Tim Human looks at lessons to be drawn from the last downturn – and how things will be different this time
In 2008, Laura Graves, then Cisco’s director of global IR, stood up to kick off her company’s analyst day in Silicon Valley. She had spent many months helping to craft the agenda and prepping senior management, but she knew the audience’s thoughts were elsewhere. The previous day, Lehman Brothers, the 164-year old investment bank, had gone bankrupt. ‘We had to walk on stage knowing that Lehman Brothers, Bear Stearns, all of that was crumbling,’ Graves says.
Those events took place during the last major downturn. The subprime mortgage crisis pushed the US into recession in December 2007. Most of the developed world followed suit. Unemployment spiked across western countries, while the MSCI World Index fell by 50 percent. IR teams worked hard to stay close to investors and explain the impact of the credit crunch. They played a crucial role in guiding companies through the uncertainty and out the other side.
Eleven years on, we are facing another recession. Government action to curb the coronavirus outbreak has caused entire industries to shut down. The International Monetary Fund says the economic damage could be worse than in 2008. Once again, IR teams have their work cut out. So what lessons can we draw from previous downturns? And how will the situation be different this time around?
Elephant in the room Today, Graves works as corporate vice president of investor relations at AMD. Recalling the 2008 analyst day, she says the first thing Cisco did was address the short-term picture.
‘You’re there to communicate long-term messaging. But you have to remember the audience, what’s on its mind at the moment,’ she says. ‘People wanted to know what was happening near term. And they were worried about their jobs that day.
‘We acknowledged right at the beginning what had happened. We showed empathy for how everyone was feeling. We made a comment about what we thought [it meant] for our business at that moment, because the financial sector was a large customer base for Cisco. Then, once you have dealt with the elephant in the room, you can pick everybody up and take them on the next part of the journey.’
By coincidence, Graves experienced a similar situation with an AMD analyst day this year. The semiconductor company held its event on March 5, around the time coronavirus fears began to shut down financial events in the US. ‘We were at the point where some people were still shaking hands and others were already bumping elbows,’ she explains. ‘We had a 20 percent drop-off in our in-person attendance. But our web attendance soared through the roof.’
Following the event, Graves waited a little for the market to calm down and then sent out an email to her distribution list with a link to the webcast. ‘I went into our webcast and pulled individual pieces of interest for people with the exact time markers, noting what might be helpful,’ she recalls. ‘I’m trying to proactively share information they can use as opposed to doing nothing. Doing nothing doesn’t help anybody.’
During downturns, IR teams must approach their messaging with great care, says Graves. The situation is fluid and evolving, so admitting that you don’t have all the answers is okay. ‘It’s a period of heightened uncertainty, so you focus on what you do know,’ she explains. ‘And remember that you know more about your business than the market does at any given time, but especially at that moment.’
By sticking to the facts and being transparent, companies have a chance to bolster their reputation with the investment community, Graves adds. ‘Get out there and deliver facts and continue to educate investors,’ she says. ‘Demonstrate that you’re calm, purposeful and in control of your company’s narrative with Wall Street.
‘And even if there is a pullback in your stock or the market as a whole, you’ll still come out the other side with a much more educated investor base.’
In the thick of it Mark Merson, founding partner of banking consultancy Veritum Partners, who was head of IR at Barclays during the financial crisis, agrees that maintaining contact should be a top priority during downturns.
‘Back during the 2008 crisis, we physically held meetings with investors in the US and elsewhere. And a number of them were saying, We expected you to cancel,’ he recalls. ‘Being able to say, There is nothing more important that we could be doing today than spending time with our owners is an incredibly powerful statement.’
During the financial crisis, it was also vital to keep your options open when communicating with the market, says Merson. And sometimes that involved saying things investors didn’t particularly want to hear.
‘Back then, it was a case of being prepared to say that a rights issue or other equity raise was one of the things we were prepared to contemplate,’ he says. ‘Of course, that goes against a lot of instincts because shareholders want to be reassured that the share count is not going up. Actually, however, if you’re going to survive, you need all the tools available to you.’
The investment community responded well to Barclays’ IR efforts, voting for the bank to win the gongs for best overall IR by a large cap and best crisis management at IR Magazine’s 2008 UK Awards.
Under current lockdown conditions, Merson advises getting on the phone as much as possible. ‘If I were in investor relations today, I would be planning conversations with our owners and I’d be putting those in over the next several weeks,’ he says. ‘Maybe you’re taking three hours out of your chief executive’s time and doing 10 or a dozen calls. You just want to demonstrate to investors that you’re staying in touch.’
At times of market stress, Merson notes that IR teams should prepare themselves for more in-depth conversations about debt. ‘Generally, when things are ticking along, debt IR can be quite formulaic,’ he says. ‘Your conversations with a ratings agency will be deep but they’ll be driven by a well-understood set of data. It changes in downturns and crises – you need to be ready to engage in real conversations with debt investors. That’s something investor relations and treasury will need to engage in.’
The coronavirus crisis While some IR lessons endure from downturn to downturn, the predicted recession of 2020 will pose new challenges. First, we have no idea how long societies will be shut down for. It could be just a few more weeks; it could be more than a year.
‘I think the level and breadth of uncertainty is relatively different from what I’ve seen before – the timescale is wholly up for grabs,’ Merson points out.
Second, coronavirus is not just a financial event; it’s also affecting the health and well-being of millions of people across the world. As a result, companies are under pressure to resist big layoffs. Influencing the debate is the rise in prominence of stakeholder value. Last year, 181 US companies announced they would ‘lead their companies for the benefit of all stakeholders’, not just shareholders.
‘Responsible capitalism, which seeks to move corporate culture beyond shareholder primacy, now faces its biggest test yet,’ wrote Paul Polman, former chief executive of Unilever, in a LinkedIn post in March. ‘Today’s CEOs are knee-deep in invidious choices as they attempt to absorb losses, steady cashflow and balance the competing needs of their investors, customers, staff and suppliers.’
Third, traditional communication channels are being seriously disrupted. ‘Depending on how long this goes on, people will gain a level of comfort around virtual meetings,’ says David Whyte, co-founder and CEO of IR tech firm Platform Group, who previously worked in equity sales for Credit Suisse. But he predicts that investors will return to favoring in-person meetings when they have the chance.
Moving on For Whyte, one way companies can position themselves for a post-downturn recovery is to help investors with scenario planning.
‘Help them reduce the work they have to do,’ he says. ‘I would always encourage that across the board, but especially now. You can run some scenarios that say this lasts until August, or this lasts until November, or mid-2021. What does our company look like? What do our revenues look like? This makes it much easier for investors to wrap their head around it and understand the risks, while also building some trust that you understand your business well.’
Merson believes there will come a time when it’s right to focus on the future. First, however, companies and investors need to have a similar view of what the future looks like. ‘There was a point at the beginning of 2009, when we were at the crunch time for some aspects of the crisis, and that was when Barclays’ share price hit 47p,’ he says.
‘You could start to see then what the world would look like. And we were able to say, We have a rationally pessimistic view of the future. And in that rationally pessimistic future, we will survive: we will be okay.’
Mark Merson, a founding partner at Veritum Partners and former head of investor relations at Barclays, offers the following advice on investor communications during a crisis.
We are in a crisis – and normal rules of crisis management apply. This crisis is different from the last, almost by definition, and requires its own determined response.
Leaders are visible in a crisis, whether or not they like it and whether or not they are the people with leadership titles. If the company’s leaders themselves are not visible, people will likely take note of other leaders instead. Management teams need to work hard to be the drivers of the narrative, as it can quickly get out of their control.
Do not cancel investor meetings. By all means make them calls or videoconferences to respond to investors’ needs and other constraints, but keep commitments that have been made. To the outside world a canceled meeting can be extrapolated into a story – a negative story.
Communicate often and clearly, not just when there is something new. Providing business-as-usual communication is not enough. Being available to take calls is also not enough. Company senior management and IR teams need to find ways to be present with the investor community, especially because normal investor meetings are not available.
Make communication relevant to the moment. To an investor seeing a red screen, it is not necessarily reassuring or interesting to know that the previously communicated strategy is intact. Be prepared to discuss operational matters rather than the most recent financials. Make these operational matters the first part of your investor communications, rather than just the responses to questions.
Plan quarterly statements in advance. Consider reordering to focus on defensive characteristics such as risk management, liquidity and balance sheet strengths.
Avoid predicting the future. With things changing quickly, predictions will likely quickly be stale or hostages to fortune.
Make sure you are very well informed. Pay close attention to news flow on market peers and to the detail of peers’ market statements. Reading the headlines is nowhere near enough for the level of credibility that influential company representatives need to command in order to stay relevant.
Pace yourself – this already looks like we’re in it for the long haul. Set a working pace that both you and your team can sustain for the long term.
Be prepared for when the world turns. At some point, the market will once again be ready to listen to management plans for brighter futures, and there is value in knowing what you might want to say at that point.
