Financial Communications for the Newly Public Company
Published in the MCPA Statement, a newsletter of the Maryland Association of CPAs
By Geraldine D. Leder

Part 1 of 2

If yours is one of the 550 companies that has gone public in the 12 months ended June 30, you are discovering the financial communications responsibilities that accompany your public company status. The financial communications role involves a substantial time commitment by the CEO, CFO and other senior officers. You must communicate with investors, analysts and the financial media as well. These are important relationships for your company. The difference between your stock being fully valued or misunderstood, a distinction that will be reflected in the earnings multiple, will depend in part on the type and quality of information you share with these external audiences. Each new development should be expressed within company themes that your management has clearly articulated and repeated whenever possible. The care and feeding of these key parties may require dedicated staff attention to prevent tying do\vn senior management and to ensure that they receive due attention.

Public Company Disclosure

As a public company, you have signed on to keep investors and securities analysts informed. This begins with the underwriting and continues well past it. Securities laws intend that the company will release all information, positive or negative, that bears on an investment decision and that it will distribute that information simultaneously to give equal access to all investors. This can be much moreshould consult your counsel at the time of the initial public offering to get some advice about the disclosure obligations and procedures.

There are other duties that also accompany public company communications. The analysts following your stock will call you with questions. They will want answers in real time. The markets are moving while their clients await explanation or rating changes.
Reporters will seek comment on quarterly earnings, acquisitions and new business contracts when they showed little or no interest in your greatest achievements as a private entity They are every bit as influential as analysts when it comes to affecting investors sentiment about your company. The demands by these entities may overburden you and your senior colleagues. An investor relations or corporate communications professional can free up others for operating responsibilities or you may share financial communications activities among several of you.

The Company Spokesperson

Determining who will be the spokesperson for the company is a serious decision. Not only will all of you be reading his or her words in the newspaper - an activity that will heighten your sensitivity to the selection of each word and the turn of every phrase - but the spokesperson will be broadcasting the company's message to shareholders, analysts, employees, clients, prospects, vendors and others.

Consider the potential impact of their words. Investors and analysts often begin their company research with an on-line news search. They can set up "stock watch" features on their desktop so that news on a covered stock will activate a beep to draw their attention to it. Needless to say, when you speak to the press you are also speaking directly to analysts and shareholders. So it is important to cover a few bases to prevent being caught off-guard.

The management team should agree on who will be charged as the company's spokesperson; your support will be necessary when what is said is not exactly what the publication printed. If an article is unflattering, it is no time to debate who among you should be fielding calls from the media. Instead, make sure whomever you choose is briefed on company strategy and key issues and arrange for a degree of latitude so he or she can answer for the company. Enlist the support of other senior colleagues who may have to be available occasionally at a moment's notice to assist the spokesperson in this role. On significant events, you should consult with your lawyers and investment banker so that the disclosing of any material development meets all legal requirements and is responsive to the needs of the investing community

"Quiet Period" During the Equity Offering

During the offering period and for 25 days after the effective date of the initial public offering, you will be in what is termed the "quiet period." During this period, the company's communications with the public are subject to the Securities Act of 1933. Publicity regarding the company can sometimes raise a serious legal issue as to whether it is part of an effort to sell the offering, which of course, can only be legally sold through a prospectus. It is advisable to clear all communications during the quiet period with your corporate counsel and with the underwriter.

Part 2 of 2

Establishing Financial Communications Ground Rules

There is an old adage that the way to gain good judgment is from experience which is gained from exercising bad judgment in the past. When it comes to communications policy, it is best to avoid costly learning experiences. Formulate a corporate communications plan that lays out your company's objective. The plan should include clear guidelines for issuing press releases and fielding press inquiries. Company-issued press releases are an effective way for the company to articulate its direction and trumpet its successes. But now that you are a public company, mishaps can occur. One company's press release announced with pride that its local office had landed the exclusive option to market its consulting services through a large association's membership. The wire services picked up the news release and soon industry analysts were calling the company to value the earnings impact of the contract. This proved embarrassing to company management because, in fact, the contract was only a modest marketing victory not a major corporate development.

Mishaps can result from unauthorized media contacts as well. Sure, your division heads should have the chance to respond to inquiries from industry and professional journals, but it now makes sense to coordinate such contact. Is it a good idea to discuss new product developments? Should we announce geographical expansion in advance of moving into a market? These are strategic business issues that should be discussed and agreed upon by the management team. Otherwise, a knee-jerk response to a media inquiry on the company's plans may force a premature product rollout or thwart your company's ability to surprise a competitor by expanding into a new market.

Central Business Themes

You may recall former Secretary of State Henry Kissinger's White House press briefings where he invited reporters' inquiries by beginning, "Who has questions for my answers?" Each press release and every press briefing should provide ideal opportunities to frame the company's message around central themes that support the event, decision or development. These business themes are broad positioning statements that articulate where you are taking the company and how you plan to get there. Politicians are skilled at theme development and fitting their answers within them. Politics has spawned such terms as being "on message" and delivering "sound bites." These terms perhaps take theme development to an extreme. To put it more simply, if your company hopes to be understood in the marketplace, it is important to give the investing public a context within which to interpret corporate developments whether the news is good or bad. For example: "We expect to expand throughout Europe and Asia through strategic alliances with companies that have established sales forces in industry segments that are contiguous to our business." In one statement you have described how you plan to capitalize on opportunities in new markets, expand distribution and manage the high cost of entering overseas markets.

Analysts and shareholders will develop trust in company management when they know they can rely on the quality of information the company provides. Public relations professionals always counsel you to be straightforward when you deliver bad news, whether it be an earnings disappointment, an executive departure or an acquisition gone awry. They correctly point out that an unexplained bombshell leaves investors and analysts either with the sense that the company is hiding something or wondering what it means altogether. Either way, this does not help the company's credibility with these key audiences. But sometimes the delivery of negative news can bring exposure to an investor lawsuit, so you should consult your legal counsel before determining how you will release adverse information.

It is far more manageable to control the news you release than direct the results of a random press inquiry. The more arcane your business, the better the opportunity you have to articulate your themes and educate as you communicate company news. You should consider substantiating record earnings with a chart demonstrating results for historical periods. Yes, the financial media has the information readily available through on-line services. Providing it simply increases the probability that a publication will use it. Why not accompany the news of an acquisition with an addendum that lays out the business and some of the descriptive qualities that make it an attractive target? Factual content allows you to present your story more fully and saves research time for the reader.

Know Your Media

Recognize the fact that all media are not created equal and familiarize yourself with the differences among them. You will find a wide variance among them as to interviewing skills, knowledge of your industry and company, financial comprehension and time devoted to each story. For example,wire services such as Dow Jones and Bloomberg compete to get their news to the wire first. If they call the company for verification, they need an immediate call back. On the other end of the spectrum financial magazines, such as Forbes, Business Week and Fortune, usually have longer lead times for feature articles and have the time and inclination to delve deeper into the companys story. Try as much as possible to respect their deadlines and respond within them.

Finally, remember that long term relationships will impact your financial communications. Cultivate these relationships with care and attention and above all, be straight in your dealings with these influencers. Return calls promptly. Be consistent and clear. Your key shareholders, industry analysts and the media will evaluate you and your company on the quality of the information you provide.

Geraldine D. Leder is president of LederMark Communications LLC, a financial marketing and communications firm. She is the former principal with BT Alex. Brown and manager of the Corporate & Executive Services Group.