storytelling is the key to investor engagement · storytin is t t inst nant n 014 storytelling is...

STORYTELLING IS THE KEY TO INVESTOR ENGAGEMENT JUNE, 2014

Storytelling is the key to investor engagement “Stories exert a powerful influence on human thoughts and behavior. They consolidate memory, shape emotions, cue heuristics and biases in judgment...”

1© 2014 Falls Communications. All rights reserved.


The exposure this shortcoming creates for

companies can be significant. For one thing, it can

prevent a company from maximizing its value-

creation potential. According to Rivel Research,

buy-side investors will pay a median premium of

10 percent to those companies that employ effective

IR, while discounting a company a median of 20

percent for ineffective IR.3 Among other things,

effective IR is said to provide investors with insight

into a company’s growth potential and the strategy

by which it will achieve this growth.4 In other words,

investors will reward those companies that develop

and nurture what we refer to as an “investment

brand” (see Defining the Investment Brand sidebar)

through effective corporate storytelling.

Unfortunately, according to one highly respected

member of the investment community who asked

to remain anonymous, “IR continues to get more

primitive as the markets keep getting more

sophisticated.” As a result, many companies are

leaving money on the table.

At the same time, the lack of effective corporate

storytelling can cause a company to play right into

the hands of the activist investor it seeks to avoid.

“The brute force of ownership is not required

anymore because the big institutional players listen

to both sides and are willing to back the activist

fund if they believe in them,” says Gregory P. Taxin,

president of the $1.5 billion hedge fund Clinton

Group. “You can win with persuasion and ideas.”5

Notice he says, “if they believe in them” and not “if

they have proof” or “if they can produce indisputable

facts.” Likewise, note that “persuasion and ideas”

pave the road to victory, not “concrete evidence”

or “reliable third-party and/or proprietary data.”

It’s no wonder then that the funds like Barington,

Starboard, Third Point and Trian are increasingly

incorporating whitepapers and other storytelling

vehicles in their fight strategies.6

“… [we] trust our gut even if the decision flies in the face of all the facts and figures.”

These funds understand that, in many ways, it’s

a war of words when competing for an investor’s

capital or vote – and the advantage goes to the

trained storyteller. Sadly, too many companies are

not making their words count.

Storytelling is a lost art in the business world.1 No place is this more apparent

than within the realm of investor relations (IR), where finance executives

and their legal advisers now manage the narrative for investors at many

companies.2 It’s fair to say that as bright as these seasoned professionals may

be, trained corporate storytellers they most often are not.



Connecting the dotsWhy is corporate storytelling so important,

particularly within investor relations? Simple –

“[stories are] how we make [and] justify our

decisions.”7 “[W]hen facts and information are framed

by a compelling story, you’ll not only hold the attention

of your audience, but you’ll also make the information

presented more memorable.” 8

According to the U.S. Defense Advanced Research

Projects Agency (DARPA), which has spent millions

of dollars studying storytelling,9 “stories exert a

powerful influence on human thoughts and behavior.

They consolidate memory, shape emotions, cue

heuristics and biases in judgment.”10 This explains

why storytelling is a key component of the daily

updates U.S. presidents receive on the most pressing

intelligence and national security issues.11

Like any stakeholder group, the investment community

is not “… moved to action by ‘data dumps,’ dense

PowerPoint slides or spreadsheets packed with

figures.”12 “[N]o matter how compelling your facts are,

if your audience isn’t invested in what you’re saying, all

the information will be lost on them.”13

Evidence of this can be seen clearly in this recent

comparison between what is highly important

to investors and what companies are effective in

discussing at a company-sponsored investor day

(fig. 1). Too often, companies are merely reporting data

when investors want the “dots connected” for them.

“You have to court investors … [stories] help attract and

motivate people.”14

“It’s also important to understand who you are telling

your story to,” says Paul A. Ferrillo of Weil, Gotshal &

Manges LLP. “Not only will this influence how you frame

your story, but the manner in which you deliver it.”

WHAT IS HIGHLY IMPORTANT TO INVESTORS VS. WHAT COMPANIES GENERALLY DO WELL15

Q&A | 80% vs. 41%

Review of the business strategy | 78% vs. 44%

Progress on achieving key goals | 66% vs. 33%

Forward-looking financial guidance | 60% vs. 30%

Capital allocation plans | 60% vs. 23%

New previously undisclosed insight | 60% vs. 18%

Forward-looking operational guidance | 56% vs. 28%

A review of the financial results | 55% vs. 38%

Business segment performance | 51% vs. 31%

Review of products and services | 41% vs. 34%

CSR/sustainability initiatives | 16% vs. 14%

fig. 1

As Matt Sonefeldt, who heads up investor relations for

LinkedIn, posted on October 2, 2013, “Storytelling who

you are = the future direction of building a relationship

b/w public companies & long-term focused investors.

The good ones will do this well.”

Investors Companies



The art of corporate storytellingInvestors are looking for greater context and insight

into the business as they have neither the time nor

the patience to unpack a company’s value proposition

in today’s data-driven, technology-accelerated global

markets. They are looking for what Simon Sinek refers

to as the why – and the how – of the company’s story.16

The investment community is not “… moved to action by ‘data dumps,’ dense PowerPoint slides or spreadsheets packed with figures.”

As Sinek explains in his book, Start With Why, the

reason the why is so important is that it speaks

directly to the sections of the brain that control

decision-making. On the other hand, the brain

processes results – the what – elsewhere.17

Why trumps what because “[we] trust our gut even

if the decision flies in the face of all the facts and

figures.”18 In fact, companies that focus on what at

the expense of why are actually making the

decision-making process harder for investors.

To wit, the numbers cannot speak for themselves.

And even if they could, why would you leave it

to chance? Just as you bring the value of your

products and services to life for customers through

storytelling, so too should you use storytelling to

illuminate the value you offer investors.

There is an art to corporate storytelling; much of

it hinging on what Malcolm Gladwell would refer

to as “The Stickiness Factor”19 (i.e., what makes it

memorable, what makes it easily retold by others,

etc.). Chip and Dan Heath explored this idea further

in their book, Made to Stick, and determined that this

requires, among other things:20

1. Simplicity – the essential core of the idea

2. Unexpectedness – captures and maintains

the attention / interest to convey the idea

3. Concreteness – makes the idea clear

4. Credibility – makes people believe the idea

DEFINING THE INVESTMENT BRAND

In order to engage investors and enhance value more

effectively through communications, at Falls

Communications we believe that companies must

complement and support the compliance mandate of

investor relations with sophisticated branding and

marketing strategies. By utilizing fully the 3Cs of IR –

compliance, context, channels – companies can create

an authentic and differentiated “investment brand.”

Among other things, a strong investment brand can cut

through the daily noise of stock traders and enable a

company to make genuine connections with long-term

investors. The investment brand not only reflects the

central essence of the company but also speaks to the

company’s distinctive competitive advantage, including

its track record of strategic execution.



The science of corporate storytelling starts with

research. First and foremost, you must have a

clear-eyed view of your business from the outside

in, including:

1. How do investors view the industry and/or the

end markets? How does this match up with

historic views and future outlook?

2. What is the current investor base composition?

3. What is the current investor sentiment for the

company and its current/desired peers?

4. What does the gap analysis of the company’s

investor engagement versus current/desired

peers look like?

5. What does the company’s media coverage look

like on a quantitative and qualitative basis against

the coverage generated by peers?

6. What are the primary external factors that

influence valuation and what conclusions can be

drawn when they are mapped?

7. How well does the company’s current story

resonate with investors?

The science of corporate storytellingThough highly complementary, corporate

storytelling and financial reporting are two different

things. This can be seen within the framework of

our “3Cs of IR” model (fig. 2). Corporate storytelling

is the output of the “context” component of

effective IR, while financial reporting comes

through the “compliance” portion. And while they

may be as different as why and what, both require

rigorous discipline to ensure that they accurately

represent the company’s business and offer

investors the timely insight necessary to make an

informed decision.

fig. 2

THE THREE Cs OF INVESTOR RELATIONS

The cornerstone of effective investor communications

Reaffirms and reinforces the investment brand

Ensures investors have access to information when they want it, how they want it and where they want it

Compliance

Context Channels



Similarly, you will need to have an unvarnished

view of the company from the inside out, such as:

1. Can the company clearly articulate its strategic

vision (i.e., does it know where it’s going and how

it is going to get there)?

2. What is the company’s current story and how

does it deliver it to investors?

3. What aspects of the company’s story are unknown,

unrecognized or misunderstood that could be

assets to value creation if told in a compelling and

meaningful way?

4. How competitive is the company in the marketplace?

5. What is the historic/current level of management

credibility within the investment community and

what are the contributing factors?

6. What is the company’s historic/current

performance-to-expectations ratio and what are

the contributing factors?

7. What does the segmentation of the investment

audience look like?

This data – which should be audited and reconciled

regularly as you would your financial and enterprise

risk-management reporting – will ensure that your

corporate narrative properly aligns the business and

the investment brand. This alignment is critical to

long-term value creation.

On a day-to-day basis, corporate storytelling can

mean the difference between an investment in your

company rather than a peer. Storytelling can enhance

the understanding of the enterprise by simplifying its

complexity and neutralizing potential value deflators.

And in times of organizational distress, including

shareholder activism, effective corporate storytelling

can mean the difference between a vote of support

and a vote of “no confidence.”

Simply put, effective storytelling is the key to

investor engagement.

1 “3 Reasons to Master the Art of Storytelling,” Inc. April 9, 20122 Rivel Research, 20133 Ibid.4 “Boardrooms Rethink Tactics to Defang Activist Investors,” DealBook/The New York Times, November 11, 20135 “No Barbarians at the Gate; Instead a Force for Change,” DealBook/The New York Times, January 6, 20146 “Activist Investing White Papers,” The Activist Investor, April 22, 20147 “3 Reasons to Master the Art of Storytelling,” Inc. April 9, 20128 “The Psychological Power of Storytelling,” Psychology Today, January 16, 20119 “The Department of Everything,” Senator Tom A. Coburn, M.D., November 201210 “Defense Dept. Research Arm DARPA Tackles Storytime,” FastCompany, February 11, 2011

11 “Inside the President’s Daily Briefing; DNI Moves With Care To Tablets,” Breaking Defense, April 21, 201412 “The Psychological Power of Storytelling,” Psychology Today, January 16, 201113 Ibid.14 “Why Storytelling Is the Ultimate Weapon,” FastCompany, May, 2, 201215 Rivel Research, 201316 “Start With Why” by Simon Sinek, 201117 Ibid.18 Ibid.19 “The Tipping Point: How Little Things Can Make a Big Difference” by Malcolm Gladwell, 200220 “Made to Stick: Why Some Ideas Survive and Other Die” by Chip and Dan Heath, 2007

Notes

Rob Berick+1 216 472 [email protected]

50 Public Square Floor 25 Cleveland, OH 44113 216.696.0229 fallscommunications.com

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