Revised market requirements ushered in by the Nasdaq National Market and the Nasdaq SmallCap Market, and approved by the Securities Exchange Commission, could end up being a blessing - or a curse - for those in investor relations, depending on whether companies are floundering or flourishing and how honestly and deftly they manage the flow of information.
Last summer, companies that didn't meet the new Nasdaq requirements were given a six-month grace period to come into compliance. Requirements include a minimum bid price of $1 or $5 (depending on a company's list option) for the national market and a minimum bid price of $1 for the small-cap market. In the future, companies with stock prices that drop below those accepted prices for 30 consecutive days will be given 90 days to come into compliance.
That grace period ends next month. And it's too early to tell if companies will restructure themselves to comply with the new stipulations.
What Does the Nasdaq List Mean?
For companies that meet the laundry list of new requirements, IR programs may reap an unprecedented jolt of positive PR. But sources tell PR NEWS that when companies are in danger of being delisted, investors, analysts and the media may rely more heavily on the criteria to buttress their impressions of companies.
"If you're not traded actively on Nasdaq, it's going to be difficult to get the attention of portfolio managers," says analyst Greg Salchow, a VP with Mesirow Financial, Inc., Chicago, "and it's going to be equally as tough to put a positive spin on a company that's going nowhere."
The practice of IR, however, does come with a kind of saving grace for professionals: In the financial community, businesses aren't only measured by their financial strength at present, but on their future potential.
Still, Robert Borchard, a senior VP and director of the U.S. division for Ludgate Communications, which was acquired by McCann-Erickson last year, sees it as a potentially encouraging IR tool.
"This isn't a 'whew, let's-wipe-the-sweat-from-our-brows' or hype thing," he adds. "[Meeting the criteria] gives you a story and can help you entice future investors."
The Blame Game
About two weeks ago, Dow Jones released a story reporting that Acclaim Entertainment [AKLM] (one of the companies given a grace period) might be delisted from the Nasdaq National Market because of "weak stock prices."
Although the DJ story might seem like one in a line-up of pieces the new requirements are going to trigger, for Acclaim, the story proves how often good IR is an exercise in diplomacy and expediency more than anything else.
Kathryn Morris, who heads Acclaim's PR department, told PR NEWS last week that Acclaim is in the process of hiring an IR director (a new position) and that it had to turn to Ludgate for guidance when the company went into a "crisis" mode when the DJ story surfaced.
Ludgate recommended that Acclaim issue a press release clarifying its position, including CEO Gregory Fischbach's contention that the company had a profitable first quarter and that it will work with Nasdaq during its review period.
In IR, honesty is the nature of the beast. Execs are challenged every day with keeping the channels of communication open with key stakeholder groups: the media, analysts, institutional investors, shareholders and customers.
But they're even more challenged when a company's financial footing is wobbly.
Investor relations has traditionally been one of the genres of PR where the art of the spin can do more damage than it does good.
That's why Salchow advises that avoiding the temptation to gloss over bad news should be one of the creeds of IR. "What you should do is keep in touch with me and keep me apprised of what's going on," Salchow adds. "Believe me, there have been enough companies that have been punished by analysts and institutions because they weren't honest."
And as Reid Walker, director of media relations for Nasdaq, cautions: companies should always have an early warning system in place that signals when stakeholders have concerns about a company's financial viability.
It helps to have an updated database of names for customers, legislators, employees, analysts and investors you can turn to to stay on the pulse of IR. (Nasdaq, 202/728-8243; Greg Salchow, 312/595-6000; Robert Borchard, 212/688-5144: Kathryn Morris, 516/656-5000)
What To Do If Your Co. Isn't Meeting Nasdaq Stock Price Requirements
Although stock performance is one of the barometers of a company's financial health, it's not the only IR tool at your disposal.
To communicate viability, you can also focus on:
- The strength of your balance sheet (book value relies heavily on tangible and intangible assets);
- If you have strong (collectible) receivables;
- Long-term contracts that provide a revenue stream;
- If yours is a company founded by a creative/entrepreneurial type, an executive change that brings in a numbers cruncher who can take the company to the next level can be a good sign; and
- Have your IR department set the stage for your CFO and get him/her out front. Only use an IR exec as a key spokesperson when they've earned a reputation in the industry.
Source: Robert Borchard, Ludgate