Friday, 30 July 2010
The Value Additive Content of Executive Media Interviews
Sunday, 21 February 2010 at 09:57, Obi Tabansi Onyeaso, Managing Director - Customs Street Advisors
Most public company executives regard media interviews as a distraction.
In their view, they would rather be running their companies. As far as they are concerned, there is a dichotomy between minding the store and talking about the store.
When approached for interviews at conferences or random bump-ins, these executives offer a half-hearted smile and respond with the deceptively receptive suggestion, ‘please call my secretary to arrange a date. Here’s her number.’ For most reporters, this subtle reply means ‘don’t call us, we’ll call you.’ Email requests fare no better. ‘We are sorry to decline your request at this time’ is a common refrain.
Indeed, C-suite executives are very busy people. Plausibly, they have more important things to do than help a media outlet increase its circulation or viewership by providing an exclusive.
A less euphemistic reason may be that these executives have a visceral disdain for publicity which, in their consideration, is not directly tied to the bottom line. After all, they rationalise, the Management Discussion & Analysis (MD & A) and financial statements cover all areas of investor interest satisfactorily.
On the surface, this makes perfect sense. If the CEO manages the business well, expands market share, raises profit margins, oversees a steady rise in its share price, drives its competition out of business, signs on the best management talent, does not attract regulatory scrutiny, has a pipeline of blockbuster products, enjoys unlimited patents, pays increasing dividends year-on-year, wins adulatory praise from all stakeholders and increases its backlog of contracts, then it can safely ignore the rest of the world.
The record would speak for itself. Alas! If wishes were Arabian horses, executives would win the Derby. In reality, companies face a more prosaic existence.
Therefore, if this the case, should executives not even spend more time in pusuit of this Eldorado and less on distractions like media interviews?
On the contrary, it should make them determine to allot more face time with these important gatekeepers of information and shapers of investor sentiment. The daunting challenges that businesses face will not be blunted by refusing to tell their story.
Disseminating its own why-and-how narratives through popular channels affords companies the luxury of placing their financial performance and strategic options within the contextual topography of their own choosing. This encourages the investment community to see the world just a little bit more from the eyes of the company. How can they say no to an offer to influence perception formation?
The fact remains that whether executives grant these interviews or not, the media will write their stories and investors will form their own opinions anyway. While it is true that companies regularly meet with financial analysts and institutional investors, nothing compares to the scope of intelligent coverage that the media provides. In the communications toolbox, targeted media interviews may well be the most effective and transparent means for influencing the investment community.
Although, a sell-side analyst at an investment bank may produce an incisive report on the company for its own clients, the content and distribution channels of equity research limit it to a slim section of the investment community. Moreover, because these reports are, by design, explicitly written to generate buy-sell signals, they are of a fundamentally different quality from interviews which are not necessarily trading signal focused. As first-party advocates, executives’ views enjoy the status of fact prima facie.
To leverage on that benefit of doubt should be a no-brainer. The media interview was hand-made for such.
Still, media interviews, as an integral part of the investor relations mix, can also serve an explicit trading signal function. It is taken for granted that an undisputed good for any public company should be a reduction in the information asymmetry between the company and providers of risk capital.
Several studies reveal a strong correlation between heightened media visibility and subsequent changes in perceptions of risk and cost of capital. In their seminal paper, ‘The Quantity and Quality of Media Coverage and Its Impact on Stock Price Informativeness and Trading Activity: Evidence from China,’ Stephen Gong and Ferdinand Gul demonstrate a clear relationship between the media visibility of companies and the liquidity of a stock.
In another brilliant paper, ‘Media Coverage and the Cross-Section of Stock Returns’, Lily Fang and Joel Peress, referring to Richard Merton’s ‘investor recognition hypothesis’, show that because of the poor information environment around companies with low media visibility, they have a higher cost of capital in public markets since investors demand a higher return. On any number of proxies (margin spread, price volatility, order aggressiveness, trading volume and order flow), media visibility can and does have a positive impact on a company’s cost of capital.
At the end of the day, markets thrive on information. In this game, those companies that have a consistent and coherent strategy for engaging the media will come out victorious. Undoubtedly, it’s good to talk.
Email the writer: o.onyeaso@alrroya.com
In their view, they would rather be running their companies. As far as they are concerned, there is a dichotomy between minding the store and talking about the store.
When approached for interviews at conferences or random bump-ins, these executives offer a half-hearted smile and respond with the deceptively receptive suggestion, ‘please call my secretary to arrange a date. Here’s her number.’ For most reporters, this subtle reply means ‘don’t call us, we’ll call you.’ Email requests fare no better. ‘We are sorry to decline your request at this time’ is a common refrain.
Indeed, C-suite executives are very busy people. Plausibly, they have more important things to do than help a media outlet increase its circulation or viewership by providing an exclusive.
A less euphemistic reason may be that these executives have a visceral disdain for publicity which, in their consideration, is not directly tied to the bottom line. After all, they rationalise, the Management Discussion & Analysis (MD & A) and financial statements cover all areas of investor interest satisfactorily.
On the surface, this makes perfect sense. If the CEO manages the business well, expands market share, raises profit margins, oversees a steady rise in its share price, drives its competition out of business, signs on the best management talent, does not attract regulatory scrutiny, has a pipeline of blockbuster products, enjoys unlimited patents, pays increasing dividends year-on-year, wins adulatory praise from all stakeholders and increases its backlog of contracts, then it can safely ignore the rest of the world.
The record would speak for itself. Alas! If wishes were Arabian horses, executives would win the Derby. In reality, companies face a more prosaic existence.
Therefore, if this the case, should executives not even spend more time in pusuit of this Eldorado and less on distractions like media interviews?
On the contrary, it should make them determine to allot more face time with these important gatekeepers of information and shapers of investor sentiment. The daunting challenges that businesses face will not be blunted by refusing to tell their story.
Disseminating its own why-and-how narratives through popular channels affords companies the luxury of placing their financial performance and strategic options within the contextual topography of their own choosing. This encourages the investment community to see the world just a little bit more from the eyes of the company. How can they say no to an offer to influence perception formation?
The fact remains that whether executives grant these interviews or not, the media will write their stories and investors will form their own opinions anyway. While it is true that companies regularly meet with financial analysts and institutional investors, nothing compares to the scope of intelligent coverage that the media provides. In the communications toolbox, targeted media interviews may well be the most effective and transparent means for influencing the investment community.
Although, a sell-side analyst at an investment bank may produce an incisive report on the company for its own clients, the content and distribution channels of equity research limit it to a slim section of the investment community. Moreover, because these reports are, by design, explicitly written to generate buy-sell signals, they are of a fundamentally different quality from interviews which are not necessarily trading signal focused. As first-party advocates, executives’ views enjoy the status of fact prima facie.
To leverage on that benefit of doubt should be a no-brainer. The media interview was hand-made for such.
Still, media interviews, as an integral part of the investor relations mix, can also serve an explicit trading signal function. It is taken for granted that an undisputed good for any public company should be a reduction in the information asymmetry between the company and providers of risk capital.
Several studies reveal a strong correlation between heightened media visibility and subsequent changes in perceptions of risk and cost of capital. In their seminal paper, ‘The Quantity and Quality of Media Coverage and Its Impact on Stock Price Informativeness and Trading Activity: Evidence from China,’ Stephen Gong and Ferdinand Gul demonstrate a clear relationship between the media visibility of companies and the liquidity of a stock.
In another brilliant paper, ‘Media Coverage and the Cross-Section of Stock Returns’, Lily Fang and Joel Peress, referring to Richard Merton’s ‘investor recognition hypothesis’, show that because of the poor information environment around companies with low media visibility, they have a higher cost of capital in public markets since investors demand a higher return. On any number of proxies (margin spread, price volatility, order aggressiveness, trading volume and order flow), media visibility can and does have a positive impact on a company’s cost of capital.
At the end of the day, markets thrive on information. In this game, those companies that have a consistent and coherent strategy for engaging the media will come out victorious. Undoubtedly, it’s good to talk.
Email the writer: o.onyeaso@alrroya.com
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