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Reflecting on IR in 2020 and Looking Ahead in 2021

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Reflecting on IR in 2020 & Looking Ahead in 2021

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Investor Engagement: Preparing for Potentially Reduced Visibility into Institutional Holdings The onset of the COVID-19 pandemic at the beginning of 2020 created many critical challenges for IR professionals; among them, the necessity to pivot quickly towards effective outside-the-box crisis messaging and implement a seamless transition to virtual communication platforms.

The most successful IR communication approaches during the pandemic formulated cogent messaging surrounding COVID-19’s potential near-term impact on businesses’ operations and highlighted management teams’ strategies to mitigate risk and adapt to the challenging external environment.

Given the year’s highly unusual backdrop, companies often benefitted from stepping outside their communications comfort zones. For example, for earnings reports, investors praised management teams that unveiled monthly trends, rather than solely conveying single-point quarterly snapshots for key metrics such as orders, volumes, and sales. Framing performance on a monthly and/or sequential basis helped investors understand progress from the nadir of the pandemic. Directional intra-quarter trends could be leveraged to demonstrate improving conditions, especially important in lieu of traditional forward-looking guidance, which many management teams understandably withdrew in the face of economic and business uncertainties caused by COVID-19.

Reminding investors of the “normalized” scenario or earnings power post COVID-19 also helped companies highlight valuation gaps and upside potential; or, alternatively, manage expectations in those instances in which businesses benefitted during the pandemic. In this regard, instead of formal quarterly or annual guidance, some companies disclosed longer-term top- and bottom-line objectives under a post COVID-19 scenario.

A number of companies shrewdly pre-announced earnings, even though not their common practice, to minimize uncertainty and align expectations surrounding near-term performance due to the pandemic. Given investor disdain for uncertainty, these preannouncements (positive or negative) were widely applauded.

For companies most severely impacted by COVID-19, often the most salient messaging emphasized balance sheet strength or balance sheet management, while ensuring investors that the “wheels are still on the bus” and liquidity is sufficient. In such instances, emphasizing the long-term durability of a business model and a company’s ability to withstand the storm helped assuage investors’ short-term fears.

Clearly the widespread pandemic and extended period of social distancing uprooted the status quo in 2020. IR practitioners quickly needed to become proficient in navigating the various virtual communication platforms, whether that be Zoom, MS Teams, BlueJeans or another technology.

A combination of self-training, planning ahead, pre-meeting rehearsals with management teams and setting up contingency plans for potential IT gaffes, helped deliver successful virtual investor conferences, virtual non-deal roadshows and virtual one-off meetings.

The new virtual reality of 2020 eliminated traditional hurdles such as geography, travel time and costs, and weather issues involved with attending conferences or non-deal roadshows in person. In one day, a company can meet virtually with investors from New York City, Kansas City and Helsinki, Finland.

An IR resource with broad, deep investor relationships and a solid grasp of Wall Street’s evolving landscape has become all the more critical in a sudden world of “Anytime, Anywhere” meetings. The roles of sell-side firms and IR executives often blurred in the arena of setting up virtual non-deal roadshows and investor meetings. And those that were creative found new ways to connect corporate teams with investment community professionals. The end goal: securing the best interactions, those that ultimately deliver new long-term shareholders while maintaining well-informed existing shareholders. On the other side of the coin, a sharp increase in incoming meeting requests, due to the flexibility afforded by virtual platforms, highlighted the value of an IR professional who can screen and prioritize these incoming calls. Finally, traditional sell-side analysts and Wall Street corporate access departments became inundated in 2020 with the surge in virtual marketing activity, making it more challenging for analysts to find time to initiate new coverage, especially on smaller companies. For those companies considering paid-for research products, it is important to understand and evaluate the pros and cons of the various available paid-for options.

While COVID-19 was the over-arching headline for 2020, corporate environmental, social and governance (“ESG”) policies continued to become an increasingly important topic for investors during the year. The United States Forum for Sustainable and Responsible Investment estimates that total US-based assets under management employing ESG investing strategies increased by more than 40% from $12 trillion in 2018 to $17 trillion in 2020. Moreover, diversity initiatives gained momentum on the heels of national social unrest, ultimately punctuated by Nasdaq’s filing of a proposal in December with the Securities and Exchange Commission that would require Nasdaq-listed companies to have at least one woman plus one racial minority or LGBT individual on their boards.

This past year we also witnessed a resurgence in Special Purpose Acquisition Company, or SPAC, activity. These publicly traded shell companies, sponsored by seasoned investment professionals, facilitate public market access, reducing the time, expense and uncertainty associated with traditional IPOs. In 2020, nearly 250 SPACs were introduced, up from 59 in 2019, according to SPAC Insider. Of note, last summer Bill Ackman’s Pershing Square Capital Management sponsored the largest SPAC ever. His blank check company, Pershing Square Tontine Holdings, raised a whopping $4 billion. Since SPACs generally have two years to identify a target company and consummate a deal, the SPAC Class of 2020 is now “on the clock” making 2021 a potentially busy year for this exploding asset class. The IR professional plays an important role in the “de-SPACing” process, implementing a comprehensive investor communications and outreach strategy to help consummate the business combination and thereafter develop a fundamental, long-term oriented shareholder base. See Devin Sullivan’s article, “A Look at SPACs: From the ‘90s to COVID-19”.

Finally, in 2020 we saw the continued rise of the retail investor, driven by platforms like Robinhood, creating increased pockets of volatility and sometimes irrational movements in stocks driven by rapid-fire day trading. See Jeehae Linford’s suggestions on how to successfully engage this cohort of investors, “Recent Trends in Retail Investing: What Does It Mean for Issuers?”.

So, What Lies Ahead?
In a post COVID-19 world, hopefully sooner than later, companies, investors and analysts likely will migrate to a hybrid of in-person and virtual meetings. Virtual is here to stay, but not exclusively. After 2020, we all could use some digital detox! Moreover, for most investors, a video stream on a computer screen is not the same as “kicking the tires” in person. Nothing can take the place of visiting a company’s manufacturing plant, healthcare facility or corporate headquarters. Investors like to sit across the table from executives, read their body language and look into their eyes. In-person meetings also avoid the potential distractions that come with a remote setting, such as participants multitasking on their computers during calls. Furthermore, it is difficult for virtual events to capture the live “buzz” and networking aspect of in-person investor conferences. For those who know healthcare, the annual JP Morgan Healthcare Conference and surrounding events in San Francisco simply cannot be replicated in a virtual environment.

How might COVID-19 impact ESG investing in the future? In a report issued in July 2020, JP Morgan posed that question to investors from 50 global institutions representing a total AUM of $12.9 trillion. 71% of those polled responded that it was “rather likely,” “likely,” or “very likely” that the occurrence of a low probability / high impact risk, such as COVID-19, would increase awareness and actions globally to tackle high probability / high impact risks such as those related to climate change and biodiversity losses. JP Morgan concluded that the pandemic and environmental risks were viewed as similar in terms of impact, representing an important wake-up call for decision-makers. Additionally, it’s likely that we will see a continued push for increased diversity until the complexion of boards and management teams falls more in line with the makeup of their companies’ customer bases and our society. Biden’s environmentally friendly incoming administration bodes well for a continued rise in socially responsible investing in 2021 and beyond.

With regard to additional SPAC IPO activity, whether the craze of 2020 continues ultimately will depend on how successful these new SPACs are in completing successful transactions and delivering value to shareholders.

Regardless of how the external environment and investor relations tactics and platforms evolve, the fundamental IR ingredients for success endure: create a compelling investment thesis, share that thesis consistently across communication materials, and proactively engage with the right audiences – sell-side analysts who can support the Company’s story and investors who can buy the Company’s stock.

For additional insight, feel free to reach out to me anytime.