In a recent article I proposed that the role of Investor Relations should, to a significant degree, focus on providing information that clarifies a company’s risk and uncertainty profile while not engaging in communication practices that could adversely alter that profile for investors. I concluded that this goes a long way towards supporting a fair valuation of a company’s securities. In follow-up, I’d now like to propose a method of implementing Investor Relations communications.
I’ve named the method “TACTful communications™.” TACTful communications are those that are Transparent, Accurate, Credible and Timely.
– Transparent communications provide complete information about a company’s business (to the extent reasonably allowed by business and legal considerations), including its strategy, markets and products.
– Accurate communications provide information that is correct and not subject to change or interpretation.
– Credible communications are trustworthy, often borne out by reliability over time.
– Timely communications relay information without undue delay.
These factors are consistent with established best practices. Communications encompassing all four elements, and communicated effectively in a public manner, will create an arena where investors will have equal access to information needed to make informed investment decisions.
Further, TACTful communications will support efforts to not only provide sufficient information to identify and handicap the company’s risks and uncertainties, but favorably impact its risk and uncertainty profile. For example, a company that is consistently timely in its communications increases an investor’s ability to quickly react, and generally make investment decisions based on current information. Or, consider a company that does not communicate accurately, but discloses information that ends up needing correction or clarification, befuddling the facts and confounding investment decisions. Further, where there are communications that are not credible, i.e. where the company sometimes does and does not execute consistent with its own guidance, uncertainty is created because there is no way to predict the reliability of the company’s statements.
Essentially, by communicating in a predictable manner a company can reduce the possibility of creating additional investment risk or uncertainty. These same communication practices will also support creation of management credibility, another important element that gets tallied into investment decisions. While other factors, including those external to the company such as price and economic climate, also influence an investment decision, TACTful communications—designed with an understanding around the need to address risk and uncertainty—create a basis upon which investors can more efficiently and fairly value a company.
The TACTful approach complements efforts to address risk and uncertainty, more broadly serves communication objectives, and is vital to effectively implementing Investor Relations best practices.