It’s an inescapable fact that financial copywriting involves numbers, so I was intrigued to come across Painting with Numbers by Randall Bolten. As the subtitle says, it’s a practical guide to ‘presenting financials and other numbers so people will understand you’.
Although the book focuses on internal communication, there’s plenty for financial copywriters and investor relations professionals to chew on. My thoughts below relate to corporate reporting but the lessons apply more broadly.
Pick a number
Deciding on your financial disclosures is a challenge for many companies. Once you get beyond the regulatory requirements, there’s an almost endless list of metrics you can provide, which might (or might not) help your audience understand you.
This is where Bolten’s Law* of Discretionary Disclosure comes in:
If you present a number, your audience will ask about it.
(*Experienced financial communicators already know this, but we’ll let him claim the name.)
Bolten’s point is that if you include irrelevant numbers, there’s a good chance someone in your audience will get hung up on them. That’s a great way of derailing the conversation and damaging your credibility.
So why would companies do this? In my experience, it comes down to two things:
- Habit. Companies put out the same information, quarter after quarter, year after year, even though their management, strategies, products, markets and customers all change. There’s merit in consistency but there’s also merit in challenging your financial disclosures and making sure they’re still relevant. If the answer to ‘why are we disclosing this number?’ is ‘because we always have’, then it’s time to stop.
- Wanting something to say. This happens when companies have just started doing something (typically a new strategy) and feel the need to show progress, even when there isn’t any. (Sample thought: We don’t want to admit that sales of our new products are tiny, so let’s tell them how many patents we filed instead.) It also arises when the necessary data are incomplete or unreliable, which is surprisingly common. (Sample thought: We’ve no idea what our global CO2 emissions are but we do know what they are in the UK, so they’ll have to make do with that.)
In both cases, companies end up cluttering their narratives with information that doesn’t help anyone form a view about how they’re doing. Even so, you can bet that someone, somewhere, will seize on these scraps of information and incorporate them into a crucial line of their financial model of your company.
You don’t say?
A third possibility is that companies give out irrelevant information because they want to divert attention from what they’re not saying. There’s a good chance they won’t get away with it, though, because of Corollary #1 to Bolten’s Law:
If you don’t present a number that the audience was expecting, they will ask you why it’s not there.
The onus here is on companies to understand their audience, so they know what those expectations are likely to be. There may well be a good reason for not disclosing a particular number, but you’d better have a convincing answer for when those questions come in.
If the number’s not there and you included it in previous disclosures, then you’re on even dodgier ground. This is because of Corollary #2 to Bolten’s Law:
If you don’t present a number that the audience was expecting because it was in previous reports, not only will they ask you why it’s not there, they will also question the motives behind the omission.
As I said in this earlier post on writing annual reports, there’s a natural tendency to want to say less when the message is bad. This is usually a mistake. Trust in management is fundamentally important to investors. As a rule, it’s better to be honest about what’s going wrong and to set out a clear explanation of how you’re going to fix it. Clamming up and hoping no one will notice is a risky strategy.
That’s because of Corollary #3 to Bolten’s Law:
The likelihood that your audience will express their concern about your motives for not presenting information is inversely proportional to the harshness of the conclusion they are in the process of forming.
In other words, if people think you’re being economical with the truth, you might only find out when the analysts publish their reports and investors sell their shares. By then, it’s too late for you to explain, even if your motives were pure.
What are the lessons here?
- You need to continually think about the numbers you’re putting into the public domain and whether they serve a useful purpose for your audience.
- If you decide to change your disclosures or to drop some disclosures altogether, have a well-prepared (and valid) answer for why you’re doing so.
- Don’t drop valuable disclosures just because their message is unfavourable. Explain what’s happened and say how you’ll fix it. Then fix it.
- If you want to change your disclosures, it’s easier to do it when times are good. Your audience is less likely to think you have something to hide.