The single most useful activity a publicly traded company can undertake is an investor audit, and yet companies are often reluctant to find out the depth of the gap that may exist between them and their investors. A smart aleck might quip that the only thing an investor wants is annual double-digit EPS growth and the rest will take care of itself. While there is more than a kernel of truth there, investors also want an understanding of not only how that growth will be accomplished but also whether it can be sustained.
An audit - which is usually little more than a series of short telephone interviews with current large holders and analysts - provides a baseline for investor perceptions and helps you get a better understanding of why investors don't fully appreciate or embrace a company's pitch. With a better understanding, a company can shape its investor presentations, investor calls and collateral materials with those issues in mind. Too often, a company will string together a series of facts that leave investors bewildered or worse, bored.
Aristotle wisely pointed out several centuries ago that everything and everyone has a purpose. And each investor wants that question answered: What's your company's purpose? That purpose can be told as a story, a story that only your company can tell. The more specific, usually, the better. The financials are necessary to supply the evidence that the story is credible.
Some might say that they do not need to waste time on an audit as they already have a mission or positioning statement, but these are either too general or aimed at too many audiences. A better approach is to create a single sentence that not only defines your company's business purpose but also does so in a meaningful manner.
But such a defining sentence requires the help of investors, and an audit is an ideal tool to gather valuable information. As Peter Drucker noted, "Before we communicate we must...know what the recipient expects to hear and see." And that requires listening. When we listen, we are handed critical information that can be the key to increased credibility and even success.
A newer company does itself a service when it takes the time before uttering a single word about its own endeavors to first provide investors with a context or a frame for its sector, providing a sense of the industry's size and growth opportunities.
While an audit can tell you what part of a company's investor relations program is working, its primary purpose is to find out what's not going according to plan. Asking investors good questions can help you zero in on what elements of your story are either not connecting with or troubling investors. Concerns can range from increasing costs to executive compensation to a shrinking product pipeline. To increase the likelihood of candor, it makes sense for an approved outside party to ask the audit questions and to provide anonymity to those who participate.
One you have listened, what should you do about what you've heard? Armed with the insights from an investor audit, a company can reshape its story to eliminate the noise and better address or even soothe apprehension. Of course, this takes time and the company needs to be true to its word and deliver on its promises with actions. Of course, the occassional double-digit EPS growth never hurts either.