LET’S HOPE the worst is over. But even if things do get better from here, the confidence crisis of 2002 will no doubt leave an indelible mark on how firms approach investor relations communications.
Finding themselves in a starkly different market, firms are having to rethink the tone of their IR messages.
Having had time to digest the impacts of Sarbanes-Oxley and new corporate governance measures by the New York Stock Exchange and NASDAQ, many US companies are hurriedly reviewing their communications strategies. In other countries, similar shifts are taking place as firms realize that what happens in the world’s biggest capital market ultimately affects everyone.
Different times demand new strategies and tactics
Driving the changes, of course, is the fact that companies find themselves in a completely different market compared to just two or three years ago. We have gone from a period of unprecedented optimism and a single-minded focus on the bottom line, to a time of skepticism and distrust.
The challenge IR departments face now is how to make IR communications materials and IR websites designed for a different time and a different market more relevant to today’s more cynical investors.
The stakes are high because doing so successfully offers companies a potential strategic advantage over their competitors. As the thinking goes, companies that enjoy a high level of investor trust can expect to have more efficient access to capital than those who are trusted less. They will also sell more products or services and face fewer political, legal and reputational risks.
IROs key to directing companies to improved credibility
By definition, IR professionals must take the lead in helping their companies manage their relationships with capital market participants. As the frontline between the corporation and investors, they can provide executives and the board with realistic perspectives on how the company is perceived by the Street.
This can include insights into investor perceptions based on surveys and objective comparisons of disclosure practices. IROs should also provide management with concrete and practical suggestions for how the company can build trust through improved communications and disclosure.
Companies’ websites play a vital role in shaping public perceptions. Corporate websites, including IR websites, are the most accessible interfaces companies provide to their stakeholders. They are also the most revealing medium because the Internet makes it easy to compare what and how companies communicate.
As a rich, interactive medium, the Web influences perceptions in several different ways. As we wrote in Five ways to improve your IR website’s credibility , things like poor IR contact information make companies seem unresponsive to shareholders. Similarly, sites dominated by large downloadable documents fail to communicate effectively in three minutes or less and can make a company’s disclosure look lean and superficial.
Being credible online demands a comprehensive approach
The process of transforming an old online IR communications strategy to a more relevant and effective new one has to be comprehensive and fundamentally user driven. It must cover the entire website and every type of user. And it should carefully balance the topical, motivational and vocational interests of visitors with the company’s own communications objectives.
Adding a corporate governance section won’t magically improve the credibility of your website.
At companies where IR and PR are run by the same people, a new strategy is going to be easier to define and implement. Companies that have split communications functions will have to work harder to find a solution that works for all sides.
In either case, the process of assessing the relative credibility of your online communications should start with a thorough review of the site’s content and usability compared to a group of competitor sites. This will give you a good sense for how much work you need to do and where the key areas for improvement are.
When you have the results of your peer comparison, you want to target improvements that are easy to do and which will have the highest relative benefit to the site’s credibility.
When it comes to building credibility, the tactics are numerous and subtle. They are best shown through a case study of a company that has already undergone the metamorphosis.
GE is one such company.
GE undergoes a credibility overhaul
GE has long been recognized for using the web well. The company’s pervious IR website was featured on this site in a review published in April 2001.
The old site epitomized in many respects the standards of the day. It was a very good sales pitch for the stock. The emphasis was squarely on GE’s impressive track record of investment performance and the celebrity of its top manager.
GE had become a laggard in its IR communications, adopting webcasting a year later than most other firms.
Fast forward to the first quarter of 2002, after September 11, after the implosion of Enron, and around the time accounting scandals were emerging at Tyco. GE was on the defensive from investors fearful that other household names with opaque finances could be next.
GE immediately responded to the challenge with a bold move to expand its disclosure. Its annual report in March was beefed up by eight additional pages in the financial section and an extensive discussion of the company’s accounting policies. In the conclusion to his letter to shareholders in the annual report, CEO Jeff Immelt summed up the message he most wanted investors to get.
“GE is a company you can trust,” he said.
GE itself has to admit to having become something of a laggard in the communications department. The glare of its spectacularly consistent earnings had allowed the company to escape strong criticisms of its disclosure practices. For example, while most other companies had been webcasting their earnings conference calls for more than a year, GE did its first earnings call webcast only on April 11, 2002.
Of course, when those steadily recurring earnings began to be doubted, GE needed to react quickly to address the shortcomings in its IR communications practices. The big problem was simply that GE didn’t provide the kind of detail and context investors needed to understand why GE was different from the Tycos and Enrons of the world.
The company needed to fix this by arguing its case more directly, forcefully and fully. Or, as Immelt explained it, wanting “the world to see and to touch and to feel how different we are.” This would require a fundamental change in how and what the company communicated to its publics. And it meant that the existing corporate website would have make way for a new one.
Over the next few months until it was launched in August 2002, a new website was developed to support the company’s message effectively. The site was again upgraded in November 2002 with the addition of a comprehensive corporate governance section to meet the New York Stock Exchange’s proposed listing requirements.
The key credibility improvements to GE’s corporate website
New Our Commitment section.
This, the biggest change to the site, makes the boldest statement. Our Commitment is one of just four main sections on the site. The other three sections are Products & Solutions, Financial Services, and, Our Company. Investor Relations was dropped as a main section and relegated to a subsection of Our Company.
The Our Commitment section adds a whole new dimension to the credibility to GE’s corporate website. It puts the important questions firmly up front and in the spotlight. This really puts the onus on GE to deal directly with the question: “Can I trust GE?” Our Commitment makes the case that you can.
Our Commitment has six reasonably comprehensive subsections. Most of the information is available as HTML with a splash of video thrown in for good measure.
- Integrity and Governance deal with issues currently getting top billing from investors. Integrity contains GE’s code of conduct for employees, which is available in 27 languages. The excellent Governance subsection includes the company’s corporate governance policy; committee charters and key practices; GE’s by-laws; news and speeches on corporate governance and a list of past directors of the company.
- Social Performance and Environment, Health & Safety explain GE’s policies and activities as a good corporate citizen. There is nice detail and substantiation in this information and links to lots of context.
- Quality and Innovation provide a look at GE’s culture and its product development history. There’s a load of info on its Six Sigma operating philosophy, including a glossary. Finally, there is good background information on the company’s innovations past and present.
Taken all together, GE’s Our Commitment section does very well explaining the rationale for why you can trust the company.
Links to useful resources.
The Internet lets you add value to users by enriching their information gathering experience. You can do this by providing opportunities for them to obtain perspectives and deeper context on a subject from outside sources.
Links to independent sources have the greatest value to users. They often provide third-party perspective and excellent context. Good quality links to other sites improve how users perceive the value of your website. Companies that link to outside resources, particularly ones with well-established reputations for impartiality, tend to be more open and confident and this will be apparent to investors.
GE’s new website uses links extensively, both to provide perspectives on key issues and to give users access to context around topical events. For example, the site has a Social Performance Resource Room containing dozens of links to third-party sites, including corporate social responsibility organizations and indexes, and environmental groups.
During the initial round of CEO and CFO certifications in the US in June 2002, GE gave the new release associated with the event top billing on its IR Website. Users were given choices to read the release, view the certification letter or link to related information at the New York Stock Exchange, the US Congress and the US Financial Accounting Standards Board.
Quality of management, consistently prominent in the factors investors consider important, is probably more important today than it was in the past.
Executives need to get used to the idea of being the primary spokespersons for their companies. This doesn’t necessarily mean putting themselves on show, but it helps if executives are comfortable in the limelight.
CEOs hold the can for setting the tone for the rest of the company and how it is perceived by others. To pass the smell test, CEOs should be seen to be engaged and accountable for the internal management and culture of the company. They should be the primary advocates and leaders of financial performance, integrity and living the corporation’s values.
GE CEO Jeff Immelt had big shoes to fill when he took over the reigns from former superstar CEO Jack Welch. On the old site, Welch was treated almost as a celebrity. The role Immelt has carved out is that of an involved, open leader and who has total confidence in GE’s ability to continue to succeed.
Impressions of Immelt’s engagement in company life are available in many parts of the site. You see him in a reassuring memo to staff explaining the company’s stand on corporate governance. You see him in a covering letter to GE’s employee code of conduct. He’s there again talking about GE’s approach to social and environmental management.
GE’s website casts Immelt as an accountable, open leader. His profile page is unique among North American companies. Rather than the standard superficial biography, Immelt’s profile page includes links to articles about him in Fortune, Business Week and the Financial Times. There is also a video interview of him on CNBC.
The page also makes clear what Immelt ultimately holds himself accountable for — GE’s earnings. Listed prominently below his photograph are links to the company’s earning reports for the past two years.
Missing from the page are details of Immelt’s compensation and his holdings in GE. Nothing communicates accountability and confidence as a CEO who is willing to discuss his pay.
Personal contact information:
Too many companies give the impression that they don’t want to talk to investors. Some company’s don’t take electronic correspondence from investors at all, while others provide the barest of contact information.
The worst offenders are those that make people fill out forms to get an answer to a question via email. Email forms are very impersonal and users often aren’t sure that their message will be read.
When investors are on your website, email is the most convenient way for them to contact the company. The phone is the second option, especially for those who are on dial-up connections that they have to log off from to make a phone call.
The best approach is to provide the names, phone numbers and personal email address for IR contacts. Personal email addresses are good online etiquette because that make a specified recipient accountable for handling the message.
On the old site, GE only took questions through an impersonal form that, unbeknownst to the user, was emailed to Pauline Berardi in shareholder services. That Berardi was highly efficient at getting back to users made up for the aloofness of the enquiry process.
On the new site, however, GE has swung completely the other way and implemented our best practice guidelines. Now the IR contacts page lists the names, telephone numbers and email addresses for three key members of the IR team.
The improvements highlighted here are just a few of many that GE has implemented. They are things that most companies can do at relatively little incremental cost.
Companies need to guard against taking a piecemeal approach to improving the credibility of their online communications. Adding a corporate governance section to your IR website will not magically improve overall credibility if other parts of the site are sending contradictory messages.
Don’t look for band-aid solutions to a problem that requires radical surgery. Shoehorning corporate governance information in at the bottom of your management and directors page says you’re doing it because you have to and not because you want to. Without an overarching strategy across the site, companies risk coming across as window-dressers.
Changes gathering steam elsewhere, too
Other companies have also been busy improving the quality and quantity of their online communications. Many firms are beefing up their corporate governance information or adding whole new corporate governance sections which meet or exceed the pending NYSE and NASDAQ rules.
Caterpillar recently updated its IR website with a new corporate governance section and put out a news release announcing the fact. In the same release, the company took the opportunity to tell investors about how it had scored in Institutional Shareholder Services’ Corporate Governance Quotient (CGQ).
Microsoft recently updated its IR website with a link to Corporate info, a section of the IR site that contains its corporate governance documents. The section includes a code of conduct that every finance employee at the company has to sign. Microsoft’s corporate governance policy, audit committee charter and its bylaws are also there.