What about financial professionals?

In discussing how communication professionals sometimes fail in creating financial communications, one conclusion was that they simply don't understand the subject matter and audience well enough. Financial professionals therefore, should have more success as they understand both. Where they fall short is by providing too much information and too little insight. They are so familiar with the numbers, they mistakenly put every financial result into the presentation. And, as they believe that the "numbers speak for themselves," they provide little explanation for the trends or put the financial results into a context the audience understands.

To build an effective story around financial results, you have to decide which are the important measures. Choose the three or four key benchmarks that demonstrate the company's progress over previous years or against the broader market - and that are consistent with those used in the industry and the company's peers. Also, explain why these are the appropriate measures to choose, to assure the audience that you are not cherry-picking the most favourable financial results. Put these numbers in the context of the company's strategy or the market. Simply rhyming the results off - "revenue was 17 million dollars in 2008, compared to 12 million dollars in 2007" - does not add to the audience's understanding. Stating "revenue was 17 million dollars, increasing by five million dollars as a result of our successful initiatives to sell into new markets and increased sales to our current customers" helps us understand the reasons for the increase. Context helps us see that the revenue is increasing as a result of a successful strategy which will continue to deliver results.

Presentations that rhyme off facts without context are called "laundry list" presentations. One way of judging whether you are providing analysis or reading a list is to review the speaking notes for your presentation (you should have speaking notes). Notes for a laundry list presentation will follow a repetitive subject-verb format, i.e., "revenue grew by 10 percent to 20 million dollars, EBITDA declined by 3 percent to 200 thousand dollars..." If you see this repetition, add some context - answer the audience's questions before the end of the presentation. Another test is to look at your script and mark each use of an dependent clause (a phrase that would tend to add context). If you find none or very few, then you know you are presenting a laundry list, not telling a story.

If you can find it, an excellent but out-of-print book is called Analytical Writing by Thomas P. Johnson, published in 1966 by Harper and Row.

What's different about financial communication?

 

Actually, it's the same as all communication - the key to success is understanding your audience and knowing their information needs. Unfortunately, more than with other groups I think, the financial community is poorly treated in communications. This poor treatment comes from two 

principal camps, one is advertising and PR professionals that don't understand the level of detail and specificity required in financial communications and other comes from the financial community itself that does not understand that you need a message or story that is at the core of the information conveyed.

 

Let's look first at the advertising side. When I was doing financial communications work from within an advertising agency, we viewed investors and financial advisors much as we viewed general consumers. With consumers, the approach is to communicate the benefits of the product and communicate the brand superiority and then you connect with the buyer. But there is a difference between buying and investing. In buying a product you make a short term commitment and can make another choice next time if you are dissatisfied. You don't count on your breakfast cereal to help you retire. Investors are making a deeper commitment and have specific performance objectives for their investments. Much more detail is required to help them make their decisions.

 

One example of this was our approach to graphs - a key component of many financial documents. Our major concern was with the colour, the 3D shading and whether or not the scale created an attractive trend. Later, when I had the opportunity to work with the users of the information, I saw that they READ the graphs. They did calculations on the graph numbers and extrapolated the trends into the future. By treating graphs as purely visual, even decorative, elements we advertising types were effectively impeding communication. By the way, an excellent commentary on this is found in Edward Tufte's book The Visual Display of Quantitative Information, go here for more information: http://www.edwardtufte.com/tufte/books_vdqi.

 

Sometimes advertising professionals rely on slogans and catchphrases in financial communication. In marketing and political presentations using a hook like "Just Do It" or "Keep Hope Alive" can be very effective in connecting to an audience. It's quite common in Annual General Meetings to present themes like "Connecting to Tomorrow" or "Building the Future" and these are often based on a company's existing advertising program. A very dynamic visual presentation can be achieved when the advertising itself is also included. However, if the slogans and advertising are not congruent with a company's financial performance, it can create a major disconnect with investors. For example, I reviewed a presentation by a VOIP systems provider in which it claimed it was "A leading VOIP supplier." On looking at the rest of the presentation though we saw that the company's gross revenue was under five million dollars. As well, the VOIP systems market is highly fragmented with many small regional players and no one dominant provider. The slogan did not fit the facts and hurt the company's credibility.

 

Why do these kinds of situations occur? Because too often advertising and PR professionals don't "get" the numbers and assume they are too complex or boring for most audiences. You can see this when you start to discuss a company's financials with someone from this camp - their eyes immediately glaze over the minute you start. There is no attempt to understand, they just think "oh no, numbers" and stop listening. Or so it seems to me. I find it equates to when Shakespeare is first presented to a high school English class - many students who have never read a word of Shakespeare groan because they believe the works or boring or hard. You have to give the numbers a chance. Unfortunately, speaking to investors invariably means speaking about numbers and the professionals that can engage the numbers and can use them to communicate will have the best success.

 

How do you begin? For companies that are public (already listed on a stock exchange) look up the documents they are required to file with their governing securities commission. In Canada you can find these on SEDAR's website. Look up the company's last annual report and read the section called Management's Discussion and Analysis or MD&A. This will give you an idea of how management views the company and its results. You will also see the financial ratios they use to measure their performance and discussion for their plans for growth. Another document that is useful is the Annual Information Form which goes into more detail about the company's history, its business and its markets. Use a website like Investopedia to get definitions of the ratios with samples of how they are calculated. Follow this up with interviews with the CEO and CFO to get a deeper understanding of the company. You'll find, with the CFO in particular, that to a large extent, they view their company in terms of its finances. Once you understand the numbers' absolute relevance to the story of the company, you will be able to use them effectively.

In the next entry I'll profile the common errors financial professionals make when communicating to the investment community.

Financial Storytelling 101

The purpose of this blog is to serve as a repository of ideas about communicating to the financial community. In this series I hope to discuss why this is a unique community that requires specific techniques to communicate successfully.

While the term "storytelling" may seem trite in describing what others refer to as "strategic communications," it is the most appropriate term for what one needs to do to connect with the audience. Too often investor communications use "biz-speak," which obscures the main messages and ruins retention. Stories have a clear message, they have a structure, they have elements that engage us while they inform. Humans have a primal response to stories and as much as we are able to inform using storytelling techniques the more successful our communications efforts will become.

Much of what I hope to present here will be informed from my own experience as a communications professional. I have worked in the field for many years and from a few different perspectives - including working as a graphic designer, multimedia producer, copywriter, speechwriter, consultant and presentation trainer - on the corporate side as well as in agencies. For the past 14 years I have focused on financial communications - assisting companies to speak with investors. I specialize in a particularly demanding investor communications function - the IPO Roadshow. An IPO roadshow is a seminal event for most companies where they meet with potential investors in a series of live events to raise money to achieve a listing on a public exchange. Success here entails presenting a compelling message in a confident manner.

In my next post, I'll describe how the financial community is different from others we may target and some common communication mistakes.