A Chief Financial Officer once asked FINEO if we could please move any mention of his company’s annual losses to the last page of the results announcement. Much to his disappointment, we recommended against it for the sake of his reputation and because it would be ineffective.
Here is why.
A financial analyst may not instantaneously spot the 75% year-on-year decline in your company’s net income, because his or her immediate area of focus is, say, your operating margin. But make no mistake, newswires (the Bloombergs, AP Dow Jones, AFPs, Reuters of this world) will. Within milliseconds. They are programmed to identify keywords without any human (i.e. journalist) intervention as soon as your announcement is out. “Net income” is one of those keywords that will be in the headline of the first dispatch. No matter how hard you try to hide it, your net income (or net losses for that matter) will never go unnoticed.
In 2019, The New-York Times wrote an article on “The Rise of the Robot Reporter”, stating that “Roughly a third of the content published by Bloomberg News uses some form of automated technology. The system used by the company, Cyborg, is able to assist reporters in churning out thousands of articles on company earnings reports each quarter.”
Artificial Intelligence is impacting financial communications too.
Bad news is a fact of corporate life that finance professionals understand and know how to deal with. Under these circumstances, investors expect the issuer to provide an honest, in-depth review of what went wrong and a list of measures, such as a turnaround plan, and a timeline to remedy the situation. While this may look like an oversimplified crisis management technique, it does work to adopt this mindset. Your reputation is at stake, much more than the hasty share price reaction to the news.
In other words, what you disclose and how you disclose it are equally important.
It is also advisable to have a good understanding of what could qualify as “bad news” for your investors. You could be surprised… and miss value-enhancing communications opportunities.
This case study explains how FINEO helped one of its clients survive an 82% decrease in net earnings per share and yet achieve a 10% increase in the share price the same day.