Over time, all management teams want to build relationships, or at least a healthy rapport, with shareholders. Consistent execution of your business plan and proper communication with current and potential shareholders can help you build credibility, which in turn can bolster your company’s valuation and even allow your management team to earn “the benefit of the doubt” when things are not easy.
Last month, we looked at the top 10 ways companies can build credibility with shareholders. This month, we consider the opposite, and explore common ways companies get into hot water. Here are the top 10 credibility busters you want to work hard to avoid.
1. Providing overly optimistic guidance – Don’t worry about where the Street is. Just get the numbers to a level that you can meet or beat.
2. Describing market size estimates that just don’t add up – Investor meetings take a turn for the worse when the market size numbers don’t add up.
3. Filibustering – Investors get concerned when you can’t answer the question in a minute.
4. Inconsistencies between investor interaction – When you say things like, “We don’t provide that information,” and the Street comes back with, “Well, you did two quarters ago,” you lose credibility. Keep your interactions consistent.
5. Being too visible or overly promotional – There is no reason for you to be on the road 40 days this year. Be selective and strategic about your interaction with shareholders.
6. Blaming external factors instead of taking responsibility – If it’s your fault, step up and take the blame. Then articulate how you are going to fix the problem.
7. Justifying acquisitions that don’t fit – The time to figure out if the Street will reward you for an acquisition is before you announce it. Challenge your team to ensure that the deal is the right thing to do for shareholders.
8. Poor content during investor interactions – After an investor day, you don’t want the research notes to say, “We didn’t learn anything new.”
9. Hiding when bad news is made public – Stay visible in good times and bad.
10. Not following through on your stated objectives – Don’t announce the timing of a new product and then miss expectations.
We realize things change all the time, and some are out of your control. But by avoiding these pitfalls, you can build a significant amount of goodwill and credibility with your investors — and enjoy the many benefits that come with it.
Now that you know what not to do, read last month’s Top 10 to learn what you can do to build credibility on Wall Street.
For more IR advice watch our latest Wall Street Revealed webinar, “How the Sell Side Really Looks at Companies.” Hear from three longtime sell-side analysts from the healthcare industry offer insider tips on making the most of your sell-side relationship.