How to communicate with investors during a recession

A downturn is not only a test of CFOs’ strategic skills. There’s an art to disseminating information to anxious stakeholders and keeping them onside, especially when the news isn’t good
Young business decision-maker addressing stakeholders in a modern office

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Equity investors will want clarity on the risks they are running and the likelihood of dividends. Lenders will want to be sure that their capital will be returned and that the interest rate rewards them suitably for the risks they are running. Employees, suppliers and customers will want to hear that the business is on a healthy footing. Promising to conjure up a unicorn will not be enough. 

What stakeholders want

“This is all about being transparent,” argues Naresh Aggarwal, associate director, policy and technical, at the Association of Corporate Treasurers. “Making stuff up and/or not telling the whole truth is the worst thing. Although we have a lot of data now, anyone communicating results based on that material has to be clear about the information it really provides.” 

But what if a company finds itself under a particularly harsh spotlight? A firm at the centre of a fast-moving energy crisis as consumers struggle with inflation, for instance. 

“There’s a confluence of factors in energy that have made things move at pace,” says Stuart Jackson, CFO of Octopus Energy. “That makes it even more important to communicate more fully and more frequently.”

Jackson reveals that Octopus built its own data ecosystem under one roof to wrangle vast volumes of material, including meteorological data. That, he says, has given it advantages over the industry’s legacy players when it comes to analysis and disclosure. 

But how can a company collecting so much data know what is pertinent – and how can it ensure that it’s not a ‘black box’ to its investors? 

“It’s not always obvious, judging from the data that goes in at the top, what will come out at the bottom,” Jackson says. “This is probably the most complex business I’ve worked in. But we have developed tools to help us explain what things mean to our shareholders. This also helps with the cadence of reporting.”

Should firms lie low?

When times are tough, it can be tempting for firms to be economical with the truth. Is staying quiet ever a sensible strategy? 

“You can’t play the strategy of flying under the radar. It’s important to control the narrative,” says Rajesh Gupta, CFO of OakNorth Bank. “The only way to do that is to ensure that stakeholders understand the facts, the context and the basis of your views. I’m biased towards providing more fulsome information, but you have to do that in a sharp, concise format that they can understand.” 

As firms have many stakeholders – including investors, employees, customers and suppliers – a single message that satisfies everyone sounds like a stretch. 

“Investors vary in what they want,” Gupta says. “We have some long-term investors who believe in serving ‘the missing middle’. They will give us the space to work through the cycle. But we also have subordinated debt investors who care a lot about the creditworthiness of our asset portfolios. They are looking to understand the extent to which that credit profile will create risk.” 

He says that he tends to give both groups a lot of detail to work with, adding: “There are no multiple versions of the truth at OakNorth.”

Aggarwal believes that, while most people respond sensibly when they hear the truth, the key facts must be delivered carefully to them in the context of a broader story. 

He explains: “You need a clear plan on your medium-term prospects, which will be harder to put together. That plan has to apply to the whole business and you’ve got to maintain the confidence of staff, customers and suppliers.” 

The pressure on the CFO

Maintaining the confidence of stakeholders when many of them will be anxious can be tough on finance chiefs and their departments, which may feel the stress of having to deliver the right information to a jittery audience at the right times. 

“For CFOs, recessions mean a lot of learning about the business, themselves and the people they engage with,” Aggarwal says. “The reality is that it’s not business-school stuff that’s tested; it’s the soft stuff.”

Although we have a lot of data now, anyone communicating results based on that material has to be clear about the information it really provides

Jackson notes that there is “undoubtedly much more pressure on the team when markets become volatile. Maintaining supportive, trusting relationships with your shareholders becomes more important than ever in a recession. You’re in it together. We have both financial and strategic investors – and the nature of our dialogue with them can differ.”

Gupta agrees that an economic downturn calls for more communication with investors, “because there is more drive for people to understand how things are going. At OakNorth we tend to see a 15% increase in the number of requests to talk, but there’s likely to be more pressure on publicly traded companies than on privately held firms like ours.”

He adds that, in times of great uncertainty, CFOs must be as transparent as they can be with investors and other stakeholders. 

“You have to be able to separate anecdotes from fact and be clear when you are making a judgement call as opposed to a decision that has detailed evidence to support it,” Gupta stresses.

What can CFOs – particularly those who are new to a business and its stakeholders – do to obtain help with the all-important “soft stuff” that Aggarwal highlights?

Rajeev Raichura, CFO of lending platform ThinCats, has spent two decades in the profession, but has been in his present role for less than a year. He says that he attends “CFO events and roundtables, which can be supportive, but it’s about the strength of your professional network overall. I’m very fortunate to have some great mentors. I know that they’d help me through any issues if I asked them.” 

The silver lining

The stress test of a recession gives stakeholders in a business the chance to see what the organisation is really made of. Has it tried to wriggle out of its commitments or to paint too rosy a picture of what’s occurring? Can it be relied on? For the best-run businesses, a recession is when they build trust and work even more closely with their stakeholders.

“Institutional funds have invested heavily in us, so having good reporting is part of the quid pro quo,” Raichura says. “It’s the nature of what we do.” 

And, while recessions are certainly tough on businesses and their CFOs, they do offer opportunities. For example, investors start to look forward to understand how the firm will perform on the other side of the downturn as markets shift. 

“In conversations with banks, we’re increasingly seeing interest in ESG credentials,” Jackson says. “They have made commitments that they want to fulfil. It’s the same on the equity side.”

Is it possible to talk too much to your stakeholders? There does appear to be one danger, according to Jackson: “There is a risk for the CFO in times like this that you can end up constantly debating fine points,” he says. “But you still need to run the business.”