Economic crisis calls for preparation

While panic might be too strong a word, the sentiment in the business community across the nation isn't far from it, given the substantial market volatility and uncertainty gripping Wall Street, Main Street, and companies across the globe.

While panic might be too strong a word, the sentiment in the business community across the nation isn't far from it, given the substantial market volatility and uncertainty gripping Wall Street, Main Street, and companies across the globe. Given the events we've witnessed during the past several weeks, it is no wonder why even the most conservative investors are asking, “What's next?” With earnings season just around the corner, company executives are going to be expected to provide whatever visibility they can into the state of their businesses and the industries in which they operate.

The fact is that in no matter what business a company operates, its dynamics have changed during the past two months. Now, more than ever, communications by members of the management team will play a critical role in providing the market with the clarity it needs to boost investors' confidence. Beyond that, companies must understand that their earnings communications will be scrutinized by a broader audience – investors, sure, but also employees, partners, vendors, and even competitors.

First and foremost, management must instill in all stakeholders the confidence that the company has a plan to navigate the current economic environment. Management should engage in a constructive discussion around macro issues affecting the company's business, avoiding as much as possible broad-based discussions that outline general market conditions, as well as revisit the company's basic business model.

Executives should also consider breaking away from the standard script and incorporating the following ideas:

Liquidity position and capital deployment: In this market, cash flow is king. The current freeze in the credit market and concerns over commercial paper in particular make it critical for companies to address their liquidity positions and the need for short-term funding to run the business. If you do not use commercial paper, say so, and if you do, explain how you could potentially replace this source going forward.

Highlight positive historical track records in challenging markets: If you have been here before, remind investors of the company's successful navigation through previous tough markets. If the company didn't fair well the first time, use the opportunity to discuss how this market is different or how the company is more prepared, as a result.

Long- and short-term positioning: Investors know companies don't have a crystal ball, but they do expect management and the board to have a long-range plan that can deliver future results. Remind investors of the long-term business drivers that will position the company to emerge and capitalize on the future.

Ultimately, remember that the tone and color provided around your company's near future will play a key role in the perceptions of all groups involved in your company.

Beth Saunders, MD and the head of the Capital Markets practice at FD, is a member of the board of directors for the National Investor Relations Institute. Her e-mail is elizabeth.saunders@fd.com.

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