How to Balance Short-term Reporting with Long-term Strategy in Investor Communications

In a recent conversation with Moira Conlon on the Winning IR Podcast, we explored the challenges public companies face when balancing short-term reporting requirements with communicating their long-term vision to investors. As companies navigate quarterly earnings pressures while trying to attract long-term investors, finding the right balance becomes crucial for effective investor relations.

The challenge of short-term focus in reporting

Moira explains that the quarterly earnings process creates an arbitrary timeframe that can overly focus companies on short-term performance. This focus is intensified by sell-side analysts reporting on whether companies miss, meet, or beat estimates each quarter. The resulting narrative often emphasizes recent performance over long-term strategy and value creation.

This short-term pressure can lead companies to make suboptimal decisions about investments in areas like R&D, technology, products, and market expansion. Moira shares a recent example where a client made necessary platform investments but anticipated a negative market reaction to their earnings report, despite efforts to position it within their long-term strategy.

“This quarter, we had a client that had made a lot of investments in their platform, which they needed to do to continue to grow, but we're pretty sure that their earnings report is going to be not that favorably received, even though we did our best to position this quarter in the context of their long term strategy.”

The challenges are particularly acute for companies with longer sales cycles, such as software companies with enterprise contracts, or early-stage technology and biotech companies that operate on milestone-based progress rather than quarterly metrics. Perhaps most importantly, a short-term focus also attracts short-term investors—like hedge funds—rather than the long-term institutions most companies want to engage.

Finding balance in investor communications

While quarterly reporting requirements cannot be avoided, Moira emphasizes that companies can frame short-term results within their long-term strategic context. She suggests viewing the long run as a series of quarterly short runs, using each earnings call to address immediate results while reinforcing the bigger picture.

“So the idea is to address the short-term results in the context of your long-term plans, and that really takes some work. First of all, it requires companies to really think through their long-term strategy and plans for value creation.” 

This approach requires companies to thoroughly develop their long-term strategy and value creation plans, ensuring they consistently communicate these elements during quarterly calls. Rather than starting with immediate quarterly comparisons, Moira recommends having CEOs open earnings calls by discussing their long-term vision and market position before explaining how current results align with strategic objectives.

Earnings calls present a unique marketing opportunity, as they are open to all interested parties. Companies can use these forums to celebrate successes, explain strategic investments, and demonstrate thoughtful capital allocation decisions that drive long-term returns.

Evaluating long-term communication effectiveness

To assess whether their long-term communication strategy is working, Moira suggests several key indicators:

1. Examining quarterly 13F filings to see if desired long-term investors are buying the stock
2. Reviewing sell-side analyst reports to evaluate how they frame the company's story compared to competitors
3. Conducting periodic perception studies through candid conversations with investors and analysts

Moira notes that while investors may claim to understand a company's long-term strategy, their ability to articulate it often reveals gaps in comprehension. A particularly positive sign is when sell-side analysts incorporate company messaging and presentation materials in their own reports, indicating successful communication of the strategic narrative.

“The holy grail is when you see the sell side actually using your words, republishing slides from your earnings deck that help tell the story. That's when the light bulb goes off and you go, okay, they're getting it, they're engaged.”

Implementing a long-term communication approach

For companies looking to shift toward more long-term focused communications, Moira recommends starting with a comprehensive review of long-term value creation plans and investor messaging with the leadership team. The year-end reporting process provides an ideal opportunity to evaluate past achievements, assess changes in the market environment, and refine positioning for the year ahead.

This process should coordinate messaging across various communications vehicles, including earnings calls, shareholder letters, proxy materials, and ESG reports. Moira advises developing the story from an activist investor's perspective, ensuring it can withstand scrutiny from those seeking near-term returns.

She references the Strategic Investor Initiative by CECP (Chief Executives for Corporate Purpose) as a valuable framework for long-term communications. Their template includes key components such as corporate purpose, market opportunity, strategy, competitive position, risks and opportunities, value creation plans, operational and financial performance, talent management, and corporate governance.

Navigating volatile markets

In today's volatile market environment, where short-term valuations may not reflect long-term value, Moira emphasizes the importance of maintaining focus on the long-term narrative while acknowledging current challenges. Companies should explain how they can achieve their strategic objectives despite present headwinds and be prepared to update long-term targets if necessary.

“When the market has a big, abrupt change, if your business is highly impacted, it's time to change those expectations, but it's not time to throw out the baby with the bath water. It's time to get some defensive messaging. Explain to the street how you're positioned to weather the current cycle, how your company is potentially recession resistant, what experience you've had managing through a downturn, how you're going to manage expenses or, reduce your cash burn rate.”

Effective communication during market volatility includes developing defensive messaging that demonstrates recession resistance, sharing experience in managing through downturns, and explaining expense management strategies. Moira notes that market dislocations can create opportunities to leverage disruptions to build market share, and companies should be prepared to educate new value investors who may be examining the stock for the first time.

Final Takeaways

By maintaining a balanced approach to investor communications that acknowledges short-term results while emphasizing long-term value creation, companies can better attract and retain the type of long-term investors they seek to engage. Listen to Moira Conlon’s episode for more details on how to improve your investor communications strategies.