5 Step Communications Framework
A version of this post previously appeared in IR Magazine.
We’ve all likely been there – despite our team’s best efforts, we realize that our company will fall short of Street expectations, and perhaps our specific guidance, by a meaningful amount. Regardless of the reason, there are clear steps that you can take to optimize communications and protect the company’s reputation during this difficult time.
Below is a framework for communicating these misses in a way that will give your analysts and investors – as well as other constituents such as employees and customers – clarity into the situation and confidence in the future of the company. While there is no way around the inevitable black eye, how such situations are handled can pave the way to faster reputation repair and also position your team as transparent, accessible and credible.
Step 1: Articulate Clear Assessment of the Issue
Clarity is the most important aspect of communicating an earnings miss – the Street will react poorly if they feel the company is hiding something. There should be no room for misinterpretation or misunderstanding. Executives should provide a clear assessment of why the numbers didn’t meet Street expectations or company guidance. The reason why the company’s forecasting was off needs to be articulated clearly so that analysts feel that they can trust future guidance. Is it because of the industry landscape or poor execution, or are the results symptomatic of a deeper problem within the business model? Depending on the cause, the anticipated length of time to resolve the problem should also be stated. Additionally, in order to maintain credibility, if possible we suggest that the team should consider sharing when they learned the financial results and why a decision to pre-announce or wait until normal reporting time was made. We often see examples where the company’s late communication of a miss exacerbated the poor results.
Step 2: Provide Detail on the Impact of the Issue
Analysts and investors will need to know exactly what the effects of the financial miss will be, and how long until there is improvement in the results. If the issue is long term, try to give a range of time until the company expects to see improvements. Also give details about which business unit the issue stems from, whether it is specific to one product line or company-wide. If it is not a company-wide situation, describe what the chances are that the issue will spread, and if measures being taken to prevent that. Also offer as much visibility as possible into how this might affect the quarter or future quarters. Provide as much specificity as you can on the impact of financial targets so that investors and analysts don’t face any surprises. Specifically bridge the Street back to your original guidance where you can, and address how the miss flows through the financial statements. Details play a key role in assuring your constituents that you have the matter solidly in hand and are on the path to resolution.
Step 3: Provide a Plan of Action
The company will begin to gain investor trust back by announcing a plan and sticking to it. The clearer the plan, the less room there will be for misinterpretation. Link the plan back to the causes and business units that have been described. Demonstrate clear cause and effect and how future actions will show course correction. Where possible, we suggest you name the lead executor or team responsible for the plan, reinforce that your “C-suite” is ultimately accountable, and give a timeline so that investors know what to look for and when. Investors also will want to know the cost of the plan and how the results will be communicated, in addition to why they should trust the plan.
Step 4: Remind Audiences of the Path We Are On
It is important to explain how this miss, and the remediation plan, will impact company strategy, if at all. Let investors know the scale of impact that this situation has on the company. At this time it is important to remind them of the company’s overall goals and strategy and the path we are on. Executives should address how the financial miss impacts the company’s ability to deliver on the core strategies and performance improvement goals, and how the plan of action incorporates ways to stay on track with these goals. Investors will also need to know if the miss impacts any future customer activities, product announcements, or other corporate initiatives that have already been communicated.
Step 5: Communicate and Be Visible
A key aspect of successful remediation and reputation repair is to maintain visibility and provide progress reports. Keep investors updated through every step in order to keep credibility and remind them of your confidence in your plan of action and the future. Keep conversations open with investors, shareholders and other key constituents both proactively and reactively. If you do not yet have a full remediation plan, we would still recommend remaining visible to discuss what you are in fact working on and how long it will take. The miss is not a time to go into hiding – attend conferences and events as you would any other quarter – share your execution strategy, highlight long-term opportunities and strengths, and communicate that progress is being made to rectify what was likely – hopefully! -a temporary situation.
Deb Wasser, executive vice president, Financial Communications and Special Situations.
Carleigh Roesler, assistant account executive, Financial Communications and Special Situations.