Occasionally IR teams have to deal with a crisis, sometimes for problems internal to their company, and sometimes for external factors and sometimes for a mixture of both. In this blog we look at some lessons to be learnt and followed.
IR Crisis came to the Mexican market in the past few weeks in a dramatic fashion with the problems at Crédito Real, which was unable to refinance some of its outstanding maturities. But crisis can take different forms, and is not always financial. In the US, Facebook transitioned to Meta last year in a credibility crisis regarding free speech and the misuse of social media platforms that last week became a stock price crisis as it missed earnings expectations due in good part to the rise of TikTok and Apple’s privacy settings. A leading Buy Now Pay Later entity (Affirm) last week lost $4 billion in value over in part a mistaken Tweet pre releasing its (not great) 4Q results.
Crédito Real’s problems and negative cash generation go back some time but arguably reached a turning point with the default in April 2021 of Alpha Credit, also in the payroll lending sector. Alpha defaulted after restating multiple year-end results, leading to earnings that were US $206 million less than previously stated, and causing negative equity. While many fundamental and external issues caused Crédito Real’s problems (including the pandemic, the complex political environment for payroll loans under the AMLO government, the division between shareholders), Crédito Real arguably failed to realize quickly enough the full impact of the Alpha Credit default and earnings restatement on investment sentiment for its bonds and belief in its numbers, and react appropriately.
Post Alpha default, as far as we can tell, Crédito Real did not raise new equity, nor meaningfully change its disclosure strategy, nor focus more on cash generation over other goals, nor bring in new top management, nor hire new advisors, nor move to change auditors, nor reach out to its (admittedly often unreasonable) critics. It put a lot of press releases – See here – but a careful read of them shows these press releases until the end mostly failed to address directly new investor concerns and questions (cash convertibility, rise in accrued interest, asset quality and so on) but stuck to the same historical narrative the company had for many years.
While Crédito Real faced an extremely difficult situation and within that context did many new and useful things under huge pressure (new explanations and factsheets, conference calls and much else) a key lesson to be learnt (arguably) is to move swiftly at the beginning of a crisis, do not underestimate how quickly a situation can deteriorate, and do not blame third parties (even unreasonable ones) for them. And most easily, investor press releases need to address properly what investors are concerned and actually talking about, and not just your own perception of reality.
In the US, the technology giant Meta (formerly Facebook), has been struggling for years with the debate regarding misinformation on its platform, and social media’s alleged damaging effects on young people. In part in response, it changed its name to Meta, and declared that it would going forward focus more on the future of social interaction in the metaverse. Last week, Meta’s shares dropped heavily as its spending on migrating to the metaverse grew dramatically, without associated revenues, while in the real world it faced decreased usage as younger people migrated to TikTok, and Apple’s new privacy restrictions impacted monetization.
It’s clear that rebranding and saying you are changing your business model does not of course solve a fundamental problem with a core business. To Meta’s credit, amidst these poor results and a business pivot, its strategy has been to be as transparent and straightforward as possible. For example, when asked about the decline in daily active users during the earnings call, the CFO listed the headwinds the company is facing and how they plan on mitigating them. Also, top management has drawn out the strategy for the business pivot, and how they plan on achieving a smooth transition. It did not blame investors nor analysts for its problems.
Ahead of Affirm’s recent earnings release “human error” caused it to release a chart about their earnings prematurely on Twitter. Affirm decided to release the full results early a few hours later, instead of letting the market speculate in the meantime. However, in that hour $4 billion was lost (more because earnings outlook disappointed than the error itself but the error for sure did not help). Still it was probably a mistake for Affirm’s CEO not to address the Twitter error issue.
Advice for IR Teams in Crisis
- Prepare: The best crisis management is prevention and preparedness. Identify possible weaknesses, make contingency plans, and monitor media and stakeholder sentiment to alert you to problems ahead of time. Consider bringing in new or additional advisors for a fresh perspective.
- Decisive and quick action: You may need to react with decisive action, such as an equity raise or change in key people or disclosure policy. You need to win back confidence and that is hard to do by not reacting fast and aggressively.
- IR Protocols: Related to preparedness, establish strict IR protocols for what information can be shared and by who/when to avoid a similar situation to Affirm’s.
- Flexibility: Accept that when you are in a crisis, this will likely be different than what you have previously experienced, therefore, continually reassess the situation for new developments and modify your strategy accordingly.
- Leadership: During a crisis, stakeholders want to hear from the company’s top executives. This is a time to be transparent with stakeholders, recognize that the situation will evolve, follow through on continued communication, and assert control of the situation.
- Transparency: Focus on providing regular, timely, and transparent information to stakeholders.
- Answer the questions investors are focused on and change your script from pre-crisis.
- Do not fight your analysts and investors and do not blame them: Being in touch with investors, analysts and stakeholders is the best way to keep them calm. IRO´s should always keep their commitments. Do not cancel investor meetings. Try not to exclude your fiercest critics from conference calls and the like. Do not blame them for your problems.
How Miranda Partners Can Help
Miranda IR and Miranda Media focus on strategic and effective communication for stakeholders as well as with the press. We aim to enhance the market’s perception of our clients’ companies by helping our clients to efficiently transmit their investment thesis, results, and develop new strategies.
Contacts at Miranda Partners