annual report

The Evolution of the Annual Report: From Financial Report to Corporate Persona

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Annual reports have evolved over the years from a dry vehicle for conveying information about a company’s financials to a critical tool to communicate corporate strategy. An expertly communicated annual report has the power to influence the way your company is perceived by those who matter most.

There are challenges to unleashing the full potential of the annual report, however. To make corporate financial information more accessible and easily understood, SEC regulations have attempted to standardize the delivery of key operational and financial information.

But there is still plenty of opportunity to effectively leverage this piece as a vehicle for expressing your company’s vision, mission, and values. The annual report is one of the most widely read communications your company will release. So, there are plenty of benefits to rethinking your firm’s customary approach.

Factors that Influence Stakeholders’ Perception of the Annual Report:

1. Content

It is obvious that the content of the report influences how investors and other stakeholders view your firm’s reputation. But what is not so obvious is that how you understand the content is not the same as how your investors interpret the content. An annual report is a great time to practice your corporate storytelling skills.

Of course, investors will zero-in on financial performance, but the way in which this information is presented will affect perceptions. The Letter to Shareholders and the Management Discussion and Analysis sections of the annual report offers an opportunity to share a transparent and honest discussion of market conditions, corporate strategy, and investment priorities.

Being transparent and honest in your communications is not as easy as it sounds. Internal expectations based on previous performance can affect how you view this year’s performance. Corporate strategy and market conditions may be in flux.

For these and other reasons, it can help to bring in external corporate communications experts and marketing specialists to provide a clear-eyed perspective on the annual report message. Just as you use auditors and financial experts to ensure the accuracy of your financial reporting, it can also help to have experts to support your messaging.

The sweet spot for content is delivering an annual report that accurately conveys the facts, gets the message across, and effectively communicates your company’s past performance and future expectations.

2. Design

Design alone won’t save terrible earnings. So, don’t spend a lot of time putting together a slick design hoping to distract stakeholders from the unfortunate truth. Still, your company’s annual report should be consistent with your corporate brand.

The most successful and admired companies find subtle ways to stamp their identity throughout the report. For example, Warby Parker, an online eyeglass company, created an interactive annual report in the form of a calendar with 365 company milestones and figures. Keep in mind that through consistency and authenticity, the annual report can really work together with other corporate communications to manage your firm’s reputation.

3. Delivery

One other factor to consider that has ramifications for how your stakeholders perceive your company is how and when you deliver the report. Of course, timely filing of the annual report is table stakes. But also consider utilizing additional delivery channels including video and interactive infographics.

In addition to the above general guidelines, you may want to revisit these excellent tips about how to make your annual report one of your best assets including:

  • Think of the annual report as your “financial brand” for the year: This way you can repurpose parts of the report into other communications documents, such as facts sheets, the proxy, and the investor deck.
  • Design your annual report to be easily segmented: Make it easier to repurpose stand-alone parts of the annual report for social media, for instance, by making the report easier to separate into parts.

Conclusion

Yes, annual reports serve several purposes. They provide a company’s financial information, amplify a company’s marketing message, and remind shareholders of a company’s strategy. But first and foremost, firms need to think of the annual report as a key tool in their corporate reputation management toolbox.

The annual report is an important vehicle for connecting with investors to give them more than just a financial picture. Annual reports can—and should—also give clear insight into your company’s vision, values, culture, and internal operations.

Ultimately though, the annual report is only one part of a wider corporate communications strategy. We specialize in helping to construct your corporate narrative at Audacia Strategies. There’s no substitute for having a clear picture of what your company stands for and where you are going. Contact us today and let us help you bring everything into focus.

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holding statement

Controlling a Crisis is Hard. The Right Holding Statement Can Help.

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When an incident or crisis occurs, the public has a right to know what happened and what steps are being taken to resolve the issue. Keep in mind, though, that there are better and worse ways to communicate during a crisis. Too often companies make the mistake of throwing together a holding statement only to further damage their credibility.

With everyone’s first instinct being to shoot video with their smartphones and immediately post to social media, the need to respond quickly during a crisis is apparent. For this reason alone, it’s important to have a crisis management plan in place that you can immediately activate in the event that something goes wrong.

The Holding Statement: Critical to Maintaining Credibility

One crucial, but often overlooked piece of any sound crisis management plan is the holding statement. Having this short statement on hand helps you avoid the dreaded “no comment” statement, which the public perceives as a disavowal of responsibility.

It also prevents the media from writing speculative stories about the organization and the situation. While you may not have the ability to control the crisis, you do have the ability to control the narrative. In other words, a skillfully written holding statement maintains credibility in the face of a crisis.

Crisis Communications is a Delicate Business

During a crisis, communications can have one of two effects: the statements released can mitigate the damage or make a bad situation worse. So, what can your organization do to ensure that your communications calm the storm instead of churning up more trouble?

1. Create Pre-Crisis Holding Statements

What holds true on the basketball court, holds true for crisis management—there is nothing worse than being caught flat-footed. Just as champions on the court run drills to prepare their defense for game day, champions in crisis management run drills to prepare their responses for an emergency.

But before you can prepare those responses, you need to have a good crisis management plan in place. Start by anticipating possible risks and vulnerabilities; then put together holding statements for each one. Remember to think broadly about the types of crises that might impact your company. This could be anything from safety issues to natural or manmade disasters to social media frenzies.

The good news here is that if you take the time to identify potential crises and think through the right statements ahead of time, while heads are cool, you set yourself up for saving your credibility should the worst happen.

2. Consider Distribution

Holding statements can be issued via traditional distribution methods, such as press conferences, but given the current pace of communications and multiplicity of channels, including social media, having multiple distribution methods makes sense.

This means that you actually need several variations of each holding statement you create. Create channel-appropriate statements for each of the following: traditional media distribution, social media video messaging, talking points for key spokespersons, social media posts, customer messages, website updates, and whatever other channels make sense for your organization.

3. Strike the Right Tone

Tone is very important. In the event of a crisis, you will want your holding statement to acknowledge that your company recognizes the need to cooperate with media and to inform the public without sounding authoritative.

If your communications team isn’t careful, the desire to show that you are in control of the situation can come off as arrogance or indifference to the injury that others are experiencing.

Holding Statement Keys: Simple, Informative, Timely

Once you have thought through your crisis strategy with an eye toward maintaining your credibility, keep a few more details in mind as you prepare your actual holding statements.

Keep It Simple: No speculation.

The holding statement is a confirmation of known facts, expression of awareness, and—depending on the situation—expression of appropriate and authentic empathy. Organizations are most often judged on the authenticity of their response in times of crisis.

A cold, legalese message during an emergency (particularly one with physical, financial, or environmental harms) can be a turn off and result in questions about credibility and brand promise.

Informative: Stick to the facts—Who, What, Where, When, How, Now What?

Talk about the actions your organization is taking and the priorities you will address. As with all communications, make sure that your holding statement aligns with key corporate values (e.g., prescription drug safety is our number one priority). Do NOT address rumors, speculation, or unconfirmed reports.

Make sure that key spokespeople are identified and that all inquires are routed through these people. If you skip this step, contradictory statements could end up adding to the chaos, which is the last thing you need. Collaborate with your legal team ahead of time (ideally as part of your crisis response planning), to have agreed upon language and an approval process in place.

Timely: As in, within an hour.

The initial response should be released within an hour of the occurrence of the issue or incident and should state, at a minimum, when the next update is anticipated. You can’t afford to let the rumor mill get ahead of your official statements, so make sure a clear chain of command is in place.

Time is your biggest enemy when it comes to dealing with a crisis. To be ready to spring into action, update your plan and role play scenarios with relevant team members at least twice each year.

At Audacia Strategies, we understand that dealing with a crisis is stressful. That’s why we have systems in place to guide you through. Let our team do what we do best so that you can get back to what you do best. Schedule your consultation and let’s get started.

Do you have your holding statements together?
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corporate storytelling

Corporate Storytelling: The Art of Controlling the Narrative

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In the age of pervasive media and information overload, it’s more important now than perhaps ever before to have ace communicators on your side. When it comes to rising above the noise, creative communications is a distinct advantage. Given all of this, the emergence of corporate storytelling should be unsurprising.

And yet relatively few companies naturally embrace storytelling as the powerful communications tool it clearly is. There is a good reason that human beings throughout history have used stories to explain concepts, pass down information, and yes, entertain themselves.

Story is the paint that brings words (and numbers) to life.

While marketers have been employing corporate storytelling to engage with consumers and develop brand narratives for decades, it’s time to expand the discussion beyond the marketing department. All of an organization’s stakeholders: customers, employees, vendors, investors, partners, and competitors tell some part of the story.

It’s clear that your organization’s value is more than just numbers and the right narrative can convey this. But the challenge is to get all of these stakeholders on the same page and communicating the story that you want to tell.

So where should you start and what are key elements to consider as you construct the right narrative?

Start with what you like in a good story.

Think about the last great book or article you read. Or think about the last great movie or TV show you watched. It could be fiction or nonfiction. What made it so compelling? What kept you reading or binge watching? Why did you feel invested?

For me, there are three main elements to a captivating story: a compelling, yet relatable plot; intriguing characters with interesting backstories of their own; and a bit of a risk…that element of the unknown that keeps me flipping pages. Of course, the real art of storytelling is in how masterfully the writer weaves these elements together.

Obviously, there are huge differences between writing the “Great American Novel” and compiling your company’s annual report. Still, just as you are invested in reading your favorite book, you want all of your stakeholders to be invested (some literally) in the success of your company. Keep in mind that every communication with stakeholders is an opportunity to strengthen the connection.

How to apply these elements to corporate storytelling:

Compelling and relatable plot: This is the big one. Ask yourself and your team: What is the most compelling storyline for your organization? Hint: it’s more than your earnings per share, sales growth, or funds raised. It’s what makes your organization different from the one next door.

This is your “hook.” Start with your company’s vision for the future. Add in your corporate strategy. Then layer in some key metrics and milestones to help your investor follow along and you’re well on your way.

Considering that you are asking investors to trade on future value, it should feel natural to talk in these terms. But the biggest benefit to building in a compelling plot is that it forces you take a step back from the minutiae and put the data in more relatable terms.

Intriguing Characters: This is possibly the most important element of any story and your corporate story is no exception. Our cast of characters starts with our leading men and women—C-suite execs. But just as important is the supporting cast, who add depth and diverse voices to the mix.

It’s important to have your C-suite front and center, as the face of the company. They are the personification of your organization’s credibility and commitment to shareholders, customers and employees.

But consider highlighting (with appropriate training!) other key employees (e.g., CTO, Cybersecurity Team Lead, key salespeople). Whenever possible give those with the talent and interest a platform to demonstrate the depth of your “bench” using thought leadership pieces, investor days, industry events, or special webinars.

Finally, don’t forget to give your competition a role to play. But remember that they don’t have to play the villain! In fact, it’s safer not to peg them in that role. While angel investors won’t usually invest in competing companies, with public companies it’s common for shareholders to invest in several stocks in the same industry for diversification.

Risk/Element of the Unknown: This element is the trickiest one for corporate storytelling. Suffice it to say, if your company’s narrative arc resembles the plot of Get Out (no spoilers!) in any way, it’s time to revise. Save the suspense.

Still, stories can help people cope with change. If your organization happens to be in a transitional phase, a credible and accurate story can put things in perspective. Fear of the unknown can be worse than reality. So, a coherent story can infuse a level of calm into an otherwise seemingly chaotic situation.

During these periods of unknown risk and an uncertain future, it’s important to return to the fundamentals. If one of your organization’s values is protecting the environment, but when the chips are down, you are perceived as sacrificing green initiatives in favor of larger profits, that hurts your credibility.

If you hire veterans and support military families, but your CEO has proposed cuts to corporate programs that benefit these groups, investors will notice the inconsistency in your storyline. Again, everything depends on finding the right story and getting all the key stakeholders onboard.

Corporate storytelling is a powerful tool for increasing understanding, credibility and the all-important trust factor. The more intangible values that can’t be neatly plotted on a histogram or represented by a formula in a spreadsheet are part of your story.

Everyone loves a great story and your corporation has a great story to tell. Audacia Strategies would be honored to help you develop your corporate narrative. Contact us today and let’s put pen to paper.

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crisis management

5 Steps to Crisis Management and Surviving the Trump Effect

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In the weeks leading up to the US presidential election last year, there was a lot of speculation about how the stock market would react. Uncertainty does not inspire confidence among investors. That speculation sparked discussion among those of us in corporate communications and investor relations about maintaining situational awareness and crisis management.

Now here we are almost a month into the Trump presidency and there is still a great deal of uncertainty in the air. Regardless of your politics, questions remain. How will Trump’s policies influence stocks, bond markets, commodities, the flow of trade, and economies around the world? Will the intelligence community and the administration find a way to cooperate? How will all of this effect global perceptions of risk and market uncertainty?

Perhaps most important for communicators is that the President has singled out individual corporations and executives via social media and in his public statements. Consider some recent headlines:

When the President speaks—and tweets—markets listen. How can firms manage their reputation (and associated stock volatility) in an era of 3:00 a.m. Twitter-storms?

1. Have a clear story. Test your story.

First, make sure you have a clear corporate narrative already in place. Your narrative should reflect your company’s strategy and decision-making criteria. That is, your words and your actions should align and convey credibility. This is true whether communicating to Wall Street, Main Street or Capitol Hill. When a crisis strikes, credibility can be the determining factor in successfully weathering the storm.

Test your narrative via with a broad team. I recommend having at a minimum investor relations, communications, legal, government relations, operations, and sales at the table. The goal is to have as many perspectives as possible around the table to put your messaging through its paces. If your budget allows for including an unbiased third-party, that perspective can be incredibly helpful to get the group out of its conventional thinking.

During this session, poke all the holes in your message; ask all the uncomfortable questions; ask irrational questions. Nothing is out of bounds. Then, development a plan for countering each line of attack.

Develop holding statements (which deserve an entire post of their own). Consider what you will want to say to investors, the media, and your internal team. Your messages should be concise, accurate, and informative. Test your potential responses if possible.

2. Have a crisis management plan.

Make sure that you have a solid plan in place for dealing with a crisis when it happens. Have a crisis team in place and make sure its participants meet regularly. Have a system in place for notifying stakeholders.

At one time, our only option for a notification system was a “phone tree” and team of callers. Today’s technology makes triggering a crisis management plan as simple as sending a single email, text message or making a single phone call.

Here, it’s a good idea to consider using multiple communications channels and establishing preferences ahead of a crisis situation. Some constantly check email, others are more likely to receive a text message or a tweet. So ensure that information is prepared for a variety of communication channels.

Have an answer to the following questions:

  • How will you notify your team that you are in crisis mode?
  • How will you disseminate information as it becomes available?
  • Who is responsible for putting the plan in motion and seeing it through?

3. Define team member roles.

Be sure crisis management roles are well-defined and documented. Ensure that all team members understand their roles, responsibilities and interdependencies. It’s crucial for everyone to be on the same page and operating efficiently.

Do what you can to prevent untrained representatives from speaking with the media. And make sure that, like a well-tuned orchestra, your whole team understands their specific function.

4. Talk to your board of directors.

Before a crisis hits, discuss with your board of directors the crisis management plan you have put into place. Explain the details of your plan: how you arrived at the strategy, what protocols you are following, your team’s special expertise, etc.

Assure your board that you are preparing for all contingencies. Ask for their input. Often Board Members have been through challenging situations and will have good suggestions that may add perspective to your plan.

Perhaps most important, reassure your Board that all strategic moves will be made with transparency and in accordance with the processes outlined in the crisis plan.

5. Talk to your c-suite.

Engage your c-suite executives early on. Ideally, they should be visible champions of the planning process.

Make sure that your executives are strategically aligned and prepared in the face of a crisis as well. There’s little worse than watching your executive get caught off guard by a question from the media. So train your executives in crisis communications.

Even if your CEO has done an admirable job as the spokesperson for your corporation, there’s a critical difference between promoting a company in good times and preserving a company in bad times.

Dealing with a market crisis is one of the toughest scenarios that organizations face, but if you maintain a clear plan, you will be ready to face the crisis head on. Our team at Audacia Strategies has firsthand experience in crisis management and dealing with some of the most sensitive crisis areas that corporations must oversee.

Are you ready to develop your crisis communications strategy and in need of someone to help you steer through? Contact us to schedule your consultation.

 

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earnings

Surprise! Your Earnings Suck. Now What?

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Having to announce disappointing earnings to investors is a unique challenge. No one likes to be the bearer of bad news, but bad quarters happen to all companies. That said, Wall Street doesn’t like surprises (positive or negative, but especially negative).

Surprises damage corporate credibility and can have long-lasting effects beyond just a challenging quarter or two. So it’s crucial to find the right strategy for dealing with these types of surprises.

Maybe the quarterly earnings looked decent until an auditor discovered a previously overlooked error in revenue reporting. Or maybe raw materials costs suddenly spiked. Or perhaps that big anticipated contract evaporated. Whatever the reason, as you see the numbers coming in and it dawns on you that your earnings suck, you may be tempted to run and hide.

There is a better solution though. I promise!

First, don’t forget about situational awareness.

You might recall that I’m a big believer in situational awareness. No, it’s not a magic wand you can wave to turn lead into gold. Still, reporting quarterly earnings in the context of your company, your competitors, and the market is important. If nothing else, it shows analysts, traders, and investors that you have your eye on the right metrics.

Also, if a market shift due to a materials shortage, for example, affected your competitors’  earnings as much as your own earnings, that is relevant information to note during an earnings call with investors.

Your number one priority, though, should be ensuring the clarity of your message and maintaining transparency with investors. While it can be challenging (okay, downright painful) in the short-run, it will pay dividends over the long-term as it can stabilize challenges to credibility.

Let’s discuss the best strategies for revealing less than stellar earnings:  

Now that you’ve done your homework to place your earnings in context, it’s time to face the music. While you cannot soften the blow, you can take steps to maintain credibility and goodwill moving forward.

1. Don’t sugar-coat.

It does no good to play up the good news and ignore the elephant in the room, so don’t sugar-coat or whitewash unequivocally bad news. If mistakes were made, own up to them. Talk about what you plan to do to respond and recover over the course of the next quarter or longer.

Be prepared to discuss the ways in which this challenge has made you reevaluate your business strategy and/or structure. Be tangible. Be candid. And, whenever possible, be quantitative. Don’t take a blow to the chin unnecessarily, but be clear about whether the impact is indicative of an ongoing strategic or structural challenge.

In preparing for these conversations, I find it helpful to think like an analyst and ask hard questions of yourself and your team during your earnings preparation process:

  • Hold up the magnifying glass and go over every line item if necessary, until you are confident you understand what went wrong.
  • Ask the hard questions about the quality of your business forecasting process.
  • Get an understanding of the “early warning” indicators that might have helped or might help in the future.
  • Be ready to answer uncomfortable questions from emotional investors like, “How could you not have known about this sooner?” or “What else don’t you know about?” or “So, what will be the next shoe to drop?”

Now is not the time to be defensive. Now is a time to be clear, concise, and aware in your message to and interactions with your shareholders.

2. Engage the team.

You have probably already tapped into the resources of your audit team, legal team, and C-suite. But don’t forget about those running the operations and working directly with customers.

These folks working “on the ground” in your operations or interacting with customers on a daily basis may be able to shed some helpful color on the situation. Take the opportunity to sit down with those who have more direct contact with what’s driving the numbers on your spreadsheets. Consider how this color can inform your earnings release and any forward-looking discussion.

3. Consider a pre-announcement.

If you have a material miss of market expectations on your hands, you may want to consider pre-announcing prior to your full earnings release. A pre-announcement is exactly what it sounds like, an announcement of results (to the extent they are available) before the full earnings release. Generally, this release will occur 2 to 4 weeks prior to a scheduled earnings announcement.

To be clear, there is no SEC requirement to disclose. However, many on the Street believe that a company has an obligation to warn investors if it will fall materially short of expectations. This is true even if your company does not issue formal earnings guidance.

The benefit to a pre-announcement is that it sends a message to the Street that you are sharing information in a timely fashion and gives comfort that the company isn’t keeping material information from investors.

However, there are legal intricacies surrounding corporate guidance (or lack thereof) and acknowledgement of consensus numbers. Pre-announcement can be a controversial issue for many companies and should be thoughtfully considered beforehand.

Look, an earnings surprise is hard and managing the disclosure isn’t easy. Your stock price will likely take a hit and you and your management team will need to have some challenging conversations.

At the end of the day, markets trade on future value and the reality is that future value takes a hit when earnings come in at less than expected. Your goal during this process is to maintain effective dialogue with the Street to communicate your firm’s future prospects and that requires credibility, transparency, and candor. You’ve got this.

We’ve got a great team at Audacia Strategies and we’ve helped companies navigate corporate crises like this before. We can’t make bad earnings disappear, but we can come up with a strategy for maintaining credibility and moving past the temporary crisis. Contact us today to schedule a complimentary consultation.

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annual reports

Boring No More! Turn Your Annual Reports into Your Best Asset

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Annual reports are a company’s most-requested and most-read communications but they have a bad reputation for being dry and boooring. They can be full of jargon and legal speak. But while the proxy rules require all publicly traded companies file annual reports with the SEC, they do not require the information be delivered in the same sleepy fashion year after year.

I have been thinking a lot of about how to better leverage the annual report as a vehicle to share the vision, strategy and culture of a firm. Of course, I turned to corporate reporting expert, Barbara Koontz, Senior VP of Customer Experience, at Curran & Connors, who is a veritable wizard when it comes to helping companies design annual reports that stakeholders actually want to read.*

Because I have learned so much from Barbara myself, I asked her to share some of her insights with you. And she graciously agreed to answer my questions here (edited for length).

Q. Annual reports can be a strong tool to communicate past results, as well as future vision. What do you see as best practices to help the annual report tell an organization’s story?

A. There are several steps that a company can take here to convey its unique vision and values:

1. Use the CEO letter to your advantage: The opening letter to shareholders is still the most widely read section of the annual report. Companies use it to communicate vision, strategy, values, and thought leadership. The letter often focuses attention on recent initiatives that helped achieve corporate goals. Easy-to-read graphics or pull quotes ensure accomplishments stand out. The letter also is an opportunity to reinforce long-term, future goals and demonstrate industry standing.

2. Use video to convey personality: For online annual reports, the use of video is becoming more prevalent. A well-produced, short video is a great complement to the letter and conveys a CEO’s excitement and passion. To increase effectiveness and maximize return on investment, report videos are often directed to all stakeholders so they can also be used for other marketing endeavors.

3. Relate company performance to market trends: In general, it is important to balance company activities against 5 to 10 year market trends. This helps to justify investment in those key growth areas.

Q. Do you see organizations changing their approach to the annual report to express their corporate culture?

A. One of the biggest changes and most successful ways I see companies reflecting their culture is by showcasing employees. Companies incorporate stories, case studies, and photography that emphasizes the efforts of staff in helping the organization realize corporate goals.

We see video playing a key role here as well. A compelling video celebrating the passion and success of staff shows that the company values the contributions of its people, which in turn, results in employees wanting to work harder for their employer.

What may seem like a minor detail at first, the photo of the CEO, also can say a lot about the company’s culture. A suit says “traditional” “established,” and “leader,” while a shirt and slacks says “approachable,” “entrepreneurial,” and “partner.”

Q. Many different stakeholders use an organization’s annual report (investors/donors, media, regulators, customers). What advice do you give to companies to help them make their annual report accessible across multiple stakeholder sets?

A. It is important to design and develop content with all audiences in mind, as well as other communications vehicles that may be used to repurpose and more widely distribute elements from the annual report. When Curran & Connors develops a reporting solution, we consider the different ways the report or aspects of the report will be used as well as the target audiences.

Having said that, no document or reporting vehicle can be all things to all people. So, understanding your primary audience is important. Let’s say the main audience is the institutional investor. In this case, the report should be designed to ensure transparency and clearly communicate data, results, and a pathway to success.

Potential business partners, employees, and community members will also be interested in these metrics, but to effectively reach those groups the information may need to be presented differently. So, you will want to make the information more reader-friendly by applying relevant techniques such as infographics.

In addition, making the information available online is a sure way to make it more accessible to a larger audience. The content can connect to and be connected from a number of digital channels.

Q. An annual report can be a significant expense for many organizations, how do you recommend that companies increase their ROI and extend the reach of their annual reports beyond posting online and sending to shareholders/donors?

A. The two best ways to leverage the investment of your annual report are:

1. Think of the annual report as your “financial brand” for the year: Repurpose the look and feel into other communications documents such as fact sheets, the proxy, quarterly reports, the investor deck, and the IR website. This increases the value of the report and shows a professional and consistent approach to your overall communications.

2. Design the annual report to be easily segmented: Design the annual report in such a way that the segments of the book or online reporting vehicle can be shared via other marketing channels, such as social media. A unique graphic, custom photo or video, and/or case study that ideally conveys a key value driver can satisfy the never ending need for content for your social platform.

Q. As you look ahead, what are you most excited about for the future of annual reports?

A. Annual reports are one of the few documents that tell a company’s overarching story. What’s exciting is how these stories evolve to tell much more than how to reach a targeted bottom line. There is significant interest, for example, in learning about a company’s environmental, social, and governance (ESG) practices and how these impact the sustainability of the business.

Millennials are driving companies to be more involved in their communities and to report on these activities. Social media is forcing companies to be more transparent and have more conversations than monologues. Leaders of companies are taking more of an interest in the narrative too, which leads to more engagement across all platforms. As stories evolve, so do their formats.

Thanks for these words of wisdom, Barbara!

As you prepare your company’s 2017 annual report, rather than looking at it as just another federally mandated hoop to jump through, why not seize the opportunity to turn your annual report into a valuable messaging tool?

Audacia Strategies can guide you through creating a comprehensive communications strategy… including annual report messaging! Let’s talk!

*NOTE: This is not a sponsored post. I just happen to think that Barbara has great perspective on this topic!

 

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non-GAAP metrics

Credibility and Non-GAAP Metrics: Good, Bad, or Ugly?

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Investors and the Securities and Exchange Commission (SEC) have a love-hate relationship with non-GAAP (Generally Accepted Accounting Principles) metrics. On the one hand, they love information that could help them better determine where to invest capital. On the other hand, they have a hard time gauging the reliability of non-GAAP metrics.

So where does this leave those of us developing a transparent and accurate strategic message for our company? And how do non-GAAP metrics help shape credible investor, analyst, and financial media relationships?

It all comes down to the credibility factor. Non-GAAP metrics can be a critical component of your company’s strategic message, but they shouldn’t be abused. The goal should be transparency and easing investor understanding—not obfuscation.

What is a non-GAAP metric?

Before we discuss how these measurements can increase your company’s credibility and play a key role in both your investor and media strategy, let’s define a non-GAAP metric.

According to the SEC, a non-GAAP metric is “a numerical measure of a registrant’s historical or future financial performance, financial position, or cash flows that:

(i) Excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable measure calculated and presented in accordance with GAAP in the statement of income, balance sheet or statement of cash flows (or equivalent statements) of the issuer; or

(ii) Includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the most directly comparable measure so calculated and presented.”

Essentially, a non-GAAP financial measure is intended to depict a measure of performance or liquidity that is different from those presented in audited financial statements (e.g., sales, net income, cash flow from operations).

To make it even clearer, let’s say your company anticipates conducting a sizeable restructuring this year. If this will have a material impact on net income, you may wish to report net income with restructuring charges (GAAP) and without restructuring charges (non-GAAP). The non-GAAP measure, then, would be: GAAP net income less restructuring charges = Adjusted Net Income.

The non-GAAP challenge.

Over the years, the use of non-GAAP metrics and their prominence in financial discussions has been on the rise. In 2015, just 12% of S&P 500 companies reported only GAAP (audited) numbers in their public filings. That was down from 25% in 2006. Non-GAAP metrics have become a common way for companies to share more about how they view company operations and performance (see the example above).

To be sure, there is value in using appropriate non-GAAP metrics as a supplement to audited GAAP reporting. What we want to avoid are misleading metrics. Unfortunately, over time we have seen that some companies’ non-GAAP metrics veered away from the original intent and may have been used to paint an overly optimistic picture of business operations.

As non-GAAP metrics have increased in usage, so have concerns that such measures might not be as rigorously tested and maintained as their GAAP counterparts. As a result, the SEC updated its guidelines to clarify what might be considered misleading non-GAAP presentations and how to avoid giving non-GAAP measures greater prominence than comparable GAAP measures.

Since updating its guidance on non-GAAP metrics in May, SEC officials have sent significantly more comment letters to companies regarding non-GAAP use and they have cracked down on potentially misleading non-GAAP disclosures.

As we head into quarterly (and annual) reporting, it’s a good time to revisit your disclosure strategy and consider how to communicate your company’s strategic direction and associated metrics.

Guidelines for using non-GAAP in your investor relations strategy.

1. Give GAAP prominence. When presenting a non-GAAP measure it must be presented with the most directly comparable GAAP measure given equal or greater prominence. For example, an earnings press release should cite GAAP net income before a non-GAAP “adjusted net income”.

2. Ensure non-GAAP measures aren’t misleading. Some adjustments specifically called out by the SEC (although not explicitly prohibited) include non-GAAP metrics that

  • exclude normal, recurring, cash operating expenses necessary to operate the business;
  • are adjusted and presented inconsistently between periods;
  • accelerate revenue recognition;
  • include nonrecurring charges, but not nonrecurring gains; and
  • do not show current and deferred income tax expense commensurate with the non-GAAP measure of profitability and note the income tax effects of the adjustments as a separate item (i.e., rather than showing net income “net of tax” adjustments should show income taxes as a separate adjustment that is clearly explained).

3. Return to the fundamentals of your message. Ask: What is our corporate strategy? What goals and objectives are we (or should we) be discussing in our disclosures to demonstrate progress? What are our milestones?

4. Ensure the non-GAAP metrics you use fit with your strategic message. When considering a non-GAAP metric ask the following questions:

  • What is the intent of the metric? Does it help to paint a more complete picture of the company’s performance and/or market opportunity?
  • Is this metric meaningful? Is this a metric that your management team uses to discuss the company with employees? Are managers held accountable for this metric?
  • What are the measures used by the company to assess progress against annual/long-term strategy?
  • What are key metrics in our industry? In my peer group? Are they helpful or outdated?
  • If I was a shareholder, would this metric better help me understand my company’s performance against stated strategy and goals?

But don’t overreach. Many investors will only consider GAAP in their models so be honest with investors (and yourself!) about those GAAP numbers and be ready to discuss them. All businesses have challenges, operational quirks, and unique investment and value-creating strategies. Stick to the truth of your operations and your company’s plan to achieve strategic goals.

At Audacia Strategies, credibility is king (and our #1 value). Credibility is all in the way you present and conduct yourself. If your aim is to help your stakeholders make smart investment decisions, you can’t go wrong. Treat your investors the way you would want to be treated.

How do you think about using non-GAAP measures? Do you discuss them with media? Employees? Have you received feedback from shareholders or analysts?

Financial disclosure is a critical component of a comprehensive communications strategy. We can help tighten up your investor relations strategy and integrate your messaging across your stakeholder sets. Let’s talk!

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authentic voice

Drop the Buzzwords. 3 Ways to Find Your Authentic Voice.

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If there’s one big lesson to learn from last week’s Presidential election, it’s never underestimate the power of an authentic voice. For months, political pundits called the 2016 Presidential election the “authenticity election.” And the Trump team can largely attribute their win to developing an (at least perceived) authentic communications strategy that resonated with millions of Americans.

Candidate Trump never missed an opportunity to remind voters that he was “from outside the Beltway.” Additionally, he used social media to speak directly to his constituency without the media’s filter. In other words, the Trump campaign successfully managed to capture their candidate’s authentic voice.

In corporate communications, just as in politics, the power of authenticity can go a long way. So what is a good strategy for capturing your organization’s authentic voice?

Skip the Buzzwords

While it’s tempting to get caught up in business jargon when talking to other experts in your industry, just consider how stale industry buzzwords sound when you hear them used constantly in messaging. How many times have you heard someone refer to a budget item as “mission critical” or an industry leader as a “change agent” or a “thought leader?”

While insider industry buzzwords might make sense to us, they are rarely informative for investors or customers. Imagine how frustrating it must be to make financial decisions based on such empty, generic talk.

To differentiate yourself from your peers, as well as persuade both customers and investors to give you more of their hard-earned dollars, it is crucial that you eliminate buzzwords from your communications. But this is the easy part.

How to Capture your Company’s Authentic Voice

Once you have eliminated the buzzwords, it’s time to get proactive in finding your company’s authentic voice and incorporating it into your messaging. Here are some tips to get you moving in the right direction:

1. Pay attention to the voice of your leadership team.

The key to developing an authentic voice when communicating is for the talking points to align with the actual language and tone of the speaker. This is Communications 101: If the voice of the message is completely foreign to the one presenting it, the message will sound artificial and insincere.

This means if you are the CEO or CFO of a business developing messaging to present to investors, make sure the voice you use is your own. Don’t get bogged down in trying to sound like someone you think investors want you to be. Speak to the values that motivate you and be genuine.

Alternatively, if you are charged with the task of developing messaging for your leadership to present, remember that tone is important. A similar message presented in a cautiously optimistic tone can achieve radically different results from one presented using a cautiously pessimistic tone. So consider what tone best represents your leadership.

2. Find a voice that accurately represents the culture of your company.

Beyond making sure that your communications reflect the authentic voice of leadership, it’s also important to consider the unique voice of the company. For example, even though Coke and Pepsi offer similar products, their public personas are very different.

Don’t think of your branding and voice as simply a matter for the marketing department. If you want your customers and investors to immediately connect your company with a perceived culture (for example, innovative engineering with a global reach) that message needs to be consistent in communications across all departments.

3. When responding to questions, take a step back and consider the big picture.

Often the scariest part of communicating with investors are the off-the-cuff remarks. It’s one thing to develop precise language and practice with your team before a presentation. But when it comes time to answer questions, do you revert to vague jargon or hide behind your quantitative models?

During these times it’s especially useful to take a step back and simply talk. Don’t be afraid to “get real” with your audience. Yes, being honest requires you to be vulnerable and potentially face tough questions, but avoid the mindset that these circumstances are necessarily bad. No matter who your audience is -Investors, customers, employees- they want to hear your real thoughts on your business otherwise why would they listen? To take the pressure off, learn to approach these conversations from a position of collaboration, rather than confrontation. It’s an opportunity to share and educate.

At Audacia Strategies, we’ve seen it all and we can help you sort out your authentic voice. We know which questions to ask and how to help you zero-in on what matters most. Contact us today to discuss how we can help you develop a corporate communications strategy to address your needs.

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3 Steps to a Competitive Intelligence Strategy

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In my post last week, I kicked off our series on situational awareness with a discussion of the importance of knowing your company when it comes to discussing earnings with investors. This week we continue the conversation breaking down a second component of situational awareness, competitive intelligence.

While knowing yourself is key to putting your earnings in perspective for investors, another piece of this puzzle is knowing where your peers stand. In simple terms, figuring out a viable strategy for competitive intelligence means understanding your competition relative to your company and relative to major industry challenges.

Where do I even start?

Of course, figuring out where to start is far from simple. Clients often ask: How do I keep tabs on my competition in a respectable way? How do I create and implement on-going systems for competitive intelligence? And how do I translate the relevant information I find into the most meaningful format for my team?

Before I start going over details, let’s consider the big picture. I often describe competitive intelligence in terms of your company maintaining a “ready stance.” Like an athlete entering the ring with her opponent, you don’t want to be caught flat-footed by your competition. You want to be ready for anything and able to anticipate the moves your competition makes, so you can adjust accordingly.

So, what steps will help you take the competition by storm?

1. Rethink your competitive intelligence process.

Having a strategy is the best move you can make. Before you approach your board and investors, sit down with your team, develop a clear sense of scope, and think through the different roles members will play.

To guide your strategy, read through your competitors’ earnings transcripts. If their investor presentations are available online, look for clues about their perspective on the market. Are they taking a conservative, moderately conservative, or more aggressive approach? Finally, study their research reports. The more you know about their models and go-to sources, the more you can develop a competitive profile.

Also, make sure you don’t miss the forest for the trees. In other words, don’t just think hard about, say, your closest individual competitor. Looking at the market dynamic between several competitors can yield an innovative strategy, which could offer more guidance than studying any single competitor in isolation.

2. Talk to others in the industry.

When you see others in your industry at networking events or conferences, don’t shy away from talking shop. For example, when a colleague from research and development calls you up to ask about one of the models in your report, strike up a conversation about new federal regulations. While you should never ask about a specific company, it doesn’t hurt to ask for general feedback about your shared industry.

Now, I’m not suggesting that you do anything underhanded or anything that makes you uncomfortable here. Don’t think of this as digging for dirt. If you think of those you talk to as thought partners, your conversation will be cordial and mutually beneficial.

You will be surprised at what people are willing to disclose if you simply ask. Chances are you will come away from your conversation with information that can guide your investment choices and give you a better sense of where your competition is headed in the upcoming months.

3. Put processes in place for developing feedback loops.

Once you have thought about your own processes and gathered information about the competitive landscape, you can make the most of the information by establishing the right processes for getting it up the chain to your executives.

Bringing the information to the executives is really the final step though. You want to come to the table ready with a plan for implementing policy changes and systematically measuring results.

Also, keep in mind that data collection does not equal competitive intelligence. Competitive intelligence is more about creating strategy than it is about gathering loads of information. A little bit of information can go a long way. This means you don’t need to spend millions on a massive database and you shouldn’t simply dump data into the lap of analysts asking them to come up with a strategy.

Developing the right feedback loop requires an “all hands on deck” approach. Have a clear sense of the scope and role for each member of your team. Then take a few simple steps: mandate intelligence reviews at critical decision making stages; have a designated competitive intelligence analyst who sits in on all strategic meetings; and tap into any internal channels that can help implement strategies for competitive intelligence.

Parting thoughts

When it comes to competitive intelligence, the name of the game is to be proactive, predictive, and to revise your strategy according to what your competition might do. If you follow the above tips, you’ll be on your toes when it comes to monitoring your competition and staying on top of industry trends.

Used well, competitive intelligence will lead to increased strategic agility and the ability to adapt to market shifts. Don’t miss next week’s installment of our series all about what to do when markets behave badly. While we all have our fingers tightly crossed that the US election won’t upset the stock market, it doesn’t hurt to be prepared for the worst, right?

At Audacia Strategies, we’ve been practicing our “ready stance” for a long time. We don’t just provide flashy presentations and strategic advice from the sidelines. We roll up our sleeves and stand with you shoulder to shoulder until we achieve the measurable results you are after. Are you ready to schedule a free consultation and find out what a difference Audacia Strategies could make for your company?

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investor relations

Investor Relations Starts At Home: 3 Tips for Disclosing Q3 Earnings

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This week it seems like everyone in the financial world has been obsessing over companies like Apple and Google releasing their Q3 earnings reports. For analysts, preparing to disclose earnings is one of the biggest challenges of investor relations. Wall Street has been in a holding pattern during the past 30 days. But the perceived wisdom is that if any of these big companies reveals an earnings surprise, it could be just the jolt investors need to bring them out of their malaise. I’d say the jury is still out though.

There is no doubt that quarterly earnings are a crucial measure to watch. Still, as you develop a strategy for communicating your company’s Q3 earnings to investors, consider that finding the right message is as important as the actual data you are communicating. It’s always a good idea to keep things in perspective. Since companies aren’t valued in a vacuum, having situational awareness is essential to communicating the right message to your investors.

In fact, situational awareness is so essential to investor relations that we think it deserves a three-part series of its own. So we’ll start off in this post with tips for helping you view your company from the outside in. We will follow up with posts about knowing your peers and knowing the market.

What is situational awareness and why is it key for your quarterly earnings strategy?

As you might have guessed, there are three main components to situational awareness: knowing yourself, knowing your peers, and knowing the market. Each of these components plays a role in preparing you to discuss your company’s valuation with investors. Investors want you to give them the numbers, but they also want you to help them interpret the numbers. Remember that they are looking to you as an expert on their investment.

This is especially true when it comes to disclosing earnings. Building a successful investor relations strategy is about getting into the minds of your investors. From an investor’s perspective having more information is always preferable to having less, so anything you can do to put those numbers in context will be well received.

Think of it this way. Which is more helpful for investors to know:

  • Your earnings rose 10%?
  • Or your earnings rose 10% while your closest competitor’s earnings rose 8%?

That the second one jumps out as more helpful demonstrates the power of situational awareness. Now, we’re not saying you call out your competitors’ results specifically but you definitely want to note the “industry-leading” results during your earnings call. An investor relations strategy that integrates situational awareness doesn’t simply focus on telling the story of your quarter. It also positions your company relative to how your peers performed and to how the market itself performed, giving your investors a more complete picture of your company’s performance.

So let’s talk strategy.

What does it mean to know yourself?

1. Know your company better than anyone else.

This should go without saying, but no one external to your company should understand your company better than you do. So develop your own models, craft earnings polls, and get into the minds of analysts to understand how they are really evaluating you.

Additionally, rather than making assumptions about what analysts are thinking about your company based on their research, reverse engineer the research whenever possible. Get your sell side analysts’ models and compare and contrast. If it becomes obvious to you that analysts are operating under incorrect assumptions, build some commentary into your earnings call discussion to explain any discrepancies and to give more context for their revised models.

2. Know what the analysts ask.

Examine the questions analysts asked about your company and your peers during the last quarter (or even during the last few quarters). Compare those questions to what they are asking during the current earnings season. For example, if analysts asked about the risks associated with a particular raw material three quarters ago, but haven’t asked since, this might explain discrepancies between your internal reports and the external reports you’re seeing.

Don’t simply assume the questions analysts ask are consistent from quarter to quarter. While it can be tempting to dismiss a lower than expected valuation from analysts on grounds that they don’t have the complete picture, investors will rightly hold you accountable for failing to anticipate and adjust internal models.

3. Know yourself relative to your peers.

This bleeds over into what we’ll talk about in more depth next week, but part of knowing yourself includes knowing how you will handle the release of peer earnings reports. Because many data points are more meaningful in the context of understanding industry trends, keeping tabs on your competition is key to understanding how to position yourself with investors.

For instance, in the defense industry where there has been a mostly flat business landscape for much of the past year, it makes sense for defense contractors to pull back and take a more austere approach to allocating resources. But if you know your competition is taking this approach, while your company is increasing its investment in research and development, for example, you may have a powerful discriminator that sets you apart from your peers. Well communicated and in context, a carefully considered, seemingly contrarian investment strategy could really pay off in potential valuation.

Long story short, if you aren’t keeping tabs on your competition and how they handle macro-issues facing your industry, then you are operating at a serious disadvantage. It’s a little bit like showing up to a tennis match with a ping-pong paddle. Of course, it’s important to work on your backhand, but if you haven’t studied your competition carefully, you risk underestimating them.

Stay tuned for next week’s continuation of this series on situational awareness and investor relations when we’ll discuss knowing your peers on a deeper level. In the meantime, if you would like help communicating a consistent and compelling investment story, we’re always ready to talk disclosure strategy (with as much geeky detail as you can handle, of course). No matter how well you know your company, we understand that it can be challenging to know how to frame your message and to develop the right outreach plan. Contact us today. We’ve got your back!

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