Thinking Beyond Numbers

This article is being republished from PublicAffairsAsia.com.

Corporate communicators must think beyond numbers and develop a coherent narrative for their firms if they are to effectively articulate how they will navigate ongoing economic uncertainty, suggests Josh Nova.

Since the financial crisis we have been living through a period of economic uncertainty, which continues to weigh on investor and shareholder confidence.

The latest global survey on this metric by State Street showed that in September confidence was the second-lowest level this year. In this volatile environment, it is clear that companies need to better articulate how the wider economy impacts their prospects.

Beyond talking through their own financials, CEOs and company boards need to develop a plan to talk about how their company is facing the challenges of the economic realities they are encountering.

The best companies are putting a wider story around their numbers, with a narrative that highlights what is going on within their own organisations as they bump up against the realities of an unstable global economy. Others are missing out on the opportunity for better valuations or an improved understanding of their company by not doing this.

Market malaise

The tale of two widely followed IPOs this year provides some great insight into the importance of preparing your company’s financial story to face the rigours of a volatile economy and ever more demanding shareholders.

The much ballyhooed Facebook offering saw confidence in its financial story crumble alongside its stratospheric valuation. Aside from the early trading glitches, a gaping hole in articulating a clear financial story about its mobile ad strategy was a clear driver of the stock’s precipitous drop over the last several months.

Similarly, the IPO of Felda, the Malaysian palm oil company, shared many of the same characteristics as Facebook. The company told a strong story about palm oil, which created a collective confidence among shareholders during the debut of the company on the capital markets.

However, if you look at the stock since then, it has performed in line with the other commodity plays in the market, partly due to having failed to explain a long term story about exactly where Felda is going in terms of investment and planting the forests required for growth.

For financial communicators, the lesson from this is that in any kind of market the heart of your financial story has to be well defined and then be over communicated to the right audiences.

Data deluge

In today’s marketplace there is also an abundance of data, charts and myriad sources of financial information on any company. This volume of information has the potential to confuse. Raw numbers are just raw numbers although they are still the bread and butter of the analyst community.

However if they are not presented in a light which foretells the company’s long term trajectory there is the potential for them to be misinterpreted. To address this issue, a number of companies are beginning to harness new digital channels and platforms to effectively and clearly present their financial story.

Unilever, for example, has come out with an impressive iPad application which is designed to present complex financial information in an interesting and creative environment. The app gives users immediate and live access to Unilever’s financial results, videos and presentations, interactive share price charts and much more, all customisable into an investor dashboard. In an interview with FT, Javier Tena, Unilever’s investor relations director said: “It (the app) allows us to convey a huge amount of complex data in a very clear and accessible way.”

Companies which are reluctant to create a well thought out financial story or fail to offer well packaged information that is accessible are putting themselves at a disadvantage. We’ve seen this most recently as the numbers of Chinese companies seeking out acquisition opportunities or engaging in capital market activities internationally have faced a myriad of challenges.

In the past, many Chinese enterprises seemed reluctant to set any real roots in the local markets where they were seeking to expand. The reaction from local stakeholders was predictable and in the worst cases became part of larger political storyline.

The most sophisticated Chinese companies are now beginning to change their approach. They are developing a wider plan of action to engage the investor communities and wider stakeholder groups. It is when this is not done that suspicion develops and we potentially see deals fall apart.

Beyond the balance sheet

Companies from all parts of world can do more to build the story, for example hosting analyst days at their plants, which provide context to the numbers. These encounters add colour and anecdotal support to the numbers in the financial reporting documents.

And when companies have bad news to deliver, there are some fundamental principles that need to be applied in order to deal with these challenges. Companies need to be realistic and frank about how the economic downturn is affecting their company. They have to explain how a recession or a challenging market is going to impact their numbers.

They must provide a clear view of how these factors are going to impact their business further down the road. Providing context about the factors which will affect your company’s performance positively or negatively enhances relations with the analyst community, media and most importantly with your shareholders.

It is also important to spotlight what is important, highlighting in a recession for example the three or four things a company is doing to bolster its long-term growth. While downturns will result in immediate demands from the investor community, it is equally important during lulls in the economy that you can credibly explain what your long-term plans are. If you cannot do this in a cyclical downturn then you are going to have problems managing expectations of your investors.

One company which tells its story very effectively in this way is FedEx. They don’t shy away from difficult economic realities, instead they focus on how global economic trends are affecting their business and explain how the future will shape up if certain economic metrics fall into place. That is, at its heart, effective and transparent corporate financial communications.

Fundamentally, the narrative presented by corporate financial communicators should explain why theirs is a good company to keep in your stead and therefore maintain confidence long-term.

Josh Nova is Senior Vice President of Ketchum Greater China