Charged with fostering good relations and transparency within organisations, the CFO’s function as a communicator has become increasingly important. Today, having greater shareholder involvement also constitutes the finance chief’s expanding mandate.
For any business, no matter the size, keeping the investors happy is among the key priorities to keeping the business intact. This means ensuring that they are up-to-date with the company’s standing in the market and other potential opportunities. Achieving this requires a proper line of communication between both parties.
A strong engagement between an organisation and its investors results in a well-informed and supportive shareholder-base, which can undeniably be a valuable corporate asset. Having such a relationship ensures not only the health of the business but also gives each side the confidence to reach a supercharged bottom line.
The CFO is increasingly being considered to be the public face of the company, hence shareholders now expect deeper attention from CFOs when it comes to keeping them in the loop. Greg Fewer, CFO, Aldar Properties, says that an open line of communication with investors is a crucial element to any business. However, it’s a two-way street.
“We need to know what is on the minds of our shareholders as much as they need to be kept abreast of regular company updates,” Fewer says. “This consistent transparency is what is needed to maintain investor confidence and sustain access to the increasingly competitive capital markets.”
Sanjay Amar, Director, Finance and Operations, Jacky’s Group of Companies, supports this assertion and says that although keeping the line open is paramount in keeping the business intact, one should keep in mind that delivering the messages clearly across is just as important. “A very important lesson I have learned when it comes to communicating with investors is that – what they want to hear and what you need to tell them are two very different things.
“Say for example, an investment opportunity comes up in a particular market or business venture, your shareholders should be able to freely pick up the phone and contact you to discuss any ideas or reservations they may have. At the same time, as the CFO or finance director, you must be able to openly express your views as to how you think this can impact the business may it be positive or negative,” adds Amar.
Typically, the correspondence with the shareholders takes place during quarterly meetings. However, the constancy is dependent to an organisation’s specific investor relations strategy. Fewer reiterates that regular communication with investors is of critical importance, especially for publicly listed companies like Aldar. “Communicating with your shareholders is not something that should be limited to reporting periods only but should happen even in between periods as and when needed. An active investor relations strategy should maintain regular contact with analysts, investors, regulators and financial media,” he adds.
Stakes are high when dealing with investors, therefore it’s critical that the communicator understands specifically what needs to be said. Disclosing too much information to your shareholders who only wants details of bottom line results could raise concerns or questions that could potentially delay projects in the pipeline. Consequently, not sharing enough or lacking clarity in the communication can be just as risky.
“Primarily, there are two things that investor communications should focus on,” says Fewer. “One, the company and its strategy, financial strength and operational performance; and two, the market and the specific trends that the company is observing in the market they operate.”
For a better investor communications approach, Amar says that trying to see things from the investor’s perspective is ideally key. “In my experience as a CFO, I have learnt a very important thing,” he says. “It’s putting yourself in the shoes of your shareholders. Seeing things in their point of view will help you figure out how you can effectively communicate a particular news or strategy to your investors.”
“From time to time opportunities will arise,” Amar continues. “We’d spot new trends and its potential. Oftentimes capitalising on these prospects might require committing a significant portion of the company’s resources. In cases like those, it’s ideal to set up a meeting with the investors and discuss the prospects with them.”
While it’s certainly nice to only deliver positive news, in business that is just not realistic. Investors will grow suspicious of a CFO who never gives a report of how things don’t go as planned. That’s why it’s always favourable to be as transparent as possible. Although it may be harder to convey information when things are not doing great, it’s often the news that needs to be relayed immediately.
Fewer explains that the ideal way to share good and bad news is exactly the same – it must be shared accurately and in a timely manner. “Over the long-term, a company improves its reputation by becoming known to share both with equal measure,” he says. “It’s important that when delivering bad news a company should present a strategy for how the business will tackle any setback.”
He also stresses that for listed companies, not communicating with the investment community increases surprise risk both upside and downside. “Reducing surprise risk is a key objective of the investor relations department,” he says. “Further, as the universe of potential investors increases, competition for capital also increases. In Emerging Markets, investors have so many investment alternatives available to them so companies must maximise their relative investability by adopting strong communication practices. Without these shareholders will simply pass and invest elsewhere even if your story is a strong one.”
Amar echoes this statement and says there really is no good time to deliver bad news to investors. “There’s only real-time, meaning you just have to accept the circumstances and find the best way to go about it,” he explains. “You must remember three things – recognise, communicate and offer a solution. In communicating a problem within the business, as a CFO, you must remember that you are not just a reporter. Your opinion and insights matter to your investors, hence it is important for them to hear what actions need to be taken and the possible solutions you came up with.”
He adds that what CFOs need to understand is that while a number of investors are business-savvy not all of them are finance-savvy. “With this in mind, the reports that you present to them should not entirely be comprised of numbers and figures alone. You should also prepare a qualitative report summarising the important elements that you would like them grasp.”