When the Going Gets Tough, the Tough Communicate

by Amanda Olson

When there's good news to share - when balance sheets are strong, the economy is hot and the markets are reacting favourably - it's easy for companies to keep the lines of communication open. But what if the news isn't so good?

Most publicly traded companies believe their primary investor relations goal is to attain a fair valuation in the capital markets. When a company is a sector leader with glowing analyst coverage, this seems effortless. Companies that are doing well take advantage of news releases, roadshows and an accessible spokesperson to reach a broad audience with their message. Then they sit back and watch as the attention is reflected in their trading volumes and share price.

When things slow down, however, there is often an inclination to "lie low" - to halt the roadshows, to avoid media attention and to issue news releases only as dictated by disclosure requirements. Perhaps this is a modern twist on the old schoolyard adage, "If you don't have anything nice to say, don't say anything at all." As applicable as that advice may be during a game of tag, the opposite is true when it comes to investor relations.

In the world of financial media, if there is a story to tell, it will be told regardless of whether a particular company elects to provide input. A company that tries to fly under the radar will have the unwelcome consequence of drawing attention and suspicion to itself. Conversely, a company that is open and honest by answering questions and providing clear and consistent messaging is likely to be rewarded for its approach through loyal shareholders and investor confidence.

Ensuring a well-informed audience is one of the best strategies a company can employ while times are tough. Markets don't like uncertainty. It's important to educate investors about market trends to help them put a company's situation into perspective. Taking the energy industry as an example, companies have had to navigate sector-wide challenges over the past 18 months. Income trusts were hit with a new federal tax in October 2006 that will be implemented in 2011. Then companies that operate in Alberta faced challenges that came with a new royalty framework that will take effect in 2009. At the same time natural gas producers have felt the sting of lower than forecast natural gas prices. Providing perspective in relation to challenges facing the industry can help to clarify the challenges facing a particular company.

After outlining the current challenges, credible companies will then describe how they intend to weather the storm. Continuing to provide clear and consistent messaging is a crucial part of this approach. Emphasizing positive points, such as a plan to control or limit debt, can underscore the message that the company will adhere to its business plan and will make strategic decisions as warranted. Knowing the company doesn't intend to make any knee-jerk decisions will help to eliminate uncertainty. In addition, a healthy dose of empathy - reminding the audience that the managers are themselves shareholders and have a personal interest in seeing a fair share price - can help to build a rapport with the audience.

Publicly traded companies must remain honest, open and available during market downturns. Those that are accessible and trustworthy when their share price is down can use the opportunity to appeal to long-term investors who will be happy to buy low and hold. Successfully riding the market roller coaster means hanging on not just when the track is smooth, but during the loops that briefly turn even the best companies upside down.