The Fifth Quarter
At the beginning of a Canadian winter, spring 2018 seems awfully far away. Hockey, skiing and curling have not yet yielded to thoughts of golfing, cycling, hiking and… annual general meetings (“AGMs”).
While some issuers are already into the process of at least preparing their thoughts on what governance-related matters need to be addressed at their AGMs, most are more occupied with year-end operational matters, budgeting and preparing for auditors. Although the C-Suite and board members intuitively recognize the importance of effective governance and are happy to insert state-of-the-art boiler plate into their collateral, surprisingly few actuate that into a value-added, introspective exercise that makes the organization really better.
Board independence and diversity, executive compensation, director overboarding, corporate social responsibility and a number of other elements are up for scrutiny not only by shareholders, but by other stakeholders who have the ability to impact an issuer’s business. While the optimal scenario would have seen a company adopt a proactive approach to ensuring effective governance, internal human resources are often not available to champion and discharge that function, particularly in the small and mid-cap spaces. The best result is that the issuer ends up with benign governance that does nothing to increase value for stakeholders. The worst result is that an issuer is left with the defensive (or even mortal) wounds of having ignored a critical component of their corporate health and is then required to take valuable time away from profitably growing the business and instead spend it on damage control and healing.
The good news is that it’s never too late for some governance introspection. Investing time before that information circular goes out (and building some messaging around a potentially contentious proposal) can make all the difference.
Albert Einstein is credited for saying that the definition of insanity is “doing the same thing over and over again and expecting different results.” Whether or not he’s actually responsible for the quote, the ideology behind the statement is sound in business – trying to solve a problem by using the same strategy that didn’t work before and expecting it to work this time is unrealistic at best.
More for less
What we see often in the marketplace is demand to receive “more for less”. Isn’t that what we all want? More value, more time, more productivity for a really low price. At first it can be relatively easy to demand more and spend less but over time, companies are subject to the law of diminishing returns. When companies fall into this trap they lose focus, their brand goes astray and they begin to lose out to competitors who may be more focused.
Anyone who works or has worked in a typical corporate environment has likely been requested to do more with less. This is particularly true for those in the oil and gas sector where performance is so closely tied to commodity prices, and during periods of volatility teams must deal with layoffs, higher internal frustrations and greater stress. As a result, businesses are forced to push for more productivity within their organizations, and employees are often expected to deliver as much or more with even fewer resources.
However, does “more” activity always bring the desired result? Not necessarily, as output then tends to focus on quantity over quality.
Higher quality with enhanced efficiency
Is it possible for public oil and gas companies to achieve their goals in a volatile market without breaking the bank? The answer is a resounding “Yes”. Thinking outside the box and identifying creative solutions ensures Einstein’s insanity definition is not at play. One such solution to continue achieving goals may be to work with an external organization that offers expertise, focus and flexibility (typically at a lower overall cost). By taking this approach, public companies can realize value from external support, advice and expertise, which supplements existing initiatives. This allows management teams to focus on execution of the corporate strategy while remaining connected with shareholders and other stakeholders – critical for those active in the capital markets.
Many underestimate the time and energy it takes to service the obligations inherent with being public. Boards and management teams need to strike a balance between effectively navigating the capital markets, ensuring continued legal and regulatory compliance as well as building and maintaining relationships with their key stakeholders.
As experienced capital markets consultants, the 5QIR team has the business intelligence complemented by a diverse wealth of industry knowledge; we have the ability to create trust and rapport on a personal level while providing a sound structure and methodology that facilitate strategic discussions. We are an excellent, high-quality and value-added replacement or supplement to a host of in-house resources, which can help companies stay the course of their goals and objectives while maintaining optimal efficiencies.
Our value proposition involves the full positioning of a company’s capital markets and corporate ‘branding’ in a highly efficient and effective manner. 5QIR provides a combination of benefits that we tailor specifically for each client dependent on their corporate strategy, objectives and available resources.
Every sector has its ups and downs. In Alberta we are all too familiar with the vertigo brought on by whipsawing commodity prices. While a glance south has U.S. markets rubbing up against record highs, as of mid-February the capital budgets of energy exploration and production companies continue to see red ink, and dividends that appeared safe six months ago have been cut to protect balance sheets. Recent conversations have revealed that some energy clients are redoing budgets on a weekly basis in advance of year-end reporting.
So what are we telling clients? We understand that the first inclination is to limit investor relations activity and reduce interactions with a chilly investment community. We get it. It almost seems common sense to adopt the “If-no-one’s-buying-it’s-not-worth-the-time-and-expense-to-put-ourselves-out-there-approach”, right? Wrong. Now is the time to focus on the long game, do some work-overs, invest in facilities and build your 12-to-24 month capital markets plan. We encourage companies to continue, or in some cases start, proactively communicating with their audiences, and to actively manage market expectations. Following are some tips on where to begin.
Create a Bear Attack Plan:
An effective investor engagement strategy keeps you in front of your audience, outlines and reinforces the corporate strategy, provides tangible milestones, and sets expectations of future prospects and financial performance. An investor relations strategy should also contain the tactics used for delivering messages, and the goals of the issuer over the short and medium term. Whether or not the oil price has hit bottom, companies need to be on investors’ radar screens, so when a clear trough develops and bears start giving way to bulls, your story is top of mind.
Never sneak-up or catch a bear unaware. Living in the foothills, most of us can embrace this simple concept. We make noise and we buy colorful bells for our boots or bags when hiking or camping. The key is not to remain quiet. Similarly in the capital markets, you need to maintain an open dialogue with investors and anticipate their concerns; a proactive company will answer questions before they are even asked on a conference call. Deciding on how to frame your conversations often comes down to identifying and understanding what your key messages are. Elements such as how you are going to add value, stand out from your peers, and provide attractive returns should always be easy to take away from your communications. If it isn’t clear, then its time to start looking at adjusting your messages and/or your tactics. Your plan will have laid out some of these delivery vehicles that may include news releases, conference calls, in-house broker meetings, event-driven or planned road shows, or presentations at conferences. The goal is keep nervous investors informed and never allow yourself to hibernate.
When Aiming at a Bear… Don’t Miss:
While companies have very little control over commodity prices, they can and need to control and manage expectations. Although not particularly catchy, there is a reason that “Missed Expectations” is a common headline in the business news.
As stock prices slide, there is a temptation to overcompensate for negative sentiments towards a company or its sector. Over promising however has the same result time after time: It damages credibility. Successful management teams receive a premium because they predictably deliver on expectations. They ensure milestones and timelines they set are achievable. We counsel companies that it’s okay to be candid and transparent about your challenges in light of commodity price adjustments. After all, your peers are in a similar boat. By doing so you are providing investors with the yardstick they need to measure your performance by. It is also important to be open to polling your audience. Knowing what is on their minds and under their skin may give you the foresight on how you need to adjust your message. It may go without saying, but companies that are honest with themselves and the Street will always do better in the long-term.
So let’s be honest, investor relations are not as fun in a down market. The work is harder, and less likely to be immediately gratifying, but the stakes are just as high. How companies position themselves today will dictate how well they do when the bear becomes a bull. Maximizing the value and utility of your listing is your ultimate goal and that means proactively managing for the long-term.
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