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Jul 09, 2024

Strategies for communicating weak corporate governance

Being transparent boosts investor understanding, confidence and support for management

Sponsored content Corporate disappointments are a reality for many public companies, whether it is a sharp decline in revenues, an earnings miss, loss of an important customer or sudden departure of a key executive. Weak corporate performance or disappointing news is not an ‘if’ for most publicly traded companies but a ‘when’. Strategies for communicating these issues, however, vary greatly between companies and achieve varying levels of success, depending on which path is taken.

Some public companies employ a strategy of avoidance and/or minimizing the event, by not directly addressing the issue publicly. For instance, after a weak quarterly earnings report, some companies may choose not to host an earnings conference call or not to issue a quarterly earnings press release, so they do not draw further attention to the weak quarterly financial performance.

Yet this approach does not fully afford shareholders or analysts the opportunity to ask questions and hear management members’ perspective in their own words on the reasons for the weak quarterly financial results; instead, it leaves shareholders and analysts having to rely solely on the 10Q or other filing with the Edgar website.

Other companies may opt for a more proactive and transparent approach, issuing a quarterly earnings press release and hosting an earnings conference call. These management teams allow the financial community greater insight into the prior quarterly financial performance by openly discussing – via management quotes in the press release, through the earnings call script and by taking questions during the question and answer session – the reasons for the recent corporate performance.

Shareholders generally want to hear from company management and understand the reasons that contributed to the organization’s weak financial performance. Was it due to management team missteps and poor decision-making, or was it due largely to factors beyond management’s control, such as a sector downturn? Perhaps the entire industry faced mounting financial or operational pressures over the past quarter or two, and the majority of companies in the sector faced declining sales and earnings.

But if this particular company actually suffered smaller percentage declines in revenue and earnings than many other companies in this space, this would be an important factor to highlight and perhaps explain how management’s proactive actions helped the company weather the quarter better than its counterparts. If this was not the case, then management should be prepared to discuss what future actions or strategies it plans to prosecute to improve earnings, make meaningful gains in market share, develop new products and services, and so forth.

Simply avoiding the negative issue does not typically allow investors to fully understand what happened in the first place and the strategies management plans to implement to address the issues. Being fully transparent on these issues will likely boost investor understanding and ultimately investor confidence and support for management.

Whatever path a company chooses, it is important to have answers. Communicating with investors and analysts – either via public platforms such as press releases and earnings conference calls, or responding directly via email or the phone – and being able to fully answer questions about weak financial performance, or any other corporate issue for that matter, affords investors a deeper understanding of the issue at hand and what the company is doing to address the issue.

This type of corporate communication strategy should help investors feel management is being transparent and should boost confidence that the corporation has a grasp on the issue at hand, has answers and is working thoughtfully and strategically to address the issue. Strong, clear, decisive and strategic communication strategies matter.

Scott Powell is president & CEO of Skyline Corporate Communications Group

Scott Powell

President & CEO, Skyline Corporate Communications Group