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Managers
in public companies frequently underestimate—at their
peril—the function of the press in their financial
communications. Wharton’s Brian J. Bushee and I collected
data on more than 200 firms traded on the Nasdaq Stock
Market or other over-the-counter markets and found that
most small and midcap companies have trouble obtaining
coverage from analysts. However, getting media coverage is
more feasible and cheaper than pursuing the attention of
analysts. The problem is that many finance executives
don’t see the import of managing the press.
Like it or not, investors and analysts—and
even the SEC—get a lot of their information from the
media. In fact, in my study of the role of the press in
uncovering accounting fraud, I found that more than
one-quarter of the firms known to have engaged in
questionable accounting practices were first identified by
the media—before regulators were alerted and before the
company made any announcements. Journalists are more
sophisticated than ever when it comes to financial
reporting.
Even if your focus is investor relations,
the press is an audience you can’t ignore. When you’re
just starting out and your visibility is low, the object
is, of course, to get noticed—and that’s just a matter of
keeping in touch, getting to know reporters’ interests,
showing them you have something intelligent to say.
Cultivating these fundamental relations with the press is
often the first step in creating understanding and
visibility among investors and analysts.
However, scandal sells, so small and
midsize firms find they are more likely to get attention
when there is a negative story. In such situations,
managing the message is crucial. Hand-wringing and
recriminations may be natural and justified, but they are
useless when it comes to correcting public perceptions.
The first thing to do is carefully examine your own
assumptions—maybe the press is right and you’re wrong. If
you’re certain the reports are inaccurate, don’t go on the
defensive—play offense instead. Ruthlessly review your
messaging and reshape and retell your story as often as
you have to. For example, French oil giant Total actively
tracks everything that’s reported about it. A few negative
stories have dogged the company for years—the Erika oil
spill, for instance—and its executives patiently and
repeatedly explain why the press coverage has been
misleading. By taking ownership of the story, the firm’s
executives assist the press and their many constituents in
accurately understanding Total’s activities. Total has
even received industry accolades for its relations with
the financial media.
Sometimes the news about a company simply
is bad and the stock price almost inevitably takes a hit
in such cases. To mitigate the blow, smart managers
cultivate press relationships in good times as well as
bad. It’s not about spin; dishonesty would poison the
relationship. Instead, it’s a matter of helping the media
to understand you, of providing perspective. Then, when
you have to explain, say, an oil spill or an unexpected
change in management, you might see reporting that
balances the bad news with your environmental efforts or
the depth of your managerial bench.
Of course, reporters are not by any
stretch a firm’s only or even its most important,
audience. But if you’re in need of investor attention, the
press can be a convenient megaphone and if you’ve got all
the attention you need, the media can be an ally or an
enemy—either way, you want to keep them close.
Gregory S. Miller is an associate professor of accounting
and management at Harvard Business School in Boston
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