Follow these steps to retain the confidence of external and internal stakeholders
We’ve all likely been there: despite our team’s best efforts, we realize our company will fall short of Street expectations, and perhaps our specific guidance, by a meaningful amount. Regardless of the reason, there are clear steps you can take to optimize communications and protect the company’s reputation during this difficult time.
Below is a framework for communicating these misses in a way that will give your analysts and investors – as well as other constituents, such as employees and customers – clarity about the situation and confidence in the future of the company. While there is no way around the inevitable black eye, how such situations are handled can pave the way to faster reputation repair and also position your team as transparent, accessible and credible.
Step 1: Articulate a clear assessment of the issue
Clarity is the most important aspect of communicating an earnings miss – the Street will react poorly if it feels the company is hiding something. There should be no room for misinterpretation or misunderstanding. Executives should provide a clear assessment of why the numbers didn’t meet Street expectations or company guidance.
The reason the company’s forecasting was off needs to be articulated clearly so that analysts feel they can trust future guidance. Is it because of the industry landscape or poor execution, or are the results symptomatic of a deeper problem within the business model? Depending on the cause, the anticipated length of time to resolve the problem should also be stated. Additionally, in order to maintain credibility, if possible the team should consider sharing when it learned the financial results and why a decision to preannounce or wait until normal reporting time was made. We often see examples where the company’s late communication of a miss exacerbates the poor results.
Step 2: Provide detail on the impact of the issue
Analysts and investors will need to know exactly what the effects of the financial miss will be, and how long until there is improvement in the results. If the issue is long term, try to give a range of time until the company expects to see improvements. Also give details about which business unit the issue stems from, whether it is specific to one product line or company-wide. If it is not a company-wide situation, describe what the chances are that the issue will spread, and whether measures being taken to prevent that. And offer as much visibility as possible into how this might affect the quarter or future quarters.
Provide as much specificity as you can on the impact of financial targets so that investors and analysts don’t face any surprises. Specifically bring the Street back to your original guidance where you can, and address how the miss flows through the financial statements. Details play a key role in assuring your constituents that you have the matter solidly in hand and are on the path to resolution.
Step 3: Provide a plan of action
The company will begin to regain investor trust by announcing a plan and sticking to it. The clearer the plan, the less room there will be for misinterpretation. Link the plan back to the causes and business units that have been described. Demonstrate clear cause and effect and how future actions will show course correction. Where possible, we suggest you name the lead executor or team responsible for the plan, reinforce that your C-suite is ultimately accountable, and give a timeline so that investors know what to look for – and when. Investors also will want to know the cost of the plan and how the results will be communicated, in addition to why they should trust the plan.
Step 4: Remind audiences of the path you are on
It is important to explain how this miss, and the remediation plan, will impact company strategy, if at all. Let investors know the scale of impact that this situation has on the company. At this time it is important to remind them of the company’s overall goals and strategy and the path you are on. Executives should address how the financial miss impacts the company’s ability to deliver on the core strategies and performance-improvement goals, and how the plan of action incorporates ways to keep those goals on track. Investors will also need to know whether the miss impacts any future customer activities, product announcements or other corporate initiatives that have already been communicated.
Step 5: Communicate and be visible
A key aspect of successful remediation and reputation repair is to maintain visibility and provide progress reports. Keep investors updated through every step in order to keep credibility and remind them of your confidence in your plan of action and the future. Keep conversations open with investors, shareholders and other key constituents both proactively and reactively.
If you do not yet have a full remediation plan, we would still recommend remaining visible to discuss what you are in fact working on and how long it will take. The miss is not a time to go into hiding: attend conferences and events as you would any other quarter, share your execution strategy, highlight long-term opportunities and strengths, and communicate that progress is being made to rectify what was likely – hopefully – a temporary situation.
Carleigh Roesler and Deb Wasser both work at Edelman Financial Communications.
