This too shall pass……But don’t stick your head in the sand while you are waiting

Thoughts for Corporate Officers (CEO, CFO) of publicly-traded companies from the perspective of an experienced Public Company Corporate Officer, Sell-Sider (Analyst, Banker, Institutional Salesman) and Buy-Sider (Hedge Fund Manager)

Ancient Chinese Curse “May you live in interesting times”.  Well, these times are interesting to say the least.  An international health crisis, a free fall in global markets, a looming recession, contemplated government bailouts, and no playbook on how to navigate through the crisis.  You are facing uncertainty everywhere you turn – your employees, your suppliers, your customers, your board and, most germane to this commentary, your investors.  The natural human reaction to this type of shock is to turn inward and hunker down.  You don’t feel comfortable making statements and talking to any of your constituencies because you aren’t sure what to tell them.  In my experience, however, the best course of action related to your key investors is to reach out to them.

Investors are people too.  Whatever emotions you are feeling, you can be sure they are feeling them as well – professional and personal.  They have as much need for communication and reassurance as anyone.

The normal “competition” for mindshare of these investors is materially reduced.  They aren’t going to IPO roadshows or meeting with management teams.  Sell-side analysts and brokers aren’t calling.  They have all recommended stocks in the investors’ portfolios that are under water and they don’t want to get blamed.  Most other corporate officers are frozen.

Call them.  Don’t text, don’t email, don’t message on LinkedIn.  Chances are they are paralyzed and staring at their screens, watching the market volatility whipsaw their portfolios minute to minute.  They want a distraction.  When they phone rings, they will answer it.  Every investor will tell you they first focus on what they own in times like this.  They will be very happy you called.

I’ve found if you call just before or just after normal business hours you have a greater chance of connecting live.

By being proactive you can shape the conversation. You don’t need to focus on short term moves in your stock price. Reaching out is about keeping lines of communication and access to capital (the lifeblood of any business) open.

While a major reason for you to call is to let investors know you are there and sharing their pain, it is also a good idea to have a few key points you want to communicate.  These do not have to sound reassuring in the short term.  At this point the decline in stock prices has already discounted bad news in revenue and earnings due to the effects of the virus on commerce.  Nobody expects you to be immune from much larger issues out of your control.

Focus on the long term.  If you are well-capitalized make sure everyone knows it.  Remind investors of the strength of your business model in addition to your balance sheet – great gross margins, a stable recurring revenue base, a strong patent position, unique regulatory approvals, control over material inputs to your products, etc.

It can help if you can provide some guidance related to bands of potential business outcomes.  Think about performing a sensitivity analysis on your business with sales decreases of at least 20 percent.

If you are going to provide any type of guidance, make sure to follow the Regulation Fair Disclosure guidelines.

Remember to listen.  Yes, the investor wants to hear about your business, but also needs to vent the stress and frustration he is feeling.  You will likely learn more about your investor as a person in this call than you have in any previous interaction.  Understanding her better can only help your relationship in both a personal and professional sense.

We have seen this type of movie before, albeit with slightly different plot twists. I sat on a trading desk on October 19, 1987.  I was running a hedge fund when Saddam Hussein rolled his tanks into Kuwait in 1990.  I was CFO of an Internet e-commerce start-up that filed to go public in the spring of 2000, three weeks after the NASDAQ peaked at 5,000.  I was President of an investment bank hosting an opening reception for a conference for 200 public companies and 1,500 institutional investors the night before Lehman Brothers went out of business in September of 2008.  In every instance, the crisis abated, and the market ultimately recovered to far surpass the highs of the previous cycle.  Companies that were decisive, proactive and positive survived and prospered.

Be visible. Be accountable.  Be honest.  Be upbeat.  That’s what leaders do.