More often than not, especially at large companies, the Investor Relations (IR) and Corporate Communications (Comms) teams are siloed, they are not as closely aligned on messaging as they should be. Although IR and Comms both work for the same employer and strive to achieve the same broader goals, internal politics can undermine collaboration. For example, Comms and IR have different reporting lines; IR to the CFO, Comms to the CCO or CMO. Both lines ultimately report to the CEO and compete for attention and budget which can create friction.
Connected Story Defined
The Connected Story reflects the intersection of the Corporate Narrative, Investment Thesis and Audience Interests. This junction reinforces each element of the company’s overarching story. The Corporate Narrative articulates a company’s brand, which comprises culture, mission and vision. The Investment Thesis is the valuation rationale – why purchasing the stock will be profitable, essentially “What’s the trade?” The trade varies by company and point-in-time, but can be grouped into broad categories – catalyst, macro or rerate. Audience Interest refers to a subject so alluring that it can rise above the torrent of information to reach its intended target (e.g., robust demand for AI servers and chips).
Expectations of Future Performance
Investing is inherently forward-looking. The Efficient Market Theory postulates that financial markets are “efficient”, meaning that asset prices fully reflect all available information at any given time. It can be argued that the current price of a stock reflects the average weighted probability future outcomes ascribed by the market collectively, meaning different investors have different outlooks and assign their own odds of an upcoming event.
In crafting the Connected Story, we identify potential outcomes and cite the proof points that impact the weighting of a favorable outcome. The proof points cited must be factual. Truth is paramount. The goal is to have the audience understand the company’s vision and why management believes their strategy will be successful.
Investor Relations
IR’s core mission is communicating with the financial community. The goal is to provide information that allows investors to make informed decisions. Analysts ask a tidal wave of questions to construct and populate their financial models. Their analysis aggregates the information the company provides such as financials and guidance with all other observable data points, competitors, suppliers, macro, regulatory, etc. Despite the volume of evidence gathered, the information is incomplete and requires a heuristic approach to complete the analysis and form a view of future stock performance.
Corporate Communications
Comms promotes and protects the company’s brand by creating and disseminating engaging messages that provide a clear image of a company’s culture, mission and vision. Comms also safeguards the message house when a storm hits. The storm could be the manifestation of a tough macro environment, product recall, customer backlash, regulatory scrutiny, or problematic executive behavior that undermines the narrative. Comms ceaselessly works to portray the company in the best possible light given the fact set.
Investors
Investors seek out any sort of information that will give them an edge. They are looking for the proverbial needle in a haystack so they can find their next trade. Investors make predictions about future outcomes and assign a probability as to what they think will occur based on all available information. The investor’s probability weighting of certain outcomes will differentiate their portfolio returns versus their competitors.
Investors assess the strength of the company’s brand and the perceived skill of its executives and Board directors to gauge future performance. This influences their thinking on how to bet on whether a company can achieve its vision.
The Intersection of IR and Comms
Comms supports the investment thesis by making sure the company’s overarching narrative is compelling. In addition, provides affirming proof points that investors can find in the public domain. The reinforcing proof points range from research published that confirms favorable macroeconomic trends or arranging high-profile earned media coverage that enhances the CEO’s image as an industry leader. IR bolsters a company’s reputation by clearly communicating financial performance and managing expectations.
In an ideal world, Comms and IR teams work closely together to develop the company’s storytelling engine, which creates and distributes impactful stories. This process will build credibility and help investors understand the company’s long-term vision and how it will be achieved. Integrated messaging shapes investors’ outlook, and stock price reflects the probability of future success therefore valuation today is a function of perception which to some degree can be managed.
––Ira Gorsky, Managing Director (Ira.Gorsky@edelmansmithfield.com)