Issue: 90
Sent: 27-11-2007 10:45:03
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PowerPoint: No Substitute for Communications
PowerPoint presentations are no substitute for good corporate communications no matter how colourful and professionally designed.
We are seeing increasing numbers of PowerPoint presentations being lodged with the ASX. Conventional investor relations practice requires that presentations used by company executives to describe their activities should be made available for all to see and not confined to those attending boardroom meetings, as they once might have been.
The more widespread availability of presentations is an important element of shareholder democracy and is necessary for a level playing field for all investors. It greatly assists analysts and potential investors unable to attend meetings in person.
That said, PowerPoint presentations have never been a suitable medium for conveying nuanced descriptions of business activities.
The PowerPoint format was originally a handy way to illustrate statistics more effectively and maintain interest among audiences attending executive presentations.
To a large degree, PowerPoint presentations were simply backdrops for speeches rather then a primary means of communication.
AED Oil was another example in the past week of a company putting too much reliance on pretty pictures and insufficient emphasis on a substantive discussion of the issues affecting business value for the broader investment community.
The share price of the company had fallen by 38% in the four weeks prior to the company's AGM. The company was facing technical problems which had thrown some doubt on whether it would be able to meet its previously announced business goals.
The scene was set for some definitive statements from the chairman and managing director about these matters.
According to the text of his speech released to the market, the chairman told the meeting that there would be a presentation on technical matters by the managing director. He also advised that "various experts" would be available following the AGM to whom "detailed questions" could be addressed.
The presentation of the managing director submitted to the ASX was a PowerPoint slideshow without any accompanying text. There was also a 30 page technical presentation which contained only six pages comprising predominantly text.
There are two problems with this commonly used approach to corporate communication.
" The slideshow is typically no more than an abbreviated set of notes. Often, the notes are open to interpretation when there is no accompanying text about what included statistics, charts, diagrams and notes are meant to say.
" In allowing others to speak with investors when their remarks are not publicly available, management is eroding shareholder democracy by providing information only to the tiniest proportion of shareholders who are able to attend a meeting.
The day after the meeting, AED Oil had to release an additional statement to the market clarifying what had been discussed at the meeting and attempting to explain the state of its previously announced commercial goals. By then, the share price had fallen another 20%.
These problems can be overcome. At the other end of the market, BHP Billiton is a model. BHP Billiton provides the slideshows which accompany its executive presentations. However, BHP Billiton also gives access to a recording of the actual presentations to which anyone interested can listen. BHP Billiton also opens up for the public record the comments of all the executives who are questioned by analysts, for example, following earnings releases.
This involves a resource commitment but the cost of doing this is falling fast and needs to be balanced against the benefits of effective corporate communication.
One of the challenges for a smaller company is to establish its credibility among investors. The more credible the management becomes in the eyes of investors and the deeper the understanding of their business strategy and outcomes, the lower is the riskiness of the investment. The implicit discount rate which applies to any earnings outcomes will be lower validating a higher and less volatile share price.
Getting the communications right is an important role for managers seeking to maximise returns for shareholders. There is little doubt that companies doing this job well are given a higher market rating than those who fluff their chances at addressing their shareholders. The latter add to investment risk.
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