The Importance of Shareholder Communication

By Ross Finlay

I had an email recently from someone who had invested a significant amount of money in a venture and was not happy with the fact that they hadn't received any information since signing the cheque. A while ago, I had received a call from a Monctonian who had given an entrepreneur a cheque for $10K (USD) for an investment over a year before and couldn't even remember the name of the company! They wanted me to tell them how to find out what was going on.

If these companies were named "Denmark", then there would be something rotten in them. Whether it be arrogance, ignorance, indifference or procrastination, it is extremely disrespectful to take an investor's money and neglect to communicate with them. These are people who have trusted in you and taken a risk on you. You owe them the courtesy of keeping them informed about the impact of their money. If, for whatever reason, you fail to inform, then I would advise you to forget about going back to them for more investment or any other kind of support any time soon.

I learned a long time ago that even the communication of bad news is better than no communication at all. When people have a gap in information, they naturally fill that gap with their own assessment – and this made-up information is often worse than what is actually going on.

I’m not talking here about the “musts” of communicating with shareholders; the notice of the AGM, proxies and so on. I am talking about the day-to-day type of communications that will keep your shareholders engaged in- and supportive of- your business. Shareholders are business partners and you need to treat all, from large to small, as if they were the most important supporter you have. Focusing on building relationships with your shareholders will maximize value and foster a higher standard of corporate governance.
The last thing an entrepreneur under pressure needs is a vocal group of uninformed, aggravated shareholders showing up at the AGM resulting in embarrassing moments that take away from the opportunity to showcase their company and highlight progress. A good shareholder communications strategy will go a long way in preventing the emergence of these groups.

Your strategy must include the creation of a regular form of communication. The key word is “regular” (not necessarily “often”). My recommendation is, at the very least, provide a quarterly report. This could be by email or newsletter but it needs to impart meaningful information to the shareholder. Employee birthdays are not important. This information should include: marketing initiatives, product/manufacturing, R&D, significant staffing changes, financing and financial information, sales and forecasts.
Sounds like a lot but you can make the task easier if you create templates that can be up-dated regularly.

You should also set goals for your communication. Is its purpose to inform? Is it to seek more investment? Is it to celebrate? Organize it in a way that supports the purpose. If you are creating a quarterly report to shareholders then get their attention right off the bat with some success stories and sales reports.

You might also want to set up a shareholder page on your website. This should have a secure login so that you can be confident that only your investors (or whomever you give a password to) have access to the information. Make sure you keep the site up-dated and encourage your investors to visit the site and provide feedback. Also, if your company receives some good PR or press coverage, it’s a great idea to pass this on to your investors.

Now, all of the above is really one-way communication. It is good but you are relying on your skill with written communication to impart the content, context and tone of the message you are sending. You have no idea how it is being received or if it is being understood.
Nothing replaces direct personal contact or a phone call. This communication is the best as you are able to explain your information as you give it. It also allows you to continue growing the connection with your shareholder that enhances your business relationship. Your shareholders will get to know your company and story very well – its history, management, customers, sales channels, success stories and strategy for increasing shareholder value.

Effective shareholder communication programs develop stories that people remember, messages are retained, and a thirst for more information is created. Having well-informed shareholders could be a great benefit should you need further investment, knowledge, advice or referrals for other potential supporters.