The Shareholder Letter: Bridging the Short- and Long-Term

Posted by on October 26th, 2015

Our client base at KCSA is comprised primarily of micro- and small-cap companies, and it’s no secret that the pace at which they grow varies. The disparity in these rates of progress—disclosed on a quarterly basis—drives share price volatility (or lack thereof). “Earnings” and the circumstances impacting them indicate the likelihood of profitability (or, again, lack thereof) in the long-term.  That which follows depends very much upon that which foreruns.

Now, retire that axiom and instead consider this: past may very well be prologue, but which “past,” exactly? Institutional investors and company management teams alike know full well the dangers of making assumptions and they take steps to mitigate those risks. Investors monitor their holdings closely, poring over research in order to presume their guess a calculated one. How then do corporations temper uncertainty? Can milestones in the short-term be repurposed to safeguard long-term confidence? Herein lies the purpose of the shareholder letter.

While earnings calls aim to address investor concerns, even the most nimble messaging suffers when delivered hand-in-hand with an unfavorable outcome. Numbers, rightly viewed, possess truth. For some companies, maintaining the status quo proclaims a victory; for others, static performance portends a pitfall. In either circumstance, communicating stability reassures those most convinced of a company’s ability to succeed: its shareholders. Addressing the would-be concerns of these investors transcends all else.

Despite acknowledging concrete “faith” in a company’s mission by purchasing and holding shares, investors rarely empathize with inactivity for long. The modern investment community considers time a most treacherous abstraction. As a result, an adept investor relations program consciously conveys meaning (however nuanced) in its messaging. The shareholder letter does just this, effectively lessening the distance between the short- and long-term. For our clients, this form of corporate update brings to light the operational strategy which is so often overshadowed by the most recent financial performance. It reminds and encourages those most in need of reminding and encouraging.

The shareholder letter links the current to the prospective, all the while mirroring the core responsibility of an investor relations department: to integrate finance, communication, and marketing. The letter wields a company’s current successes against investors’ skepticism about the future. It clarifies corporate narrative by illustrating direction. It maintains (or grabs) attention while stoking the fire of investment returns to come. And finally, this publication, though addressed to shareholders, appeals to a broader audience—it might just convince a potential new investor that a company’s “short-term” success begets growth in the “long-term.”