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Communicating With Shareholders: What You Need to Know

Posted by Protiviti KnowledgeLeader on Fri, Feb 15, 2019 @ 11:36 AM

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Communicating with shareholders is about capital – the ability to access either equity or debt at the lowest possible cost. By understanding investor motivation and maintaining relationships within the investment community, companies are strategically positioned to address operational funding issues proactively and thus can exercise greater control over the capital formation process. By identifying sources of capital, world-class companies can maintain capital structures through a mix of long-term debt and equity funding options at the lowest possible cost.

Capital is available to companies when investors believe that the return on their perceived investment is greater than the perceived risk. Even armed with the right business strategy, the stock price will remain undervalued if the company doesn't communicate effectively with both current and potential shareholders. That is why it is essential to communicate the business strategy, the ability of management to put it into action and the financial results achieved through its execution.

The strategy must be communicated clearly and consistently in all filings, documents, literature, presentations and publications. The objectives of shareholder communication plans are to heighten company awareness within the investment community and facilitate the availability of capital at a lower cost.

The objectives of communicating with shareholders are to increase awareness of the company within the investment community, ensure that key messages are delivered consistently, and ultimately, facilitate the availability of capital at a lower cost. Effective stockholder communication plans allow companies to exercise greater control over the capital formation process. When investors believe that the return on their investment is greater than the perceived risk, capital is available at the lowest possible cost. That is why it is essential for companies to communicate their business strategies clearly and consistently.

The Communicate with Shareholders Key Performance Indicators (KPI) document on KnowledgeLeader looks at the fundamentals of effective shareholder communication plans and allows companies to understand the effect they have on the cost of capital. Leading companies provide insights on optimum ways to develop and manage shareholder communication; an index of the best practices found on this tool follows.

  • Communicate the business strategy clearly and frequently.

To improve stock performance, companies must give current and potential investors a reason to follow their stock. Unless a major focus is placed on communicating a company’s business strategy, investors may seriously doubt whether a plan exists at all. Leading companies prove to investors that they are operating under a well-developed plan to achieve their performance objectives.

  • Provide relevant, accurate and timely company information.

Flooding current and potential investors with information that has no value reduces the likelihood of their reliance on information that is relevant. Leading companies provide the financial community with information that is relevant, such as comprehensive analysis of the industry, strategies, markets, outlook, position, performance and trends. They also describe how these results relate to competitors or peers and explain why their performance is better or worse.

  • Adopt a strategy of full disclosure.

Companies need to be aware that partial compliance with disclosure procedures can lead to problems. Companies that are all good are too good to be true: they don't offer believable opportunities to top their own performance. At worst, incomplete disclosures can lead to shareholder suits. At best, incomplete disclosures can result in inconsistent messages that undermine the very intent of disclosures.

  • Set realistic, measurable communication goals tied to stock performance.

World-class companies examine the impact external forces have on the company and then set shareholder communication goals to address them. By linking communication goals to stock performance, companies ensure that shareholder communication plans support the overall business strategy.

  • Build relationships within the global investment community.

Companies can no longer rely on favorable credit ratings to stimulate foreign investor interest. Many world-class companies are discovering that building a core group of global shareholders depends on a sound presence and positive image through consistent communication with current and potential global shareholders.

  • Establish a crisis communication plan.

High-performing companies identify what events or issues are considered sensitive, such as deaths and serious injuries in the workplace, man-made disasters, natural disasters or company controversies, before such a crisis occurs. Establishing a crisis communication plan protects shareholder value by minimizing the potential harm negative information can have and shaping perceptions of the company. Planning for a crisis allows the company to speak with one voice, maximize the opportunities to present its side of a situation or issue and prevent the creation of rumors or speculation.

This tool on KnowledgeLeader digs deep into the considerations and communication strategies to be followed in shareholder meetings and presentations. Included is a process appraisal checklist with five categories and 19 items prompting you to reflect on your company’s current practices.

If you’re a subscriber to KnowledgeLeader, you already have access to this tool. If not, you may want to get started with a free trial to evaluate the wide range of work programs, audit tools, templates, articles, reports and checklists available.

Other items related to this tool include:

Shareholders’ Equity – Investor Relations Policy

Measure Organizational Performance Key Performance Indicators (KPIs)

Applying Best Practices Across the Organization Key Performance Indicators (KPIs)

Topics: KL Tools, communication, kpis, accounting/finance, financial reporting, performance management/measurement, investments and foreign exchange, Mergers & Acquisitions, audit committee & board

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