Investor Relations: Overcoming Setbacks and Delays
I’ve seen pretty much everything during my career on Wall Street regarding investor relations. But there’s one thing I’ve never seen, and neither has anyone I know – a company that hasn’t run into unforeseen challenges, delays, or just bad news. Even the best-run companies have hiccups from time to time, whether it’s a missed quarter, bad clinical results, unexpected costs, or something else.
The best way to avoid unforeseen problems is to have an IR strategy that allows for the unexpected to the greatest extent possible. Give realistic, conservative guidance, be clear-eyed about expected revenues and costs, and avoid setting timelines for yourself that don’t allow for any delays.
Yet even if you do all of that and more, stuff still happens. As long as unforeseen problems are far more the exception than the rule, what matters most is how senior leadership responds. Such times are when it’s more crucial than ever to maintain visibility and be responsive to investors. Doing this will maintain management credibility. In some cases, it will even enhance it.
And the time to develop your plan for handling problems is now, when heads are cool. Here are five things to keep in mind when responding to trouble:
- Be visible. It’s important to be transparent about the challenge you face. You don’t want the investor community to get the impression that you’re trying to hide the problem. Don’t bury bad news in 8-K filings or in presentations. Instead, make all of your disclosures as you normally would, and if necessary schedule a conference call to discuss the issue. Don’t cancel your non-deal road show or other investor meetings and attend all the conferences you said you would.
- Be timely. Investors and analysts will be upset if they think you held onto bad news for a long time, so don’t delay any announcements. Use a black-out period to prevent insiders from selling their shares during your time of difficulty. While trying to restore investor confidence, the optics of senior leaders and board members selling their own shares are, obviously, not good.
- Provide as many facts as you can. There may be some things you don’t yet know, but volunteer whatever material facts you do Holding back information will severely damage your credibility when the information gets out, as it inevitably will.
- Do not speculate or spin. Your investors are professional skeptics. They will see right through any efforts to try to put “lipstick on a pig,” and that, too, will harm your credibility. Just stick to the facts. Commonly, biotech firms will try to highlight post-hoc or sub-group analyses. This strategy rarely ever works.
- Give next steps as best you can. While you shouldn’t speculate about things outside your knowledge or control, you must show leadership by clarifying what you will do specifically to address the problem. Of course, some future actions may be unknowable at a given point in time, and that’s OK, provided you’re being transparent about communicating next steps as you move forward. Make a commitment to providing additional information as appropriate, and keep it.
One more note of caution: Many management teams will, in response to a hiccup, become more aggressive with future guidance. They’re trying to support the stock by “making up” for the earlier damage. But this often leads to additional disappointments. Make sure that the new guidance is achievable. The best way to regain the confidence of the Street is to once again start hitting your milestones consistently.
The desire to minimize damage is human nature. But being perceived as anything less than transparent and forthcoming is a mistake that will make it harder for investors to trust you. It’s like Mom said: Honesty really is the best policy.
Our new eBook, Westwicke Insider’s Guide to Investor Relations, is jammed with our best advice on the entire IR process. You can download it now with our compliments. Or just reach out to set up a direct conversation about your own company’s IR needs.
John Woolford is a Managing Director on Westwicke's life sciences team. He has extensive experience in investor relations, as well as IPOs, capital raises, M&A, and other business development activities. He has a BS in microbiology from the University of Maryland at College Park and an MBA from the R.H. Smith School of Business.
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