How Tech Companies Should Position for Shareholders -- Part I

Financial institutions have been in the crosshairs of public — and investor — disgust. Well, duh. But it’s not as though other economic sectors are immune for reputation malaise. That’s a problem in any industry, but particularly in technology, where share prices become a measure of whom a company can hire and what other businesses it can acquire. Stock has become as important a product as whatever software, hardware, or services a firm offers. Trying to get a sense of what the investor relations people might have to consider, I spoke with a friend and colleague, Chicago-based Ann Logue, a former financial industry analyst who these days writes and teaches about finance and is the author of Socially Responsible Investing for Dummies (Wiley 2009).

Don’t let the “socially responsible” term throw you, because the various interpretations often intersect at governance, and that’s likely to be the point of pain for many companies, particularly in the light of such high profile issues as the ones facing Google and Apple. It’s a change from the atmosphere of the early 2000s. “One of the interesting things about the current financial crisis is there have been few and few outright scandals involving corporations,” Ann says. I questioned that, because certainly there has been obvious examples of massive stupidity mismanagement.

But she meant scandals as in Enron, Adelphia, or Worldcom — malfeasance rather than ineptitude. The current environment pushes people to go beyond demanding the ousting of the crooked, into the land of mistrusting everyone in management. And often for a good reason:

In corporate America, the worst thing to say is I don’t know, because it shows weakness. Shareholders are not served by people who just sit and pretend. The investor relations people are clearly caught in the middle. They work for management, but at the same time their audience is professional investors If they rely on spin, they’re going to find that in this market they’ll be dismissed very quickly.

To me, it’s the danger of showing the type of financial arrogance mixed with cowardice that I noticed in a recent Tom Junod piece about Bob Diamond, CEO of Barclays Capital:

There was something people said about Bob Diamond pretty much universally. Current executives, former executives, traders, and friends. Bob Diamond? Good guy, great with people. Charismatic. Has built a culture of decency at Barclays from the top down. Doesn’t like to hear bad news, though. Will sometimes stand up and leave a meeting if the news is bad. Or will stop somebody midsentence — “Why are you telling me this?” So if you talk to Bob, you better tell him good news. Because Bob Diamond is a good-news guy.

How the devil do you manage a business intelligently if you’re not willing to hear the bad news and fix problems before they spin out of control? It’s an example of the endemic risk-taking pervading many industries, and one that makes investors call for transparency.

“Tech companies are seeing the same cynical investor environment,” says Ann. “Those companies were not affected in nearly the same way as the financial services companies, but the investors are still feeling burned. They’re cynical, they’re bitter, they’re going tot ask a lot of tough questions. Maybe they are questions that people should have been asking before but didn’t. Any company has to be ready for that and ready to address investor questions directly.”

That has a few immediate considerations about which I’ll post tomorrow.

Image via stock.xchng user svilen001, site standard license.