Tag: Analysts

The 10 ways that CEOs must engage with Analysts.

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Our latest research provides clear guidelines to help CEOs create more valuable Analyst relationships.

Research has consistently confirmed that Analyst perceptions of Corporate Leadership is the No.1 most important influence on Investment Decisions and Share Valuation.

But our most recent research confirms that CEOs do not control the management of Analyst relations with the same discipline as they manage many other – less critical – parts of their executive responsibilities.

We carried out a series of confidential interviews with a representative sample of Buy-Side and Sell-Side Analysts who cover Asia-based Corporates.

Our aim was to identify the most persuasive influences that shaped their positive and negative impressions of CEOs.

And we found that Analysts were consistent and crystal-clear about their requirements from CEO engagement:

10 Principles For Effective Analyst Engagement

Throughout all our interviews there were 10 core principles that consistently created a perception of ‘CEO Added Value’ – regardless of sector.

Different Analysts gave different priorities to each characteristic, but the core guidelines were always the same.

These principles are detailed here, with the relative importance of each principle ranked by qualitative evaluation:

  1. Strategic Clarity

Most important of all, Analysts gave a much higher value to CEOs who were able to communicate a clear, compelling rationale for their Strategic Decisions.

This Strategic Clarity demands a clear, consistent description of their primary Corporate Objective, a persuasive articulation of their Strategic Options, an Option Analysis including their respective upsides and downsides – resulting in a clear, powerful support for their chosen Strategic Direction.

Analysts attributed a significant Premium to those CEOs who delivered impressive Strategic Clarity – and a significant Discount to those who were less effective.

  1. Industry Vision

A CEO’s Vision for the future of their Industry in the mid- and long-term is absolutely fundamental.

Vision determines the potential value of the CEOs entire Business Strategy. It must shape every decision, and every value judgement.

Analysts are obviously specialists in their sector, and they encounter many different Visions of the future, and have access to all relevant data on which to make their evaluations.

Every CEO must therefore be able to clarify a persuasive view of future trends, threats, opportunities & implications, based on facts, presented with power and passion.

  1. Honest Dialogue

Analysts place enormous value on having access to open, one-on-one dialogue with CEOs.

This personal dialogue and relationship shapes trust, confidence and empathy – and enables a clearer understanding of the CEOs Vision, Strategy and Issues.

This dialogue must always be informal, unscripted, one-on-one contact – preferably face-to-face, definitely on con calls.

The CEOs who provide the most personal, unscripted access are invariably the ones who are most confident in their own abilities and decisions, and – consequently – the ones who command the highest ‘Leadership Premium’.

  1. Consistent Delivery

On many occasions, Analysts have found themselves impressed by a CEOs ability to articulate a persuasive Business Strategy based on a convincing Industry Vision – only to hear of inconsistent actions or directions with little advance notice or explanation.

This creates confusion and doubt.

Analysts fully appreciate the need to move fast in order to seize opportunities or mitigate threats.

But they frequently hear of Management Changes, for example, with no warning or explanation.

Not only does this make them doubt the decision, but it also undermines their CEO confidence.

Analysts have most confidence in CEOs who deliver management actions that directly relate to their Vision and Strategy.

And if there are necessary variations, they value advance notice and a persuasive explanation.

  1. Future Focus

The more obsessed a CEO sounds with their Short-Term results, the less confident Analysts feel about their long-term potential.

Institutional investors assign premium value to Corporations with CEOs who have identified a persuasive Industry Vision, a powerful Business Strategy – and the Management Capability to deliver.

The more focus placed on Short-Term results suggests Short-Term problems and Short-Term focus – neither of which, obviously, lead to premium Valuation.

  1. Conscious Transparency

In conversations with Analysts, CEOs often try to avoid, minimise or dismiss developments which could threaten their Vision, Strategy or Plan.

That never works.

It often makes things worse.

Analysts give much more respect to a CEO who is both alert to potential new threats and challenges, honest regarding their implications, and prepared for response.

  1. Competitive Respect

According to Analysts, many CEOs are hardwired to either dismiss the strengths of competitors, or to diminish their threat.

Obviously, Analysts are specialists in their sectors and have a full understanding of the competitive landscape. They are not fooled by a CEOs feigned confidence.

Analysts therefore place a high value on CEOs who are honest, open and respectful.

And, not surprisingly, they have greater trust for CEOs who exhibit a thorough awareness of their competitors’ strengths and threats, because they will be better prepared to defend against them.

  1. Critical Visibility

One of the most common and criticised characteristics of CEOs, it seems, is to ‘disappear’ when there are significant problems, issues or challenges for their business.

When the going gets tough, many CEOs go into hiding.

Yet these are precisely the times when CEO contact and dialogue is most critical and most valuable.

Challenges and Crises are the ultimate test of Vision, Strategy, Transparency, Authenticity and Capability.

These are opportunities to add enormous value to the CEO brand.

The more a CEO hides and avoids contact, the worse the impression of their courage and competence.

And the more they avoid direct dialogue, the more they are missing a valuable opportunity to engage, impress and add long-term personal authority.

  1. Financial Credibility

Many CEOs are more comfortable talking about Vision, Strategy, Management Actions and broad Financial Issues – but are less comfortable leading discussions that drill down into Financial Details.

As a result, they often ‘hide behind the CFO’, leaving responsibility for communication of all financial details to their CFOs.

Analysts, however, have far greater respect for CEOs who are confident debating the numbers, convincing in financial discussions.

This doesn’t mean that they have to lead all finance discussions – of course not.

But they must be happy to lead discussions about the most important financial issues, exhibiting a confident grasp of the most critical details.

  1. Corporate Consistency

It’s critical for Analysts to see the CEO’s Vision and Strategy communicated throughout the Corporation.

The Leadership team must all be aligned, consistently communicating the same principles as their CEO, and presenting Corporate Actions in the context of the Company’s Vision and Strategy.

This obviously applies to direct Analyst Communication, throughout Earnings Calls, AGMs, Conferences and Investor Websites – but also throughout all internal and external messaging.

Analysts have witnessed several occasions where the CEOs Vision and Strategy is not reflected in further Management Dialogue or Corporate Communications.

The result is simple and profound:

CEO Authority and Credibility is immediately undermined, and Market Valuation is eroded.

Analyst Engagement Demands CEO Dedication, Not Delegation.

All these principles are obvious and logical.

But it is truly amazing how often Corporate CEOs fail to follow them.

CEOs should manage their Analyst engagement with the same discipline and dedication as they manage their business.

They should not be led by their CFOs. They should not be led by their IROs. They must lead all engagement themselves.

Yet, precisely because it is one of the few parts of their role that they cannot delegate or direct, it is often one of the hardest for them to apply.

At Reputation, we provide personal, confidential counsel to CEOs of listed Corporations, advising them how to Position and Present themselves to their most important Stakeholders.

If you are a CEO of a listed Company, and you would like a confidential discussion about how to improve your Investor Engagement, please get in touch with us either via our website or by email to Connect@TheReputationPartnership.com – and we will reply to you by return, in total confidence.

The 2 most critical Investment Drivers – and what they mean for CEOs today.

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What really drives the Investment decisions of Buy-Side Analysts? And how should CEOs manage them?

An extraordinary research study among Chief Financial Officers found that ‘78% would “give up economic value” and 55% would cancel a project with a positive net present value—that is, willingly harm their companies—to meet Wall Street’s targets and fulfill its desire for “smooth” earnings’ according to Harvard Business Review.

This is absurd.

It is even more absurd when you read all the recent research into the Investment Drivers of Buy-Side and Sell-Side Analysts.

One of the most recent was released by the world’s leading research company specialising in the Investment Industry.

Rivel Research’s 2015 Global Study of the Buy-Side’s Investment Process was based on extensive interviews with Buy-Side Analysts around the world.

The research is wide-ranging, but deep inside lie some fundamental findings.

And the most fundamental of all was this:

Short-Term Numbers are not the most important drivers of Buy-Side Investment Decisions.

There are two critical influences that are much, much more influential than the Numbers.

I’ll explain what those two influences are in a moment, but first let me share some other important findings:

Big Business Issues Aren’t Necessarily Big Investment Drivers

Interestingly, the research found that many of the most important principles for Business today aren’t particularly important for Buy-Side Analysts:

  1. CSR/Sustainability isn’t important: CSR/Sustainability is clearly the least important of all the 13 Drivers, way down at the bottom of the list, scoring only 22%
  2. Attractive Dividends don’t matter much: They are equally unimportant, right at the bottom, just above CSR, with 30%.
  3. Innovation isn’t fundamental, with ‘Innovative Products/Services’ scoring only 35%.
  4. Corporate Governance isn’t critical: Corporate Governance may be increasingly important within Business today, Buy-Side Analysts don’t see it that way, with Corporate Governance scoring below 50%.

Numbers Count, But They Aren’t The Most Critical

presentation2The most important Financial Measures are  clear:

  1. Cashflow is King; a Strong Balance Sheet is Queen.
  2. Potential Revenue Growth, Sustainable Margins and Prudent Capital Deployment are all important.
  3. Attractive EPS Growth is a little way behind – and Attractive Dividends don’t matter much.

But the two most important Investment Drivers are not Financial.

They are much more important than short-term numbers.

The two most Important Investment Drivers are those that create Investor Confidence and Long-Term Value

The two most important Investment Drivers for Buy-Side Analysts were:

72% Management Credibility

69% Effective Business Strategy

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These findings are consistent with earlier Rivel research among Sell-Side Analysts, which also found that the two most important drivers of Sell-Side motivations were ‘Management Credibility’ and ‘Effective Business Strategy’:

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Rivel’s most recent study includes the findings from their latest Survey of the European Buy-Side.

And in Europe in 2016, ‘Reliable Cashflow’ was this time rated as the No.1 Investment Driver.

But both ‘Management Credibility’ and ‘Effective Business Strategy’ were ranked as equal No.2 – well ahead of ‘Strong Balance Sheet’, ‘Sustainable Margins’, ‘Attractive EPS Growth’ and other Financial Criteria:

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Without question, a Company’s ‘Management Credibility’ and ‘Effective Business Strategy’ are two of the most fundamental influences on all Investment Decisions, for both Buy-Side and Sell-Side.

Which leads to one obvious conclusion:

Listed Corporations must be much more obsessed with creating confidence in their Management Credibility and their Business Strategy than with delivering their Short-Term Numbers.

This raises some interesting questions for most CEOs:

  • How much of your time do you spend building your own Management Credibility and shaping your own Personal Brand?
  • How much of your time do you spend building and communicating your Business Strategy, as opposed to implementing it?
  • How much of your attention in Analyst Meetings and Earnings Calls is devoted to the Numbers, as opposed to the most important Investment Drivers of all: Management Credibility and Effective Business Strategy?

At Reputation, we specialise in helping CEOs of listed Corporations to increase their Market Cap by building their Management Credibility more effectively and communicating their Business Strategy more powerfully.

If you are a CEO of a listed Corporation and you would like to discuss how to influence the Investment Decisions of today’s Buy-Side, and to influence the perceptions of today’s Sell-Side, please get in touch via our website or via email to: Connect@TheReputationPartnership.com – and we will reply in strictest confidence by return.

Can you afford to lose 20% of your Market Value?

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A Corporate Crisis consumes most CEOs. Are you prepared for yours?

According to Oxford Metrica, a strategic advisory firm, every company today faces an 82% chance of experiencing a Corporate Disaster within any 5-year period.

They define a Corporate Disaster as an event that results in a company losing 20% of its Market Value.

So if you believe them – and they are a rigorous analytics company that is respected around the world, so I think you can – your company will experience a sudden and dramatic loss of your company’s Market Value in the near future.

According to another study by the Wharton School of the University of Pennsylvania, a sudden Stock Price drop is not just a short-term problem – it’s a long-term problem.

On average, it takes 80 weeks for a company’s Stock Price to recover after a sudden price drop – that’s 1½ years before the company’s Stock Price recovers to its original value.

If the Stock price fall is the result of Earnings Risk, recovery takes longer: 93 weeks.

If it’s the result of Acquisition Risk, it’s 121 weeks.

If it’s Industry Risk, it’s 137 weeks.

And if it’s Competition Risk, the recovery time is more than 3 years – or 162 weeks.

They also analysed the recovery time by risk, across industries, and the situation is much more extreme for the IT, Utilities and Healthcare sectors.

So the brutal conclusion is this:

  1. Your company will probably experience a Corporate Disaster that could result in a sudden 20% loss of Market Value, sometime in the next 5 years.
  2. After this event, it could take 1½ years on average for your Stock price to recover – maybe more.

Equilar calculates that the average S&P 500 CEO serves just 7.4 years in charge of their company – and just 6.0 years at the median.

So it’s likely that your imminent Corporate Disaster will dominate your tenure.

But recent research has shown how companies with strong Corporate Reputations are less affected by Corporate Crises, and recover from their Crises faster.

At Reputation, we advise listed Corporations how to prevent, prepare for and manage Reputation Risk.

If you are a CEO of a listed Corporation, and you would like to discuss the best ways to prepare for, prevent and manage Reputation Risks, please contact us via our website, or email us at Connect@TheReputationPartnership.com and we will reply, in total confidence, by return.