Two critical moments of time must be considered to communicate:
– the transition period we are in now, when the financial performance of companies remains positive but the markets anticipate a slowdown and
– the period when the economic slowdown materializes and is reflected in adverse financial indicators.
We are currently seeing a stark difference between relatively positive corporate management commentary and more pessimistic investor sentiment, focused on a possible economic slowdown and its likely impact on reduced revenues and higher financing costs.
For businesses it can be a difficult time to navigate: how do you bridge the gap between what your business is currently seeing, which may still be healthy, and what the market expects or fears?
In this context there is a real danger of becoming the company that claims that “there is nothing to see here at the momentuntil they are forced to change direction. This is when a company can lose credibility if it is perceived that management was not paying attention and planning ahead.
Here are some ideas on how to approach this difficult transition period:
Acknowledge the disconnect. It should be explained that the company understands the concerns of the market, but that its current reports are based on current actions and what it sees and hears from its customers and end markets. However, it is important to communicate that the current economic situation and the strategies that are in place in the near future to address possible changes in demand are considered.
Provide examples and data. If the company has been through a previous downturn, it is advisable to provide examples of how the business has adapted to difficult situations, mentioning the lessons learned and how they influence your current decision-making.
Refine business model guide. It is recommended to provide stress tests or other scenarios to illustrate your readiness, as well as a variety of potential impacts on your key metrics. Be clear about the assumptions built into your ranges so analysts can make their own decisions.
Investors don’t expect management to have a crystal ball, but they do want the peace of mind that there is a strategy in place that considers multiple economic scenarios and they want to understand what actions can be taken to protect both earnings power and capital. as possible.
Credible and proactive communication. Successful communication during a period of economic transition helps level the way for when the company’s results begin to weaken.
Report significant new metrics. Are there metrics that can be provided that have not been provided before, that are more meaningful in managing the business during a downturn? While it is difficult to remove information once it is submitted, the temporal metrics sought during periods of economic stress will be appreciated. Likewise, don’t hide already reported data just because it turned negative. This is a path to loss of credibility.