A review of the latest tips and tools that can help IROs fine-tune their tone, body language and content
At a glance Optimizing impact During the drill of earnings releases or when presenting to investors, IROs can give their communications greater impact by focusing on visual, vocal and content improvements. The right choice of words is key but body language is also particularly important when conveying bad news. Tonality scoring Investors and analysts perceive language differently from the average population. Financial announcements should therefore be checked for their global tone, avoiding trigger words that have a negative spill. Using carefully chosen forward-looking terms can carry a premium. Deeper purpose Presentations are best performed as a team effort where persuasion power is shared more equally among more people. Speakers should be very clear about having few key messages, always keeping in mind the ultimate goal. Profound pausing is a secret weapon for creating emphasis. |
‘Face-to-face contact is always the Holy Grail for us.’ Although this comment from a UK-based respondent to our latest European investor perception survey holds nothing ground-breaking, it nevertheless highlights the importance for both IROs and senior executives of being well prepared for investor-facing appearances. Indeed, as a Canadian sell-sider adds, the audience will always be trying to gain ‘a better understanding of the thinking of top executives by watching the body language and listening to the vocal nuances when they answer questions.’ In addition, while for a fellow fund manager ‘90 percent of communication is non-verbal’, paying attention to small nuances in wording can be a tipping point when building long-term trust with the financial community.
IROs can optimize their communication strategy with the help of three types of scientific analyses, explains Ewan Pearson, managing director and co-founder of London-based Grant Pearson Brown (GPB) Consulting. ‘The analyses that we do are on content, voice and visual communications,’ he says. ‘The findings from these inform the coaching we do, which helps people produce more compelling content [and then] deliver it more effectively. We will also help a group of presenters come across as a team and handle well the toughest questions they can get.’
Mastering the way a message is conveyed is particularly important in the context of bad news such as a drop in profits or underperforming a forecast. ‘People can misunderstand and misinterpret vocal and visual mistakes ‒ which are just mistakes ‒ eventually reading things into them that aren’t there,’ Pearson stresses. ‘And when the speaker leaves a vacuum either in content or the way he or she says something, then in some form or other, the audience tends to fill that gap with its own thoughts.’
Bad tidings
Pearson therefore advises IROs to keep disappointing announcements ‘clear, brief – focus on the intention – and uncomplicated. If the message is too complex, the audience’s interpretation will be that you’re trying to cover something up by saying things they don’t understand. And they won’t fall for that.’
Simon Alfano, co-founder of TonalityTech, believes content optimization can be a useful asset for any type of capital market-directed communications. ‘Investors perceive language differently from the average person, even the average business person,’ he explains. ‘An IRO writing a text might think it displays a normal, even a good tone when, in fact, from an investor perspective it includes a few trigger words that have a very negative implication.’
Originally a university spin-off, the Freiburg-based start-up carried out more than six years of research on how language is processed by investors. ‘Based on market research, we figured out there’s actually a lack of evidence on how language is perceived by the financial community,’ Alfano says.
This eventually led the firm to develop a tool in the form of a Microsoft Word add-in that allows IR professionals to do a tonality compliance check of the content they’re creating. ‘We wanted something that could be integrated into the current workflow,’ Alfano explains. ‘This additional feature helps analyze the tone and readability of the text and identifies improvement opportunities to optimize it.’
So what’s the technicality behind the software? The team collected ‘hundreds of thousands’ of company communications such as 8Ks and ad hoc filings containing exclusive material information and analyzed the stock market reactions following these announcements. ‘We’re not looking at the absolute stock market movement but the abnormal return, so the deviation between the observed return and the expected return in the absence of the new information,’ Alfano notes. ‘We then built huge matrices of word/return pairs to which we apply big data algorithms that identify out of the thousands of individual variables ‒ each representing a word ‒ those that have a significantly robust impact on stock prices.’ Each word is then rated on whether it has positive or negative impact on price movements, which in turn gives a global tonality score to the text.
‘A company failing to deliver on expectations will ultimately be penalized but the question is: does your stock price drop by 5 percent, 6 percent or 7 percent? And this is where the wording is very important,’ Alfano says.
On a further comment about delivering bad news, Pearson advises IROs to soften the blow by using the bridging technique. ‘A clear, honest review of the truth and a good response to a tough question earns you the right to bridge to a positive point you’d like to make,’ he explains. ‘But you need to earn that right by not shying away and by revealing the important but bad news.’
Watchwords While there are a few no-brainer terms to avoid such as deterioration or decrease, words that are referring to or introducing a sub-clause such as ‘however’, ‘due to’ or ‘although’ typically have a very negative spill, warns Simon Alfano, co-founder of Tonality Tech. ‘It’s because they imply in a very explicit manner that the speaker wants to externalize a cause, and because they’re mostly used in a context of uncertainty,’ he says. ‘Algorithmic traders use them as trigger words to predict which stock prices are likely to fall.’ |
Positive spin
The constructive fact that’s introduced should be kept short, avoiding details and complexity. ‘The fall-back position is that IROs and management teams tend to take a question as an opportunity to just make another presentation,’ Pearson says, noting that few things annoy investors more than not having their questions answered. ‘Instead, IROs and management should be respecting the question and actually answering it simply and clearly ‒ unless they have a good reason not to do so.’
Furthermore, Pearson recommends that arguments be distributed evenly between the presenting team: ‘Persuasion power tends to be dominated by a CEO or CFO but it’s most efficient when shared out more equally and more broadly.’ As a buy-side analyst from Canada comments, the general ambience within a team may be under scrutiny during meetings: ‘It is vital to meet a new CEO or CFO when there are management changes to see how they react and interact with each other.’
Alfano points out that words with a forward-looking meaning such as ‘to become’, ‘future’ or ‘new’ have very positive connotations for a financial audience. ‘IR communication is mostly about reporting past facts, while investors are highly interested in understanding the vision and future direction of a company,’ he explains. This is why they put a premium on forward-looking language. ‘Investors and analysts will also value the risk an IRO takes when talking about the future,’ Alfano continues. ‘So it’s very important to carefully think through what is communicated on future outlook and how that’s phrased, because you can destroy a lot of trust if you use the wrong language.’
What about general demeanor and vocal issues? Pearson is an advocate of the profound pause, ‘your secret weapon to create emphasis. Ums, ers, rephrasing and filler words should largely be banned. Also watch out for the ‘English fade’, a phenomenon known in the voice coaching world as a tendency to tail off at the end of a sentence,’ he says.
Finally, most people will prefer to present standing at a lectern, which is ‘great as a place to rest notes, scripts or copies of slides,’ Pearson says. ‘Because teleprompters are a pretense that the speaker is not reading a script but rather looking at the audience, very few people manage to look natural behind them so I’m trying to get them to use lecterns or walk around instead.’ More generally, being authentic does not come from acting well, he stresses, echoing the concern of a US equity analyst, who believes face-to-face meetings are ‘all about understanding the animal.’
‘The real person is the one we want to meet,’ Pearson concludes.
Saying what you really mean ‘Perception of language is very coherent across industries and geographies,’ explains Simon Alfano, co-founder of Tonality Tech, which performed separate semantic perception analyses for European and US listed companies. The research reveals that although the positive or negative coefficient of a word may vary according to location, its meaning will always have the same direction. ‘If you write something for a European audience, the overall message will have the same tone as for a US one,’ Alfano says. ‘But when describing progress in business outlook, for example, it makes a difference to say whether you increase or improve. Increase has a more positive meaning for European investors, improve a more positive impact for US investors.’ Interestingly, there is only one term in the whole lexicon that connotes contrarily. ‘Expense has a positive meaning in the US but a negative one in Europe,’ Alfano says. ‘This is possibly due to its contextual meaning in North America, where it’s perceived as ‘reducing expenses’ so it’s used in cost-cutting circumstances, which often lead to a positive stock market reaction.’ In Europe, expense is mostly a term referring to administrative costs, which are not the most important items on a balance sheet or P&L. ‘Firms will rather use it in the context of ‘expenses were higher than expected’ and the word therefore has a negative meaning,’ Alfano concludes. |
This article appeared in the Fall 2016 issue of IR Magazine