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COVID-19: The New Rules for Communicating with Your Investors

by M&Co. Staff

Communications have always played a central role in building investor trust for public corporations. This is especially true for public companies and their investor relations firms during the recent periods of market volatility and economic uncertainty triggered by the unprecedented COVID-19 crisis.

What started as a health crisis in China’s Hubei province quickly escalated into an economic and social one. The pandemic touches every sphere of life as we know it. The decisions corporate leaders make today, even with limited information at hand, will shape investors’ trust as a return to a “new normal” draws near.

Governments and pharmaceutical companies are rushing to approve and mass-produce a vaccine to save lives and reopen economies. COVID-19 will continue to take a toll on human lives. It will also weigh on public budgets, corporate balance sheets, and national economies.

Time to Rethink Investor Relations

In May, the U.S. Commerce Department reported that the national GDP fell at an annual rate of 5 percent in the first quarter, the biggest quarterly decline since 2008. Economists expect a greater decline for the second quarter, pushing companies to revisit their strategies, adopt extreme measures to salvage operations, and in some cases, file for bankruptcy.

This is the time to rethink engagement with investors. Paul Argenti, Dartmouth College Corporate Communications Professor, recommends using the crisis as an opportunity both to communicate short-term challenges and to reinforce the corporation’s long-term fundamentals.

For public companies and investor relations firms, the immediate focus should be to maintain an open channel with investors to instill confidence in management’s ability to navigate the crisis as it evolves. It requires underlining the resilience of the organization as a whole, and, even as revenue and profitability decline, the efforts to protect employees’ jobs and shareholder value. 

As the economy begins to reopen and economic growth resumes, your investor communications strategy will need to shift to how the fundamentals of the business will build internal stability and long-term value for all relevant stakeholders in the post-COVID economy. Here are some core communications steps to keep in mind: 

Stay Ahead of the Curve

The news cycle is moving quickly. As public companies and investor relations firms, it is important that you stay one step ahead in communicating with investors. This is particularly true as lay-offs, negative results, and pessimistic forecasts have become more frequent. How and what a company discloses about its response to the pandemic and the effects on its business will have an immediate reputation impact. It will shape a company’s relationships with its investors long after the crisis has passed.

The first priority is to keep investors informed of the challenges impacting your business and how they’re being met. Some will be external (a decline in demand), some internal (closing an office or plant). But investors will expect management not just to be aware of every factor that is or can impact the business but to illustrate what’s being done to protect their investments.

Of course, investors will first and foremost be looking for information that rises to the level of materiality. But beyond that, and beyond the disclosure obligations of quarterly reporting, they will also expect more engagement. This now includes the role the company plays within the communities that it operates and, more broadly, in society as a responsible corporate citizen.

Transparency Builds Trust

With COVID-19 throwing economies into recession, many companies have failed to reach their target earnings for Q1 2020. Some companies have also adjusted their targets for the remainder of 2020. Or they have even decided to stay clear of providing earnings guidance.

While that is understandable under the circumstances, it also creates an information vacuum for investors that needs to be filled. This is the opportunity to provide investors more insight into specific operations such as R&D and new product development, or to introduce them to senior managers they haven’t been exposed to before.

In an investor communications strategy, providing important “color” about your business from top to bottom creates a greater sense of trust with your investors.

Communicate from the Top 

A direct and ongoing approach from the C-suite is not only desirable, it’s crucial.

Investors are accustomed to hearing from the CEO and CFO during earnings calls. Consider including business unit heads to provide “deeper dives” into operations and the steps being taken to advance the business. This is also the time for the CEO to look for new opportunities to engage with investors that go beyond scheduled updates. COVID-19 has propelled the importance of targeted messages to support corporate strategy at a new level.

The New Normal

The impact of COVID-19 will certainly go beyond anything public markets have experienced before. As companies adapt their business models, how they choose to communicate decisions to their shareholders is important. How, when, and who shares key corporate messages can make or break a company. The old saying “no news is good news” no longer holds true.

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