Challenge to IROs: Speak Up. Don’t Let the Boss Fall Victim to Ten Common Earnings Call Mistakes

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By Virgil Scudder

 

It’s always hard to tell the boss that he or she isn’t doing something right, especially if the boss is a powerful CEO and the IRO is only at the VP tier. But, in my view, IROs at a lot of companies need to be more assertive.

It’s a mistake to sit quietly by, loyally nodding, as the CEO is making some common mistakes that erode the credibility of both the leader and the company.
Earnings calls are a perfect example. It is a rare CEO who really enjoys those quarterly tete-a-tetes with analysts. Earnings calls involve a lot of preparation, no small amount of stress, and the sobering awareness that saying the wrong thing, or saying something the wrong way, can punch a big hole in the stock price.

In my experience, the heads of major companies generally do pretty well in handling these often-challenging encounters. However, there are some common mistakes that CEOs should take special care to avoid-and you can help them. Here’s my list:

  1. Excessive exuberance. “We’ve turned this company around,” the CEO triumphantly declared in reporting strong quarterly earnings. Naturally, the stock went up. But, when the next quarter’s earnings tanked, the stock nosedived-falling to a point lower than would have been likely if the company’s leader hadn’t over-reacted to the previous strong quarter. Curb, but don’t lose, your enthusiasm.
  2. Playing the CFO. This is a curse of CEOs who have moved up from the top financial position. They lay out the numbers that the CFO is paid to deliver, rather than providing an overview of trends and developments and what the results mean to the company’s game plan.
  3. Too much detail. Some CEOs are determined to use the earnings call to show that they know every little detail about the company. That’s not the CEO’s job. The company leader should have a broad view of the organization and articulate where it is headed and why. When too much is said, too little is often understood. And the most important points get lost.
  4. Using the historical approach. The best answer is always a straight, head-on answer. Headline, then elaborate. Save the history of the company, the industry, or the planet for another forum.
  5. Lackluster script delivery. The earnings call script is more than a set of numbers and facts. It is a narrative, a story, and it should be delivered with some energy and emphasis. Droning through the script sends a message that the CEO is uninterested, uninvolved, or uninformed.
  6. Failure to rehearse. The CEOs who sound most confident and in command on earnings calls are those who take the time to rehearse prior to the call. Both the scripted portions and the Q&A should be audio-recorded during the rehearsal and played back for analysis and critiquing. The steps to better delivery and better Q&A responses become apparent when listening to the playback.
  7. Providing facts without form. The best CEOs tell us what the facts and figures mean and how they impact the long-term business plan. An earnings call is not just a report card; it’s also a progress report. People don’t buy stock based on where a company is; they buy it based on where they think the company is going.
  8. Lack of perspective. Where does the company stand in relation to the performance of its industry and the overall economy? These are things a CEO should be telling us-not for the purpose of rationalizing poor performance but for giving shareholders a clear picture of conditions and prospects.
  9. Massaging the numbers. A poor quarter is a poor quarter is a poor quarter-period. Analysts will see right through any effort to present it otherwise. f the numbers are disappointing, the CEO should say so, say why, and tell people what is being done about it. This is how credibility and long-term shareholder loyalty are built.
  10. Forgetting what really matters. The key question in every earnings call is this: Is the leadership on top of whatever its current situation may be and does it have an effective plan to deal with it?

 

Finally, since everybody likes something for nothing, let’s throw in one more item. This is not a common CEO mistake, but rather a worst-case example. On an earnings call a couple of years ago, a newly-named company leader immediately put on the goat horns. He was combative, refused to answer relevant questions, and declined to address questions on topics he himself had brought up in his script.

That was bad enough, but it got worse. Mistakenly thinking his microphone had been turned off as the call ended, he snapped to his IRO, “Let’s get the f*** out of here.” As a result, the call became a mainstream media story and the CEO had a lot of explaining to do to his board. The lesson here: Analysts are your conduit to your company’s owners. Treat them like you would your biggest shareholder. And, don’t swear until you are outside the building.

Few, if any, CEOs would describe an earnings call as fun. But those who avoid these common mistakes will find the perception of their leadership enhanced. And, make no mistake about it: The image of the company leader clearly impacts the share price.

Virgil Scudder is founder of Virgil Scudder & Associates. He has conducted training throughout the U.S. and in many far-ranging locations including Australia, Tokyo, Hong Kong, Indonesia, Canada, Puerto Rico and the Netherlands. His clients include CEOs of numerous major corporations and government leaders in the U.S. and abroad.

From the Bulldog Reporter’s IR Alert.