Elevating Investor Appreciation for Bench Strength
Today’s thought leadership is on elevating investor appreciation for management bench strength. As we have shared many times, based on 19,000+ interviews and surveys with institutional investors and analysts globally, we have identified five critical factors that influence investment decisions, which we call the “Corbin Critical 5.” The leading identified factor behind an investment decision is MANAGEMENT. And while it starts with the C-suite, access to next level leadership can and does play a critical role in the investment decision-making process.
Setting the Stage
According to our proprietary research, 95% of investors consider management interaction “important,” with 65% noting it is “critical”. In addition to consistent exposure to the CEO and CFO through key engagement channels, the buy side is keen on hearing from additional members of management, specifically other important C-suite members (e.g., Chief Operating Officer, Chief Medical Officer, Chief Sustainability Officer), business / segment heads, and functional leadership (e.g., Marketing, Human Resources).
However, one of the most consistent challenges we hear from clients, and particularly since the onset of COVID-19, is the optimal approach to providing access to the bench. Whether it be deciding the balance of time and energy between running operations versus engaging with the Street, or the level of trust and confidence in leaders in terms of their ability to effectively communicate with and “show well” in front of investors, companies must decide the appropriate level and amount of access to give to their bench. And, we recommend striving for more versus less.
Corbin Research
According to a recent survey of 106 IROs, 83% of companies provide access to management outside the C-suite, albeit at varying levels across market caps, particularly small caps, in which less than 60% provide such access, in part a function of time/resources and leadership quality.
However, in an analysis of our Perception Study database since 2020, only 59% of investors, on average, were able to effectively rate the broader leadership team. “Bench Strength”, one of the core measures we evaluate as part of our Voice of Investor® research, is the lowest rated across all measures, and down slightly from 62% in the 2017 to 2019 timeframe. Not surprisingly, large caps saw the highest percentage of investors effectively rating Bench Strength, while small caps saw the lowest.
Avg. % of Investors Able to Rate Bench Strength for Companies, On Average
Recognizing the importance of striking a balance between running operations and engaging in investor relations, below are proven benefits of increasing Street exposure to additional leaders:
- Broader investor understanding of the overall strategy, including imperatives, and the team behind the execution
- Deeper appreciation for company culture, which is increasingly being recognized as a competitive advantage and differentiator
- Stronger perception of management and the opportunity to build credibility
- Differentiation from other investment opportunities
With investor days, non-deal roadshows, and HQ/facility tours being the three most widely utilized platforms to provide access to the bench, our insights-based recommendations focus on two additional but less frequently leveraged ways to engage with the Street in a controlled setting: Earnings Calls and Master Classes.
Earnings Calls
Earnings calls provides companies the unique platform to broadly educate the financial community, control the narrative through strategic messaging, and drive greater appreciation for fundamental, lesser-known strengths, such as bench strength, four times a year.
To garner insights into the current efforts of companies, we analyzed 100 recent earnings calls with equal weighting across all sectors and market caps to identify trends in bench participation:
- 26% included senior leaders outside of the CEO, COO, and CFO, with similar participation across market caps
- Of the companies that provided exposure to the bench:
- 56% of bench leaders participated in Q&A only
- 30% in prepared remarks and Q&A
- 14% in prepared remarks only
- Chief Commercial Officers, Chief Technology Officers, segment Vice Presidents, Risk Officers and General Counsel were the most commonly represented bench members
Including key leaders on the earnings call – either in a speaking role during prepared remarks and/or as part of the Q&A portion – supports professional development, often times provides more helpful answers given the subject matter expertise that comes with running a business / segment or function and serves to differentiate the company as this is a best, not common, practice.
The Master Class
Another leading-edge investor relations approach that provides increased exposure to the bench as well as educates investors on business segments and/or other pertinent topics is through Master Classes, also called Chalk Talks, Teach-ins, or Lunch-and-Learns. This is a particularly useful tool for:
- Conglomerates or multi-segment companies
- Perceived complex companies
- Companies with under-appreciated elements of the investment story, such as innovation, sustainability, technology leadership, M&A prowess
These Master Classes typically consist of a video-enabled webcast in a Q&A format (scripted), along with an accompanying presentation, followed by live analyst and investor Q&A.
Once a Master Class is held, we recommend uploading packaged content to the IR website and communicating its existence through a proactive communication to the broader IR distribution list. Master Classes are most impactful when they are part of a series (e.g., once per quarter) rather than one-off occurrences.
Best Practice Examples
In Closing
Investors are always looking for primary information, and management access is a key opportunity in a controlled setting to engage with investors more deeply. Importantly, before introducing members of the broader leadership team to the Street, we recommend that the IR leader facilitate a session with all parties involved to:
- Align on key messages
- Ensure an understanding of current top-of-mind concerns
- Provide a refresher on Reg-FD requirements to mitigate the risk of selective disclosure of material nonpublic information
The investor and analyst feedback we have received on these proactive, going-the-extra- mile initiatives is overwhelmingly positive. Once you have a framework in place, they are more easily executable and have the added benefit of also being a great internal training tool.
Please contact us if you’d like to learn more about these best practice IR strategies and how we support our clients on this front.