(soft jingle)
- [Batia Wiesenfeld]Welcome back to the very last session
in our Stern Faculty
Insights on COVID-19 series
for the summer, the last
session for the summer.
Today we have a terrific lineup.
We have two people from our Accounting
and our Management
Communications department
taking different perspectives
on communicating during a crisis.
We have Mary Billings from Accounting
and Irv Schenkler from our
Management Communications group.
So without further ado,
remember everyone, that
you should go ahead
and register your questions
in the Q and A box.
And stay posted for
more updates in the fall
for subsequent sessions.
Without further ado, let
me introduce my colleague,
Mary Billings.
- [Mary Billings] Thanks, Batia.
So I'm gonna start out just
giving a brief lecture,
setting the communication during crisis
from the perspective of US
regulators and investors,
and then before I take questions,
I will toss it to Irv,
who's gonna talk from
a broader perspective.
So with that said,
let me see if I can
successfully share my screen.
In today's talk, we'll
focus on investor relations
and how executives shape the overall
information environment of their company,
particularly during a crisis.
To begin, it is valuable to understand
what motivates their communication.
Why do executives
communicate with investors
and other stakeholders?
The short and perhaps most obvious answer
is that the disclosures executives make
influence their company's stock price.
Clearly, the financial statements
that companies file with the SEC,
including quarterly reports, 10-Qs,
annual reports, 10-Ks,
and current reports, 8-Ks,
help investors better understand
the underlying economics of the company,
and as such, play a fundamental role
in shaping investors' beliefs about
the future profitability of the business.
That said, while SEC filings provide
a starting point for valuation decisions,
for the vast majority of companies,
communication with investors extends
well beyond the required SEC filings,
as CEOs and other executives
voluntarily provide
a wide array of supplemental
disclosure to stakeholders.
So pushing a bit harder on the question
of what motivates disclosure,
let's talk about why
executives often choose
to communicate above and beyond
the information required by the SEC.
Overall, managers seek to improve
the company's information environment
with increased disclosure,
and research suggests that stakeholders
reward them for their efforts.
In particular, academic research finds
that disclosure improves liquidity,
decreases the cost of capital,
reduces stock price volatility,
increases analysts' following,
and decreases the likelihood
of big earnings misses
that disappoint investors.
More generally, disclosure,
particularly warnings about
impending negative news,
reduces the risk of
shareholder litigation.
What communication channels
do executives typically use?
Let's first discuss the
standard disclosure landscape
for most public companies,
along with the key regulation
and other frictions that
play during normal times.
Next, we can talk about some of the steps
that the SEC has taken to
underscore their commitment
to investor protection
and market integrity,
as well as to encourage
increased transparency
during the recent crisis.
Then finally, we can turn our attention
to how executives have
adjusted their communication
during the pandemic.
As I'm sure you know,
companies file financial
statements with the SEC
on a quarterly basis.
When they do, they often use social media
to help shape the narrative
about the results.
Perhaps not surprisingly,
research finds that
companies are more likely
to disseminate positive earnings news
via social media channels.
Their press releases throughout the year
also tend to celebrate new products
and more generally steer
clear of negative news.
The more substantive disclosure happens
when the company hosts its quarterly
earnings conference call,
where they take questions from analysts.
In those calls or in
accompanying press releases,
executives will often
provide earnings forecasts
that guide analysts and
investors' expectations
about future quarters.
Then throughout the year,
the CEO and other
officers also might attend
invite only conferences,
which are often organized by suppliers,
brokerage firms, or other
market participants.
While there, executives make presentations
describing the high level
strategy of the company.
But they also take questions
and engage in less formal
interaction at these meetings.
It is important to note that in the past,
managers were able to
privately guide the market,
choosing to call up analysts
or selectively communicate with investors
to provide forecasts or to
explain company strategy.
But in October of 2000,
the SEC enacted Regulation
Fair Disclosure,
often referred to as Reg FD,
in an effort to address concerns
about selective disclosure.
Thus, in the current
reporting environment,
any time a company chooses to voluntarily
disclose material
information to one person
outside the company,
they must also disclose it
publicly to all investors.
So while Reg FD does not preclude
invite only investor conferences,
companies are still
subject to restrictions
on selective disclosure.
To comply with Reg FD,
companies typically provide webcasts
and make other concurrent 8-K filings.
Yet, attendees potentially
gain more information
than those who remotely
listen to webcasts,
as in-person attendance affords access
to executives and the other participants,
which allows them to assess
visual and verbal cues,
to judge other participants' reactions
to the discussion,
and to continue conversations outside
of the formal presentation.
In COVID times, the shift to
virtual investor conferences
largely removes the potential
for private communication channels,
even if beer consumption holds steady.
It is also important to note
that a company's
forward-looking statements,
both written and oral,
for example, earnings forecasts,
enjoy safe harbor protection
from legal liability
so long as they are identified as such
and meaningful cautionary
language accompanies them.
In the context of this
rich disclosure landscape,
the SEC has issued a
number of public statements
throughout the crisis
with the aim of assuring
the integrity of the market
during the growing pandemic
and encouraging companies to recognize
the importance of disclosure
and helping investors
and other stakeholders
navigate uncertainty.
In terms of assuring market integrity,
the SEC acknowledged unprecedented changes
to the ways in which information
is disseminated and accessed,
with most market
participants and executives
interacting remotely in
sometimes crowded households
and less secure locations.
Noting that in these
dynamic circumstances,
corporate insiders regularly learn
material non-public
information that may hold
an even greater value than
under normal circumstances,
and urging companies to be mindful
of established procedures,
insider trading prohibitions,
codes of ethics, and Reg FD
and selective disclosure prohibitions.
At the same time,
the SEC has been active
in alerting investors
to potential COVID
related investment scams.
Toward that end, SEC's staff actively
monitors trading activity,
and the SEC can and does
suspend trading in any stock
when it believes that
information about a company
is inaccurate or unreliable.
Since the advent of the crisis,
the SEC has issued more than 30
COVID related trading suspensions,
most recently focusing on
misleading press releases
issued by Blackhawk Growth Corp,
citing concerns about
accuracy and adequacy
of publicly available information
regarding Blackhawk's purported agreement
to distribute COVID-19 antibody test kits.
With respect to companies'
disclosures during the pandemic,
the SEC acknowledges the difficulty
of providing forward-looking information.
For example, in the context
of current challenges,
key drivers of future operational status
and financial results, most notably,
the timeframes for current COVID-19
social distancing guidelines
and other mitigation related requirements
are not uniform and are likely
to undergo material change.
But the SEC also believes it is important
for companies to take on that challenge,
pointing out that robust
forward-looking disclosures
benefit investors, benefit companies,
and more generally,
support the nation's collective
fight against COVID-19.
The SEC continues by acknowledging
that the third point is less familiar.
Investors are not the only ones
who are interested in how companies will
adjust their affairs as we pursue
our collective fight against COVID-19.
Broad and extensive
coordination across workers,
firms, investors and
governmental officials
will be critical.
As the SEC notes as an example,
if the owner of an
industrial laundry business
becomes comfortable
that the hotel industry
is soon to pursue a credible
plan for increasing activity,
the laundry business may
be less likely to furlough
or may plan to rehire employees.
Ultimately, noting that more broadly,
when a company articulates
its strategy publicly,
it gives investors and the public
a heightened level of
confidence and understanding.
This increased confidence
and understanding
reduces risk aversion
and facilitates action.
This type of positive dynamic plays out
across our economy in countless ways
and further demonstrates the
need for and the power of
a coordinated dynamic and forward-looking
public-private strategy
for fighting COVID-19.
As part of its statement on
the importance of disclosure,
the SEC encouraged companies to lean
on safe harbor protections
in order to help guide stakeholders
through the uncertainty.
So how did companies
respond to the SEC's request
for forward-looking disclosure?
Did executives give more guidance?
Did they embrace the legal safe harbors?
Businesses like General Mills
that thrived during
the stay-at-home orders
tended to embrace the request,
while businesses that faced
considerable interruption,
like Uber, withdrew existing guidance
and noted the impossibility of predicting
the cumulative impact of the pandemic
on their future financial results.
Yet both companies fully embraced
providing the cautionary
language necessary
for legal safe harbors.
And not surprisingly, the
decision to withdraw guidance
clustered within particularly
hard hit industries.
Overall, of the 416 companies that made
earnings announcements through May 12th,
the main timeframe of the
nationwide and global shutdown,
just 11% maintained their guidance,
while 49% withdrew their
guidance altogether,
and a further 19% remained silent,
either not offering guidance
or failing to clarify guidance
during the earnings call.
The moral of the story?
Despite the SEC's encouragement,
most executives seemingly do not believe
that legal safe harbors will
protect them from the virus.
Instead, they remain fearful of legal
and other reputational harm associated
with pandemic induced erroneous forecasts.
That said, while many
companies are reticent
to provide forward-looking
disclosure during the pandemic,
some are getting creative
with their disclosure
of non-GAAP metrics,
providing COVID adjusted
EBITDA numbers to investors,
with the aim of helping
investors understand
how COVID has disrupted their business.
Uber, for example, provided an adjusted
net revenue metric that added back
19 million paid to drivers
personally impacted by COVID,
and adjusted EBITDA by 24 million
to remove those relief payments to drivers
along with costs associated with supplying
personal protective
equipment to their drivers.
At the same time, auditors are disclosing
COVID related reasons for
issuing going concern opinions
about their clients,
with travel, food and entertainment,
and sports club industries disrupted
by the stay-at-home orders.
That said, it is important to note
companies also communicate
information to stakeholders
via their actions during a crisis
as they take steps to
obtain or preserve cash
by issuing debt, cutting dividends,
or halting share buyback programs.
And finally, it is also important to note
that investors can and do
use the trading behavior
of executives to infer information.
For example, investors kept
an eye on Warren Buffett
and Berkshire Hathaway's decisions
to remove airline stocks
from his portfolio.
And investors used sales
by Moderna executives
to question the credibility
of their CEO's statements
about positive results for a vaccine.
Overall, communicating during a crisis
involves balancing investors'
thirst for information
that will help them predict the future
with the overwhelming uncertainty
that dominates nearly every
aspect of running the business.
Executives' fears of litigation risk
and reputational harm appear to dominate
the protection provided
by safe harbor regulation.
Understanding the frictions that exist
in the current disclosure landscape
and keeping an eye on
executives' real behavior
can potentially help stakeholders navigate
pandemic induced volatility.
Thanks for listening.
I look forward to hearing
your thoughts and questions.
All right so before we
move onto your questions,
I will toss the presentation screen
to my colleague Irv,
who's gonna talk from
a broader perspective
beyond just investors and regulators.
- [Irv Schenkler] Thank you very much, Mary.
And I'm going to kind
of take a step beyond
what Mary has covered,
which is investor relations,
stakeholder,
shareholder concerns
during our specific crisis
at this point in time.
And I'm going to focus on two components
in our short talk here today.
First, talking about a
model that I put together
about crisis origins.
And then secondly, how companies typically
develop messages that
they hope to disseminate,
and what is the strategic
response that works best
when media is asking questions.
For many years, I was a visiting professor
at the University of Lugano in Switzerland
and worked with executives from France,
Switzerland, Italy, and Germany,
as they worked towards a masters degree
and executive program in
corporate communication.
And what I kind of realized is that
the notion of how to define a crisis
was very unclear to them.
And these were operating heads
of corporate communication
in major organizations.
And from that experience,
I sort of boiled down three components
that need, in my opinion, to
be present in certain degrees
for a crisis as opposed to a problem
to be manifested.
And you can see what these three are.
And the clear component,
number one is severe.
Severely affect workflow and
distract senior management.
And financial wellbeing, and finally,
the reputational aspect.
Does it hurt the organization's
image and reputation?
And I further kind of broke
down what, to my mind,
were the three major categories of crises,
the first being operational,
something that goes on
within the organization,
the second, reputational,
having to do with image, responsibility,
reaction to stakeholder concerns,
and the third, which is where we are
right now today with
COVID, systemic crises.
One head of corporate communications
many years ago told me that
if the media is not aware of a problem,
then you don't have a crisis.
That's no longer the case
because anybody with a cell phone
has become a media person
and a media distribution center.
So operational crises very often
become reputational ones.
And what I
finally kind of took a few steps
to sort of clear away the brush
and find out what is it that
really kind of germinates?
What is the central focus where
a crisis seems to crystallize?
And I did this to sort
of provide some insight
to these heads of
corporate communications,
that they are frequently
dispersing their response to crises
in an untethered manner
without real focus on what's behind it,
who needs to be communicated with,
what are the responses
that need to be crafted.
And I sort of came up
with these four different
nodules you might say, or touchpoints.
And I'd like to go through
each very quickly with you.
The first is crisis that
derived from public opinion.
And here are three examples on the left.
Nike, with the product boycott
that went on for more than a decade,
Gap, H&M and other clothing
companies, manufacturers,
in the problems
discovered as a result of
the Rana Plaza collapse,
and Uber in 2017,
when the CEO found himself in the glare
of media scrutiny,
that the entire company
kind of began to crumble
in the eyes of very
important stakeholders.
So Nike's problems went from 1990 to 2001,
and still continued in certain markets.
The second kind of crisis is one that
derives from the financials.
When the books, so to speak, are cooked.
And there are three examples
that I'd like to bring
out here very quickly.
You'll recall the Enron Andersen debacle,
many of you will recall, 2001.
And in 2016 plus, Wells Fargo
was revealed to have been playing
deceptive games with
consumers and customers.
In 2008, the Great Recession,
a systemic crisis in
the financial industry
with Lehman Brothers et al.
And this is a Wells Fargo image from 2016
when they literally had to shut down
because of all the problems that were
suddenly being revealed,
primarily through media coverage.
Litigation, which is something that
we mentioned earlier.
Very frequently creates the grounds
for an ongoing crisis.
And here are three examples.
The Ford-Firestone
debacle from 2001 to 2003,
where each company accused
the other of malfeasance.
In an operational sense,
something then fed into litigation,
which had a severe
effect on the reputations
and the bottom line of both companies.
General Motors, most recently in 2014,
with the ignition problems.
Again, an operational problem
that mutated to litigation,
that also affected public opinion.
And more recently, 2016 and so,
Volkswagen and its deceptive shenanigans
trying to change the amount of pollution
coming from its diesel engines.
And the lawsuit, as I said,
could be the first stage of a crisis.
And in this scenario,
Ford and Firestone blamed each other
for accidents that were occurring
in the rollover of its
popular SUV vehicle.
And the irony is that Ford
and Firestone families
were tied together
years and years back and
it became a very, very stark reminder
that litigation can erupt into a crisis
that affects both the
financial bottom line
and public opinion.
Both companies suffered from both.
And then there's this sort of kind of
more difficult to really define
but certainly obvious
when one steps back and examines an event.
A phenomenological event that occurs.
Yes, it will always have
an underlying causation,
but it manifests itself
in an event that is felt.
An event that transpires and occurs.
And I put three examples going
back from a long time back,
more than 40 years ago.
The Three Mile Island
Pennsylvania near meltdown
of the atomic reactor.
Something that many people
have forgotten about.
In 1990, there was a major
recall of Perrier water,
which at the time,
was the favored yuppie beverage of choice.
And there was a concern that benzene,
a very, very powerful carcinogen,
was found in the water.
And the Perrier management based in Paris
basically shrugged its
shoulders and laughed it off
until it could no longer be a joke.
The line that the CEO used
at that time in French was
(speaks in foreign language).
Perrier is crazy stuff.
Which was their tagline in France.
And then 2010, it's now 10 years ago,
British Petroleum, the BP Gulf of Mexico
Deep Horizon crisis.
These were events.
And they brought out
the need to communicate
with a range of stakeholders
concerning this.
And in many respects,
COVID-19 is an event based
crisis, a systemic one,
as is Ebola and SARS,
and the complication for a company is that
there are so many relevant
kinds of stakeholders involved
that understanding how
to parcel communication,
how to prioritize, how to focus,
is extremely difficult.
And just with COVID,
as Mary was showing us,
the investors need to know,
investors need to understand.
Along with that,
if a company's operational aspects
do not take into account, for example,
workers' safety, well
then that mitigates to,
not mitigates, but that
mutates to both litigation
and affects public opinion
and makes it only worse
for the financials.
And here's an early image
of COVID-19's results,
where a handful of new
deaths were being reported,
this in Korea.
And we all know what has happened since.
And here's a very typical kind of image
of a young woman getting
her temperature taken.
These are systemic crises.
And they're, as I said,
they're extraordinarily difficult to,
you can't manage a crisis,
but you can manage your response.
Let's put it that way.
My takeaway is that the
greater the touchpoints,
the more severe the crisis.
And for a corporate
communication perspective,
focusing, understanding,
what's the origin of this crisis
and which are the relevant stakeholders
that need to be prioritized,
should be the number one concern
to kind of limit the impact of the crisis.
And the more that these touchpoints
bring themselves together,
the greater the crisis to the industry
or to the organization.
And Daniel Goleman, many
of you will remember
as sort of the great proponent
of the emotional IQ, EQ.
Many years back, wrote an
article for The New York Times
that always stuck with me
about elements of outrage and risk
that exacerbate a crisis.
The sense that people
feel that it's imposed
versus voluntary risk.
The sense that it's unfairly shared
versus equitable risk or benefits.
That it's beyond a person's control.
That it's human made
versus nature related.
That it's linked to a recent catastrophe
or past or lesser events,
and it's associated with
an exotic technology.
In the COVID systemic
crisis that we are enduring,
some of this really comes up.
The idea that it's imposed,
the idea that it's unfairly shared.
And recent research has shown that
certain demographics and racial groups
are burdened much more so than others.
That it's beyond someone's control
versus a controllable risk.
The accusation that the US
government has made that
this sort of derived from China.
And that's number four and number six.
And linked to recent catastrophes.
The Trump Administration keeps going back
to the Ebola crisis of a few years back.
So again, starting with a notion of,
where does this crisis originate,
that's, I think, a key component
to making your response
or a corporate response more effective.
And so very quickly I'd like to go through
a developing strategic response
that I've put together in
a much longer presentation.
I'll kind of sculpt it back very quickly.
From corporate management's perspective,
there are two dynamics I would argue
that come into play when
media scrutiny occurs.
How aggressively should
we react or how passively.
And then,
what's the degree of choice involved?
How free are we to choose
versus how forced are we to react.
And typically, these
are the four different
strategic responses that
companies often believe
are there in one way or
another for them to choose.
In reality, the space
looks more like this.
Most companies are either
gonna be forced to defend
or for legal reasons,
forced to avoid a response.
Very rarely are they free to attack.
Very rarely are they free to ignore.
But these do occur.
What's not so frequently
understood immediately
is the need for a different
kind of strategic response,
and that is being forced to solve
or free to solve.
Right now, systemically,
no one is asking any of
the major corporations
that are communicating with the investors
to solve the problem,
except if they are in
pharmaceutical or biotech area.
But in terms of a proactive
versus apologetic style,
that is, we are committed,
the company says,
to making right, making wrongs into right,
that becomes a very powerful message
that is sent to stakeholders
and can have a very important impact.
Here are some three quick
examples of companies that
went into the problem solving response.
And very quickly, some
examples of companies
that did this and didn't do this.
Two years ago, Starbucks came under fire
about racial profiling.
Immediately, they closed down.
Immediately, they went into training.
Immediately, they kind of took
responsibility and accountability.
Some people criticize them
but it stands to the crisis.
Mattel in 2007 was accused of selling toys
right before the Christmas market season
from China that were,
I'll stop in a moment,
that were contaminated.
They immediately tried to solve
it and kinda came through.
United Airlines, 2017.
You recall they forcibly
took out a customer.
And initially, they blamed the customer.
He was a physician, as I recall.
And then they had to solve the problem
and change their approach.
Gap, H&M, Walmart.
This is the Rana Plaza disaster.
And initially they ignored
the problem and said,
well, we're not to blame.
There are middlemen involved.
Then they defended their
presence in Bangladesh,
and then finally, they
had to solve something
by coming up with corporate responses
in a unified manner.
Any of these response
modes can be justified.
The question is which
will be most effective.
News coverage tends to decline
with the problem solving approach,
but when there's inadequate
follow-up to this approach,
it threatens the organization
with renewed harsh scrutiny.
So that's my little bit over time segment.
And I will take it back to Batia and Mary
and we'll take your questions.
- [Batia] Thank you both so much
for really interesting presentations.
I thought I would just
pose a couple of questions
that cut across the two presentations,
and then open it up to
some of the questions
that we are welcoming
now in the Q and A line.
So first, one of the things that
both of your presentations highlighted
is the fact that crises are
different maybe than problems.
As you highlighted, Irv.
Crises are different in part because of
the high level of uncertainty.
That inability to predict what
is the future going to hold.
And this is such a challenge
from a communications perspective,
whether it's communicating to investors
or the general public or wherever else.
How can you, in this crisis format,
how can you feel
comfortable communicating,
sort of disclosing what you know,
when you believe that things will change.
Where you don't feel like you
can anticipate the future.
And it seems like from
Mary's presentation,
very often, people were
withdrawing guidance
and maybe not providing
alternative guidance.
Irv, you highlighted the ways that
you could be maybe,
due to litigation risk,
forced to ignore or sort of
not taking this proactive
problem solving approach.
And so I guess I just wonder,
what guidance would you have
or how can leaders address this
challenge or conflict between
wanting to communicate
for all the benefits
that it gives them
and the feeling that they could be
unintentionally lying or misrepresenting
or leading people to expect something
that they can't come through on
because of the level of sheer
uncertainty in a crisis.
- [Irv] One thing that was
left out of my segment
because we didn't have time
was the notion of issues.
Issues that can affect an industry.
Issues that grow, germinate,
that are stakeholder driven.
That will frequently erupt into a crisis.
I really disagree with the idea that
crises can't be predicted.
A lot of them, maybe not so much.
But a lot of them, yes.
And a lot of them can be followed.
A lot of them, the issue development
and integrating the company's response
about an issue as it grows,
communicating to stakeholders
who are being affected
is a really important means to mitigate
the eventual impact of what
could turn into a crisis.
And events, you would say,
well, who can predict an event?
Well that's risk analysis.
And almost any event has got an underlying
risk based cause.
And many companies do
indeed follow this idea.
FedEx for example, some years back,
started with quarterly meetings
of people at the management,
the MD, managing director,
and bottom line,
the C-suite area to sort of
sift through and determine,
out of 100 possible issues
that could affect us,
which ones are hot,
which ones are simmering,
which ones are cold,
and what should response be.
So there are companies
that actually have been
following this sort of approach
and they're not trying
to predict the future,
but they are communicating with
stakeholder groups that are concerned
and they indicate what
they're trying to do
at this point in time.
And then when it really hits the fan,
lots of companies just realize,
if they do a good job,
to just anchor down.
Here's what we know.
Here's what we need to know.
Here is what we hope to do.
And if you break it down in that way,
media is usually satisfied
as long as you follow through,
and stakeholders also
feel a little bit more secure
in that the company is being accountable.
- [Batia] Yeah, that's interesting 'cause Irv,
you suggest that maybe
the risk is a little lower
than it appears
that Mary's presentation
made it sound like
companies believe it to be.
Mary, I wonder if you
could unmute yourself
and I wonder if you have a different,
do you think things are
different for investors
or have a different
perspective, or agree with Irv?
- [Mary] This is a tricky one
because as I highlighted
in the presentation,
the SEC is encouraging companies
to be forward-looking
and to talk strategy.
At the same time,
they're noting that there
are these safe harbors,
these legal safe harbors in place,
that should protect managers.
But in hindsight, if you
look at kind of history,
managers aren't necessarily
comfortable with the safe harbors
because a lawsuit that's filed,
even if it's ultimately dismissed,
it typically takes a very long time
and there's a reputational impact
and a diverted time and all of that.
So that's the tricky
part in the sense that
the SEC can't remove that friction.
But at the same time,
what's interesting, I think,
for managers to keep in mind,
and I'm not one,
but I study them,
and what I think is
interesting to keep in mind
is disclosures about
earnings, for instance,
or the guidance about pay,
what we're looking at
in terms of next quarter
or the end of the year,
normally, there are some fierce critics
of providing earnings guidance
and arguing that encourages
managerial myopia.
And we don't want them into the weeds
and focused on meeting
this quarter's numbers
or next quarter's numbers.
We want them thinking more broadly
and more strategically.
So this is an interesting combination
in the sense that we're now saying,
hey, part of the strategy
is surviving the short term,
figuring out how we're
gonna get to the new normal
or the other side.
So this is one situation where
we have a thirst for guidance
and it's not because we're trying
to feed this short term myopia.
We're trying to give investors
and other stakeholders confidence
that we're going to make
it through the short term
to be able to continue
pursuing the long term.
So that was a long answer to say
it's difficult to remove that friction.
The only other thing I would
keep in mind is, and again,
I'm focusing largely from a regulator
and an investor perspective,
is when you think of earnings guidance
which is only one part of
the guidance they're giving,
so even if they couldn't
say EPS next quarter
or this year is gonna be
$1.12 or something like that,
they can be more qualitative
and kind of flesh out
kind of some guardrails as
to what they're expecting.
But that involves some risk
in terms of X post,
having people armed to report it back
and say you weren't right.
But the other thing to keep in mind
is that earnings guidance,
I don't view it as,
it's not private information
in the sense that
ultimately earnings are revealed.
Firms announce earnings quarterly.
And yes, coronavirus did move
some of the first quarter
earnings announcements
to happen a little later.
But overall, it's not something that
companies can keep private forever.
So I view earnings guidance,
if we're talking very specifically
about what the SEC was requesting,
is something where you're just
speeding up the frequency and the timing
of a disclosure that
ultimately does get revealed.
So if managers can maybe
think about that tension of,
hey, ultimately the jig will be up
and the information will be out there.
So would you rather them infer information
from insiders trades or from
the other market behavior that
you take that's non-verbal,
or would you rather kind of,
I'll call it shake the narrative.
That's the question.
So that's the tricky part.
- [Batia] That's really helpful.
And it sounds like you are differentiating
the narrative from the numbers
in our colleagues' and in AswathÕs model,
and it sounds like both
of you are agreeing
that the narrative is
something to take hold of,
even if the numbers are sort of trickier.
- [Irv] Can I add just a quick touch?
Early on, when FD was put together,
the SEC recognized that
the function of media and business media
needs to be taken into account.
And they created what
is called a carve out
for communicating with business media,
which allows a company,
if they do a good job,
to frame their narrative using,
at that time, primarily mainstream media.
I'm not sure what the SEC,
how the SEC considers social media.
I haven't kept up with that.
Maybe Mary knows something
about that aspect.
- [Batia] So actually, the second
question that I have
that cuts across both
of your presentations
is relevant to what you
just brought up, Irv.
And that is the role
of evolving technology
in both creating the
pressure on communication
and creating mechanisms for communication,
crisis communication,
to be disseminated and
managed or well or poorly.
So Mary, in your talk,
you were highlighting that
there are differences now
in how things are communicating,
like leaders are communicating.
In particular, kind of the
elimination of these conferences,
in-person conferences.
And so there are a number of technologies
that are relatively new
that have been evolving
over the last decade, decade and a half,
with the rise of social media.
But there's, in this crisis,
a massive evolution that
a whole lot of people
have become comfortable
with technologies like Zoom
that are shifting remote
all kinds of communications
that would otherwise
be happening in person.
I just wonder if both of you,
if each of you might have
some reflections on how
evolutions in technology are altering
crisis communication
and what you foresee for the future
in crisis communication,
whether to investors or the
media and other stakeholders.
- [Mary] That's a tricky one
because if I talk about
the current crisis,
the current crisis
necessitates our full embrace
of the technology that has
already kind of been slow,
I won't say, depends on,
it seems slow now that we've done
the full hardcore pivot.
So now the reason I say that is because
the crisis necessitated a
different way of communicating,
so part of the crisis is adjusting
the communication during the crisis.
So it's hard to disentangle the two.
The thing that I just haven't quite
been able to wrap my mind around here
is setting aside the whole
managers are reticent to provide
forward-looking information.
It also seems that in times of crisis
where there is a bunch of uncertainty
and let's say managers are wanting to
manage the narrative
but not put themselves
so formally on the line,
I think that how technology has evolved
is there's hard to go,
it's hard to go off record
to kind of get a narrative out there.
That even, I understand
Reg FD's been around
for about 20 years,
closing right in on that,
but I guess what I'm saying is even
in the presence of Reg FD,
there's plenty of research to show
that all of these informal interactions
are different ways to kind of
shape the narrative or
take the pulse of a given.
Let's say response for how
you're gonna manage that.
And so part of what I touched on
is even just the conference presentations
that are now done over Zoom.
Yes, it's more efficient and
maybe it even allows more,
I'll call it investor democracy
in terms of who gets to participate,
but at the same time,
the type of participation
or the type of information
that you can learn is limited,
as we even see, quite frankly,
this is the first time I've done a webinar
as opposed to teaching my students.
Part of teaching is even if they don't use
the chat box or the Q and A box,
I can respond to
flamboyant facial gestures
or that's something.
So Zoom has caused us
to think of different
ways to get those nuances
or to get, I'll call it that
on the margin conversation or management,
where you're not, let's say,
putting yourself on the line for
manager said X and did Y,
and that sort of thing.
So I don't know.
That was a long winding answer
but I guess what I'm saying is I think
we're still kind of figuring out
what part of technology helps us
embrace and survive the crisis,
but also what some of
that human interaction
and kind of the softer edges
of communication is lost
by being forced to have literally
all Zoom interaction.
So Zoom has become a verb.
Okay, I'll let Irv pipe in with that one.
- [Irv] Well.
Some companies, and these are usually
the mega corporations, Nestle for example,
maintain a sort of surveillance group
that keeps track of emerging issues,
societal based issues,
risk based issues,
that these days are easier
to sort of filter using AI,
and these new technologies to determine
what's simmering and who's behind it
and where are these,
excuse me,
(coughs) problems
geographically surfacing,
to give them a degree of not control,
but an opportunity to assess the risk
and to integrate their message into
this growing issue based
pre-crisis, let's put it that way.
That may very well be a useful technique
for investor relations as well.
I'm not as familiar with what's going on
recently with investors.
I used to pay a lot of attention to it.
But lately, more so
with the societal stuff.
But that's one thing that
the technology is offering some insights
that 10 years ago were based upon hunches.
And now they've got some added.
So that's one change in terms of
coming to terms with emerging issues.
Let's put it that way.
- [Batia] Yeah so we will probably see
a continued evolution on this.
We have a question here from
our colleague Amal Shehata.
Amal Shehata, sorry.
And it's a question for Mary.
Mary, how have analysts reacted to firms
that withdrew their guidance?
Do they basically acknowledge, yeah sure,
we know there's a lot of uncertainty
and it's legitimate to
withdraw that guidance,
or did they push them to kind of provide
some greater guidance,
and what conclusions
do you draw from that?
- [Mary] So that's a great question
in the sense that I'm gonna
answer it more broadly,
not just analysts, but
how the SEC has responded.
Which is analysts,
while they're empathetic and sympathetic
to the inability to forecast,
they themselves still are
tasked with doing exactly that.
So they can, so I guess what I'm saying
is if what managers are
describing is impossible,
analysts are saying, but
we're still asked to do so.
So said differently,
if you look at some of
the conference calls
and kind of the Q and A and
the discussion more recently,
it is kind of pushing
managers on the fact that,
hey, can we do some scenario talk,
rather than some specific
outcomes and that sort of thing.
But can we just talk about
some if this and that.
And obviously executives are very reticent
to talk about hypotheticals,
but that's kind of how
analysts are pushing back.
And in terms of regulators,
and this is, I was
putting my slides together
yesterday for this,
I was looking, Uber
withdrew their guidance,
and Uber famously, when
it was going public,
the SEC was very hard on them
for what they were choosing to disclose
and how they were trying
to shape their narrative
via I'll call it non-GAAP
performance metrics.
So EBITDA is what I mentioned in there.
They have this adjusted
revenue number that they do.
So Uber has been,
I'll call it harassed by the
SEC division of enforcement
throughout their going
public and remaining public.
And not surprisingly, just
in the past few weeks,
Uber has received some comments
on their recent earnings announcement.
Not just for the,
they're not required to give guidance,
so the SEC is not harassing them for that,
but for the whole
increased focus on adjusted
numbers and non-GAAP numbers
and kind of their creative way of
adding back payments
to drivers and things,
and the PPE equipment
and that sort of thing.
So basically, harassing Uber for
controlling the past narrative
and making that more prominent
than the GAAP numbers
and that sort of thing.
So I know that the SEC
cannot regulate and say,
you're mandated to give, or thus far,
'cause never forward-looking guidance,
but they can, I guess, harass.
That's not actually a proper term.
They can issue comment letters
and encourage companies to reign in their
adjusted and kind of their,
I'll call it, narrative shaping behavior.
- [Batia] Thank you.
The next question is from
Maria Patterson for Irv.
And this is a question about
whether your model applies to non-profits,
like universities and
educational institutions
that have certainly been caught
in this crisis
and are struggling to get
their communications out.
And I guess I wonder whether
you might speculate on
whether there's any adjustments
to your model needed
or any recommendations that you would have
for non-profits communicating.
Especially for educational
institutions like ours
communicating in a crisis like this.
- [Irv] Well.
My focus, since we are here at Stern
and we are not at Wagner,
is on the for profit segment,
which also has some
relevance to government
and to governmental policies
and communicating positions.
I do think for non-profits,
one would have to really
step back and revise
and sort of look to examples
where non-profits have tried to,
what their objectives are and
what they're trying to do.
A few years back,
there were a number of
crises involving non-profits
where the CEO of,
what is the major,
it's escaping, one of the major,
the non-profit groups that
solicit funds and distributes them,
NYU always has it.
What's that thing called, I forgot but--
- [Batia] Oh wait, yeah.
- [Irv] You know what I mean?
- [Batia] It'll come back to me.
- [Irv] But anyway, the CEO was caught with
his hands in the tiller
and was living it up
on all of the money that was
not being used correctly.
And they had to do,
in their explanation,
it's United Way.
- [Batia] United Way.
- [Irv] United Way.
They had to do something similar
to what my choices were
or what my messaging was about.
But again, that was a crisis.
Now, what's bedeviling,
non-profits here, educational,
it's a systemic, this
is a systemic crisis.
Nobody's at fault, nobody's at blame.
And that changes, it seems to me,
how the organization needs to
analyze and then distribute.
But they still have to figure out
who are our stakeholders,
who do we need to communicate with,
who do we need to influence.
And right now, the federal government
is the primary focus of
influence, it seems to me,
in trying to get something accumulated and
some sort of response.
Just today in the news,
you're probably all familiar with what
the federal government's now saying,
that international students
have to go back home
if they are here
and will have remote education,
which is a very peculiar formulation.
Now.
The universities are gonna
have to band together
with some business folks, it seems to me,
to kinda come up with counterarguments.
But it's also, it's an
example of something
that they should really have been aware
that could be generated,
given the way the federal government
thinks about immigration
and thinks about others.
So it's not a great answer for Maria,
but it's a good point for her to raise,
that it's really worth stepping back
and assessing the different calibration.
- [Batia] Yeah.
So we've got a couple of questions
that actually I think
apply to both of you.
And they come from Susan
Stehlik and Jeffrey Sharlach.
And the questions are,
basically, what's kind of in common is
are there companies that
are doing this right.
Is it possible that this crisis
could actually be an opportunity
and that there are
companies that can actually
improve their reputations
by how they manage communication
during this crisis.
And if so, do you have any examples?
Can you think of any companies
that are doing it well?
- [Mary] My short answer to that is,
as my students know,
it's so much more fun and entertaining
to study the horrible warnings
as opposed to the good examples.
(laughs) So with that said,
slideshows are generally made on that.
But the more fair answer to that,
I think broadly I would say,
is I'm not viewing this
as a situation where
one company is right and
another company is wrong.
It's a continuum.
So it's more, it's not a
problem that has one answer
and one clear solution.
It's a cloud of uncertainty
and it's kind of,
and then I'm gonna use yet
another bad metaphor analogy,
which is everybody's in the same storm,
but not everybody's in the same boat.
So keeping in mind,
navigating the storm,
it's gonna need to vary
necessarily across firms across time.
But the way to think about it is
even if companies get
it wrong in one moment,
that doesn't forever cast
them as in the wrong boat.
So it's, I think in
terms of communication,
one of the key things
I've learned in life is
if you speak from
a genuine sincerity and
an effort to figure out
how to get to the right.
So I think there are
some companies out there,
I'm reticent and here I can't
come up with a specific one
'cause I'll be proven incorrect,
but nonetheless, I would just say,
what do we expect from CEOs
and their conference calls?
They don't need to give
me a point estimate
of what EPS is gonna be next supporter.
But making an honest effort to help
acknowledge where you don't know something
and own up to something that
you definitely know already.
And that sort of thing.
So just a willingness to
own situations more fully and sincerity.
But then I'll pass it off to Irv.
-[Batia] Irv?
- [Irv] When companies take on that
problem solving approach,
that gives them a space to occupy as
not necessarily the good
guy or the good woman,
but at least accountable and responsible.
And there are more than a few companies
that have done that.
And as one corporate
communication person told me,
the crisis you never heard
about is the best crisis.
And there are companies
that fix the issue.
And don't get that much media coverage.
It's the media coverage that frequently
creates the difficulty
for a lot of companies.
And those that head it off very frequently
can handle it.
Also, as Mary was eluding to,
the role of the CEO taking
the spotlight to redirect.
That happened in 2014 with
the CEO of General Motors,
who had just been appointed,
who took accountability and responsibility
for this operational
problem that had mutated
into a full blown crisis.
The ignition issue.
She's an example of people doing that.
Nestle and Group Danone had some
problems with withdrawal of products
because of health issues,
something like that.
But you don't hear too much about it
because they're so good at stepping ahead
and sort of solving the issue
and getting to it immediately.
And taking it, making
themselves accountable.
I do have a list of companies
that have been more successful than not,
and I'm just gonna just say,
they're in my computer,
not in my head right now.
So I apologize for that.
But it's the company that do take
this problem solving approach that
have a better chance of not being
remembered for malfeasance.
Exxon's never gonna get away
from what happened with
the escape of oil in Prince Edward Sound.
And it's that kind of thing.
They became a meme.
And they're never gonna
get away from that.
- [Batia] And we might only
know about the outcomes
in the long run.
So Marriott's CEO was very proactive
in kind of acknowledging
how bad the problem was
and came across very authentically.
But the stocks still got killed,
like all in his sector.
And so we'll have to just see
whether there is a feeling of trust
maybe on the part of the employees
or on the part of investors
that will pay off in the long run
that isn't immediately apparent
or certainly can't help
them weather through
the immediate crisis.
- [Irv] Starbucks is an example
of a company that,
like I said, the first thing I showed,
confronted with the accusations
of racial imbalance,
that they did something.
They were criticized for it for saying,
well, that's just knee jerk reaction.
Guess what, nobody's hassling
Starbucks today about it.
And I think that's an example of a company
that took the proactive approach.
- [Batia] Thank you both so much.
We've gone over time a little bit.
I want to thank the
audience who stuck with us
despite going over time.
This has been a really insightful session
with a whole lot of new questions.
Sorry we can't get to
everything in the list.
But I just want to thank you both
and hopefully we'll all
be together again soon.
So hang in there and
enjoy your summer, folks.
- [Irv] Thank you all, thanks very much.
(soft jingle)
