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Note to CFOs: Give investors attention when it comes to investment strategy

Roy Harris | Jan. 18, 2012
Investors aren't getting the quality of communication they need from CFOs whose companies invest in risky, rapid-growth markets, according to a study of global transactions from Ernst & Young.

Other lessons include being careful not to neglect developed markets, even as companies elevate their interest in rapid-growth areas. Indeed, number three among the 10 lessons is guidance on prioritizing markets, and assuring that options exist for shifting allocations when that's necessary.

Did Things Go Wrong? Admit It

Other insights that E&Y says grow from the study's results include these:

  • Finance should take the lead in admitting to investors when plans don't work out. It notes that shareholders "will be suspicious of a CFO whose company never seems to make a mistake." Any admission, of course, needs to be accompanied by explanations about what went wrong, and the actions taken to rectify the situation.
  • Don't save investor relationship-building for difficult times alone. "During good times is precisely when companies can build goodwill," the report says.
  • Transparency about sources of funding is important, especially at a time when investor groups and rating agencies both are critical of companies' disclosure about sources of funding and committed lenders.
  • Since investors like predictability, finance should be consistent with investment criteria, and show off the company's discipline.
  • Don't avoid talking about the competition, especially in rapid-growth markets. "To compete effectively for scarce capital, overseas companies will need to articulate to investors a clear set of advantages over their local peers," the report says.
  • -"Articulate a 'Plan B'," so investors gain insights into what the company would do were a shortfall to develop.

One last suggestion is for CFOs to broaden the number of individuals talking to investors, so that stockholders get to experience groups from board members to company managers, such as those dealing with that rapid-growth market management.

If those people are good, such exposure can build greater confidence in the overall corporate operations, the report notes.


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