TheCorporateCounsel.net

I think we’ve all seen some ham-fisted efforts by public companies to downplay bad financial news. This is always a bad idea – among other things, it frequently leads investors to conclude that the company and its management team are insulting their intelligence. Over on RealTransparentDisclosure.com, Broc recently blogged about this topic. This excerpt highlights examples of practices that companies should avoid when conveying bad news to investors:

– Serial, italicized, headline subtitles that refocus attention away from key financial results

– Overemphasis upon non-GAAP results, and even discussing them to the exclusion of GAAP results

– Introducing completely new reporting metrics – just for the quarter – to highlight data that might distract investors from the poor results

– Long-winded CEO quote setting forth how “unbelievably excited” they are about some of the “extremely transformative” things the company is working on that make them “incredibly optimistic”

– Changing the comparative reporting periods to opportunistically highlight sequential results, since the year-over-year comparisons are bad

– Lengthy, bullet-pointed lists of “business highlights” that are predominantly comprised of immaterial information

– Introduction of new initiatives that investors don’t hear much about thereafter

Broc says that the only way to deal with bad news is to confront it head on. I couldn’t agree more. If you don’t, the downside isn’t limited to investors feeling like you’ve insulted their intelligence. Investors know they aren’t stupid, but antics like these may well cause them to reach a different conclusion when it comes to your management team.

– John Jenkins