The sort of “new-economy” media hype that was liberally adopted during the dotcom era to ratchet up share prices may be thing of the past but its legacy lingers in the shape of heightened public scepticism and scrutiny of corporate messages.
That, along with the advent of triple bottom-line reporting, greater compliance responsibilities for directors, and new listing rules that put added emphasis on the communications process, mean that how and when meaningful messages are delivered is even more important. So what’s the current management thinking on successfully managing the media – and how has the game changed?
Media scrutiny of big business is more intense for number of reasons. For starters, more people have an interest in it. The demutualisation or privatisation of such monoliths as AMP, Telstra, Air New Zealand, Tranz Rail, Westpac and more recently Promina (formerly Royal SunAlliance) has seen dramatic rise in retail share ownership – or “mum and dad” investors.
Recent high-profile collapses haven’t helped. These, and revelations of exorbitant CEO payouts that often accompanied them has fuelled an atmosphere of cynicism among shareholders and the public at large, says Adam Cooke, group marketing and communications manager with Baycorp Advantage.
This at time when the new continuous disclosure regime means we’ve just entered an era where what companies ‘don’t’ say can also get them into hot water.
“Continuous disclosure and greater powers for regulators provides new parameters within which to work. Retail share ownership has driven need for tight, but prolific information flow,” says Cooke.
“The media is tenacious and will put any company under scrutiny if there’s evidence to support it. Shareholders’ right to know what’s going on makes corporate communications strategy vital.”
How to get it wrong
Like Australia, our corporate history is littered with communications examples that range from inept or untimely to questionably dishonest.
For example, revelations as to the sorry state of Air New Zealand’s balance sheet (pre recapitalisation) only came after its Rights Issue came in fully subscribed. More recently, Tranz Rail only revealed new bank facility day after it raised $66 million in rights issue.
Plenty of academic time has been devoted to trying to prove link between good communication and share price. Measuring the value of good editorial is something many companies struggle with.
But what the recent communications debacle by New Zealand Exchange (NZX) newcomer Vertex serves to illustrate is that when it comes to creating expectations, discretion is the better part of valour.
The plastics company’s share price took caning after it downgraded its prospectus forecasts on two occasions. Similarly, deliberate efforts to delay the release of vital financial data saw Provenco, formerly the Advantage Group, receive severe censure by the NZX some time back.
Costs now higher
Examples like these aren’t hard to find. But new listing rules that call for continuous disclosure mean the cost of taking hit-and-miss approach to media handling just went up. As the fish-bowl environment in which many companies now operate becomes more intense, Cooke believes the role media plays in taking key messages out into the market place is more crucial.
He says the continuous disclosure regime is forcing companies to re-think the message they really want to convey within an underlying financial result. Examples like Vertex serve to illustrate the downstream damage that over-zealous PR can do to company’s reputation.
Giving just enough information but not too much is the fine line of balance companies have to tread. Thus far, they’re grappling with continuous disclosure with various degrees of success, according to Geoff Senescall, former NZ Herald journalist who recently joined forces with former Fletcher Challenge media man Barry Akers to run financial PR firm.
He believes the real continuous disclosure challenge for management is to understand when they need to communicate something and the need to be clear when they do.
He cites the example of former Kiwi fertiliser icon Fernz Corporation (now Melbourne-based Nufarm) which was once praised by the market for being the only listed firm to give five-year forecasts. But market sentiment turned increasingly sour as the company repeatedly failed to meet its own expectations.
“If company fails to meet expectations, then its share price gets slammed,” says Senescall. “Get it wrong again, and what you tend to see is loss of confidence in management’s ability to perform. Tower, Tranz Rail, AMP, and now The Warehouse are cases in point.”
Spin damage
Instead of sending honest and clear signals, Senescall says too many companies try and get too clever by putting spin on negative announcements and downgrades. The net result often leaves the company in worse position and the market becomes more sceptical.
“Working with media is new territory for most managers. They’re generally more comfortable putting money and effort where the outcome is relatively controllable,”explains Senescall.”
“They’re happy to pay fortune for advertising because no-one can mess with content. But they’ll count every penny spent on other forms of communication, including editorial – it’s lower cost, but they’re not so much in charge.”
So how should companies face the disclosure versus non-disclosure dilemma?
With two feet squarely in the PR camp these days, Senescall says companies need to correctly assess the value of any media opportunity before diving in. That means weighing the potential upside against the downstream consequences of staying tight-lipped until the quarterly, half or full-year announcement.
“Some have lauded The Warehouse for the way they handled the recent profit downgrade and change in CEO. But my gut feeling is that Greg Muir’s decision to leave on what appear to be minor philosophical differences, raises more questions than it answers,” says Senescall.
As Fernz Corp clearly discovered, providing the market with more information than it needs can deliver both brick bats and bouquets.
Disclose or keep quiet?
There is no easy formula for finding the right balance between telling all or keeping mum. But the lessons from The Warehouse decision to “fess-up” to profit warnings are clear, says Maggie Grady, head of corporate affairs with Citibank NZ and Australia. When it comes to key information, especially financials, she says companies are better served fronting-up than feeding market rumour by remaining tight-lipped.
As to whether it is ever really possible to manage the media, the short answer, says Grady (herself former print journalist) is “no” and most of her contemporaries agree.
They suggest companies should work alongside the media as an influential part of the information process, rather than seeing it as threat. To do that, Grady says many companies have to shed preconceived ideas about what the media is all about – or that they’re passive victims of hostile journalism.
Being prepared for the outcome that media can generate comes down to how well company has thought through what it wants to say and what supporting data can give flesh to story, says Grady.
“The significantly larger number of stakeholders that companies now communicate with has given much greater currency to corporate messages.”
This is why it’s critical that CEOs and other company spokespeople need to understand the time and other pressure journalists are under, what they’re looking for in story – and the value of building strong media relationships, says Grady.
“The value of having good media relationships becomes more heightened when you encounter isolated crisis situations.”
The sad reality is that bad news sells, and companies must understand that, says Tracy Mouat, corporate affairs director with Carter Holt Harvey.
“One of my
