Take aim at loyalty!

When you work with a corporation's relationships in the financial market and with financial communication, you must focus on the corporation’s owners. Here I explain why and why alternative approaches are not helpful.

In all lines of work, the practical tasks you attend to, and their immediately visible results, dominate the attitude towards the work one does. To maintain agency in your role, it is therefore necessary to be clear about the goals you are working towards and where you take aim to reach these goals.

Put another way, you must actively decide where to fix your gaze and what attitude you bring to your work. For a CFO, this means that one must take aim at maximizing the owner’s loyalty towards the corporation.

When working with a corporation's relationship with the financial market, the operational goals are to reduce the cost of financing as well as to protect and develop commercial leeway. These goals legitimize the use of resources.

There is, however, a material difference between the goals and where you take aim to reach those goals. Your attitude must be characterized by the fact that this is relational work where the corporation is best served by loyal owners.

That it is the owners who must be at the centre is the necessary consequence of them owning the corporation. The goal of reducing the cost of financing is shared by the corporation and the owners.

It is not necessarily as obvious that one goal should be to reduce the cost of financing. The inverse of a low cost of financing is a high market value. It can then seem logical to think that the goal might as well be to maximize value. That goal, however, can easily lead astray, as one can then naturally, perhaps even without noticing it, lean in the direction of activities, assessments, and communication that emphasise conditions that imply a higher value, and perhaps be tempted to under-communicate relevant information that can be perceived negatively.

Even without making formal mistakes, this will result in investors not getting the best possible basis for their own valuations. It is not only wrong, but investors notice it and it impacts their trust in the corporation. When investors are unsure if they can trust information from the corporation, it increases their risk premium, and hence the cost of capital, and it can ultimately make them shy away from funding the corporation.

When the goal is reducing the cost of financing the corporation, on the other hand, you naturally work to facilitate independent valuations, and reduce the perceived risk of the valuations. This way of thinking is also beneficial when working with other capital sources than equity and in terms of the ability to attract new capital and attracting capital from loyal owners if your corporation sails into dire straits.

Another goal that aligns with the same approach (facilitating valuation and reducing perceived risk) is to strive for a fair valuation of the company. This can work well as a goal. However, this goal may seem less relevant when dealing with debt capital, and you need a goal relevant for all financing. When evaluating the resources allocated to investor relations (IR), it is also preferable to compare costs to gains.

Attention to relationships and loyalty means that one remembers that investor relations imply two-way communication and is not about one-way information peddling.

It is not unusual for a corporation’s management to experience that the business receives less attention from the public than one may believe it deserves. Visibility can therefore easily creep in as a goal. Remember then the difference between pride and vanity. Pride is what you feel when you are applauded for a good performance. Vanity is doing something for applause.

It is often the case that a corporation gets less attention than it deserves, but they just as often end up working to get attention they have not earned.

Getting attention from investors on arenas built for this is an obvious goal. Getting public attention should not be a goal.

Similarly, the market-participant's trust in the corporation is very important, but trust cannot be a goal. Rather, it is a necessary but not sufficient condition for loyalty.

The most important guiding principle for maximising loyalty is to do your best to "see it as it is" and "say it as it is".