it, senior executives have always looked to their own experience and instincts, as well as the advice of trusted advisors. That will undoubtedly continue to be the case; the buck always stops at the CEO's door. But going forward the process needs to be more formalized, and active. Independent boards must be more intensively involved in informed oversight and a commitment to a best-practices model of financial communication. Corporate boards need to exercise the same vigilant oversight of financial communications and Wall Street relations as they do when looking over financial statements and other areas of governance. To play an effective role in investor relations, directors of publicly held corporations must be completely up-to-date on the company's IR initiatives. Directors need to insist that the CEO, CFO or investor relations officer (IRO) provide them with regular briefings, particularly concerning any projections or guidance. Not only must directors vet the numbers, they must also aggressively press management with the tough questions, because Wall Street and the media certainly will. Directors must also review (either by full board or appropriate committee) earnings releases, conference call scripts, and "road show" presentations to make sure that perspective is clear and that guidance is realistic. Failure to put forward realistic expectations, and meet them, will damage credibility and ultimately shareholder value, to say nothing of opening the door to the potential threat of shareholder litigation. Directors of public companies must recognize the importance of candid, proactive investor relations. A company must present its investment case to the Street aggressively, but honestly; shareholder interests demand nothing less. They have to establish IR effectiveness as a main criteria for measuring CEO performance. They must also actively support policies that serve the long-term interests of the company and its shareholders. Specifically, management must resist pressures from the Street to run the business on a quarter-to-quarter basis, or to make aggressive projections, which often are based on "if everything goes perfectly" scenarios heavily leavened by hope. Corporations have much to gain by adopting these recommendations and formalizing a best-practices model of financial communications. The benefits will come in the form of an enhanced image, reputation, credibility, investor confidence, and shareholder value. For companies to win investor favor in the new era, they must have boards that are fully independent, active, and committed to putting the interests of their shareholders first. Increasingly, professional investors will not only evaluate management, but also corporate boards in terms of corporate governance and by how well they protect the interests of their shareholders. If these standards become the accepted practice, investor faith and confidence will gradually be restored, and the present nightmare will at last be brought to a close.
  • John Foley is the chairman of Foley/Freisleben LLC, a full-service communications consultancy, headquartered in Los Angeles, providing investor and corporate relations services, as well as technology PR and b-to-b marketing communications. He has more than 30 years of experience in investor and corporate relations.

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