Aristotle is said to have coined the phrase “nature abhors a vacuum.” Far be it from me to question Aristotle, but while he was right, I think his view was too narrow — the abhorrence of vacuums goes far beyond nature and extends to investors and the media, among many others. Companies that hide behind closed doors and ignore or deny requests for information from investors and the media run the risk of finding themselves without a welcoming audience when they eventually choose to communicate.
Let’s be clear – any securities lawyer worth his or her salt knows that sometimes the best thing to say is “no comment” or its equivalent. I’ve given that advice very often. The problem is that in my experience, most of the time when a company says “no comment” or “we don’t respond to rumors,” the rumor is likely true. Conversely, when the rumor is just that, a rumor, companies tend to squeal like a proverbial stuck pig. For some reason, companies that engage in this sort of behavior fail to understand how it plays out among investors and the media.
It has also been my experience that securities attorneys all too often think they are smarter than their clients’ communications and investor relations advisors and disregard the advisors’ recommendations. Even a smart lawyer isn’t likely to know more than these advisors about IR or communications – in fact, many lawyers are terrible communicators. So it’s worth listening to and considering those advisors’ recommendations instead of dismissing them out of hand. Personally, I’ve learned a great deal from investor relations and communications advisors.
One of the things I’ve learned is that if you don’t tell your story, someone else will, and often in a manner that is factually incorrect, not with your best interests in mind, or both. Another lesson learned is that, even in those sticky situations when you really cannot comment, try to explain why you can’t comment. At times, the rationale for not commenting may sound like a copout (“We are still gathering the facts”), but being honest with the media and investors – including communicating when you do know some facts – will allow you to gain their trust. And trust is often the name of the game.
Of course, to join the ranks of those paraphrasing Gabriel Garcia Marquez, communications in the time of coronavirus has its special challenges. But clamming up is, IMHO, not the way to address them. One of my peeps in the IR world, Jeffrey Goldberger of KCSA Strategic Communications, recently wrote an article with several pearls of wisdom, including that good communications provide “an opportunity to get ahead of current/future issues, to control the narrative and, ultimately, allow investors to make informed decisions.” (Note that Jeffrey’s article is just over a month old as I write this, so the dire statistics he cites have only gotten worse.)
And I’d be remiss if I didn’t quote another of my peeps, Adam Epstein:
Let’s be brutally frank about how this plays out day after day. Crummy storytelling -> no trading volume. No trading volume -> no equity research coverage (that anyone actually cares about). No trading volume -> volatile stock prices that make it more challenging to attract/retain employees. No trading volume -> you can’t use your stock for M&A (no company worth acquiring wants stock that doesn’t trade as merger consideration). No trading volume -> hyper-dilutive financings, or, perhaps, no financings at all.
Adam – who, by the way, is one of the smartest people I know (proven by the fact that he’s a reformed lawyer) – was writing about executives of tech firms who speak in technical jargon “as if a senior BlackRock analyst is the audience.” However, his words are food for thought for companies of all shapes and sizes. Heed them well.