by Heather J. Wietzel, Senior Director
Summer is “road show” and conference season. Thinking about strategic messaging in this context, I often am reminded that management teams can be most comfortable explaining to investors how they have gotten their company to where it is today – and prefer to offer vaguer summaries of their “strategic plan.”

From where I sit, I see investors listening politely. But I know from experience that focusing on the past is not the best use of investors’, or management’s time. All investors are evaluating the future potential of companies they are considering — and investors will make that evaluation whether or not the management team gives them a quality look at their perspective on that future.

While there is no one-size-fits-all solution to translate investor attention to action in today’s market, investor needs generally are best met when a company clearly and credibly articulates the business strategies that will differentiate the business in years to come.

I believe management greatly improves an investor’s ability to assess the future by:

  • Articulating the strategic initiatives being employed to position the business for success
  • Discussing the best and worst case scenarios envisioned under the plan and
  • Providing interim updates on metrics used internally to assess progress

To meet that need, I recommend shaping communications around the strategic plan (appropriately modified for competitively sensitive information), supported by broad-based objectives for the metrics used to measure the success of the initiatives.

But here’s the important part — while articulating “vision” provides important insight for investors, it is entirely distinct from providing quarterly or annual “earnings guidance,” or specific numeric targets for selected financial measures. (While guidance is most commonly given for earnings per share, it is usually accompanied by specific measures for key earnings drivers such as quarterly revenue growth and profitability expectations, e.g., gross or operating margin.)

In my opinion, providing that specific numeric guidance actually has the potential to be less valuable to investors than insightful qualitative information based on a strategic plan.  (Although the best case is to accompany that qualitative information with over-arching long-term metrics such as five-year average return on equity or earnings growth rate goals.)

This view was supported by investor comments in Rivel Research’s “2009 Perspectives on the Buy-side,” which noted:

“Indeed, guidance is now more about intangibles and effective, clear communications than it has ever been before – showcasing the persuasive importance of transparency. Providing qualitative insights into the business strategy is the kind of guidance which reigns supreme during the present market turmoil, outranking revenues, margins and earnings.”

Finally, the SEC has long encouraged companies to look forward in their communications.  For example, in an extensive Interpretative Release issued in 2003, the commission said:

“Throughout MD&A, including in an introduction or overview, discussion and analysis of financial condition and operating performance includes both past and prospective matters. In addressing prospective financial condition and operating performance, there are circumstances, particularly regarding known material trends and uncertainties, where forward-looking information is required to be disclosed. We also encourage companies to discuss prospective matters and include forward-looking information in circumstances where that information may not be required, but will provide useful material information for investors that promotes understanding.”