PREPARING FOR EARNINGS CALLS: LESSONS FOR CEOS AND CFOS

The earnings call has become an increasingly powerful tool for corporations, providing a shop-window into company performance and the vision of the stakeholders who steer it. But more recently, a number of high profile cases have warned of the dangers of being ill-prepared for such calls and indeed public appearances in general.

With such high attention now being placed on this aspect of the business cycle, it is important to take a balanced, transparent, and most importantly prepared approach to quarterly earnings reporting.

Elon Musk hit the headlines earlier this year when a combative earnings call attracted attention for all the wrong reasons. The Tesla superstar CEO accused analysts of asking “boring bonehead questions” and refused to answer them, in a pre-empt to further controversy about this CEO’s erratic behaviour, including smoking a marijuana cigarette during a video recorded talk show appearance. All this leading to an emerging narrative that Musk is at best unfocused or, at worst losing control altogether.

More recently, and more seriously, CBS CEO, Les Moonves, who has since resigned, did not address allegations of sexual misconduct on an earnings call in which it was believed that he would, prompting Keach Hagey, Media Reporter for the Wall Street Journal, to tweet: “Are we really going to make it to the end of this CBS earnings call without a single analyst question about the allegations against the CEO? They sent the stock down 11% in two days.”

This issue is emblematic of a wider trend going on in the business world today, where high profile CEOs and other leading stakeholders seem ill-prepared for public life. As press packs and politicians alike question Facebook’s Mark Zuckerberg on the data-driven controversies surrounding the company, it’s clear that CEOs need to be even more prepared to address issues on the world stage. And lest we forget the cringe worthy interview given by Tinder CEO Sean Rad in 2015, the day before parent company Match Group went public: “Every other week I fall in love with a new girl.”

The point here is that in a digital world of ‘always on’ and ‘always reported’, public communications are scrutinised more heavily than ever before. Once overlooked as a quantitative box-ticking exercise, quarterly earnings reporting has become a marked event in the annual business cycles of leading companies around the world. From Facebook, to Tesla, to CBS, the public performances of senior stakeholders have become just as important to the bottom line as the quantitative figures of the companies themselves.

But where potential pitfalls lie, so too do opportunities. When handled in the right way, the earnings call can be one of the most powerful ways to conduct investor and press relations, offering a direct communications channel from the mouth of CEOs and CFOs to ear of desired audiences. Here, we look at three key lessons for senior stakeholders when preparing for these events.

Balance, Transparency, Preparation

While it can be tempting to dress communications up in PR-speak, it is important to take an earnest and balanced look at the company books before reporting takes place. What are the areas performing well? Where is growth stalling? Is there an issue in a particular sector that is now being addressed? It is important to emphasise company strengths, but investors will be just as interested in how improvements are being implemented as where current revenue streams are coming from.

Transparency is key in all communications, and never has this been truer than in a digital world, where every single world gets heavily scrutinised, shared, and stored forever in the ether. Alignment of messaging across company departments is key, and senior stakeholders need to work closely with their communications teams in advance of an earnings to call to make sure that everybody is singing from the same hymn sheet, and there are no surprises.

And of course, the key to all of this is preparation. Quarterly earnings should become an intrinsic part of the company fabric, to be worked on throughout the quarter itself, as opposed to just a couple of days before a call takes place. The correct metrics should be collected, data should align across departments, and potential growth and decline areas identified as early in the cycle as possible. If you stay ready, then you do not have to get ready.

Corporate vs. Colloquial

In a social media world, it’s crucial to communicate in a way that breaks down the fourth wall between corporate and community. We are all human beingsand selecting the right language to use will appeal to people’s emotion as well as their reason. The rise of populism in politics in recent years has taught us this. The ability to empathise and communicate on an individual level is a powerful skill, and as far back as 2016, an article in Quartz advised CEOs to ditch their prepared remarks, in favour of more free flowing approach.

In an environment where bottom-line financials are concerned, phrases like “boring bonehead questions” and “every other week I fall in love with a new girl” are not helpful, not where million-dollar investments are at stake. Tonality and attitude must be factored in; it is fine to communicate with people in a modern way provided you do so with integrity and professionalism – an absence of these qualities will instantly be picked up on.

So again, in this area balance is key. Remaining open and transparent while also demonstrating professionalism and passion about your business can make reporting run all the smoother. In the digital world, the lines between corporate and colloquial have become more blurred. But balanced in the right way, effective language can be a key ally for business success. C-Level executives can prepare for earnings calls and other public communications by taking professional communication training courses including RDF’s advanced media training for C-Suite executives.

Accompanying Literature

One way to deliver balanced financial reporting, is by providing professional, engaging literature around a call. While a CEO can deliver the headline soundbites in person, accompanying presentation decks, press releases, and financial reports are crucial in laying out the quantitative facts in an approachable way. Senior stakeholders and journalists can see the figures and accompanying analysis in front of them in black & white, highlighting that you have done the work, and presented it with the utmost diligence and transparency. This legwork allows for greater personality/engagement on the call itself, because it frees you up to approach people in a humanistic way, while always having something tangible to refer back to.

Working with your departments and for your investors throughout the quarter can greatly help in delivering a successful call. While the temptation can be to ‘perform’ in the same vein as an Elon Musk, the short-term publicity benefits that this can bring are by far outweighed by the more long-term reputational damage it can do to your brand. Equally, it is important to remember that earnings do not exist in a bubble independently of day-to-day life and news, and if there is an elephant in the room it must be addressed. Ultimately, delivering a successful earnings call is about being balanced, transparent, and prepared, and carrying the right attitude and tonality into these events.

This article was written by Nkiru Balonwu, Managing Partner for RDF Strategies, for Business Day Newspaper, and first published on Friday 14th September.

Photo Credit: Center for Values in Leadership

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