Every individual has a persona.
Just like individuals, each corporation carries its own persona.
Maybe your company is a mega cap, an industry leader, or an innovator.
Your company could just be hiding, or maybe your company is the old man next door constantly yelling, “Keep off the grass,” to investors.
Just like people all companies carry a persona that defines the organization.
When a person fails to understand his or her identity many things suffer. Typically, the person has trouble navigating life, career, and personal relationships.
Like a person, a company that fails to understand its persona will face suboptimal investor relationships. How can a company optimally engage the investor community if it does not know or have a defined persona? If a company does not know what its persona is, then how can it reach, or even build, the right investor base?
The Persona Problem
Establishing the correct Corporation Persona represents a primary driver of building the optimal long-term focused shareholder base. Knowing your true Corporation Persona allows you to correctly target investor style (value vs. growth), and mandate (Environmental, Social, Governance (ESG), activist, et al.).
Companies often believe that their company will be best positioned as X, but investors might actually think the company should position itself as Y.
Sometimes a company defines itself as X, but then positions itself as Y, completely ignoring X.
Other times, the company may not truly know its persona.
In each case, the disconnect represents the Corporation Persona problem. Ultimately, the Corporation Persona problem will result in difficulty building an optimal share holder base.
Building the Shareholder Base
Public companies must establish sticky and engaged shareholders in order to succeed as a public company.
For any public company to be successful it needs to attract the right mix of long-term investors. Once the base is established, the investor base will change over time as the company evolves.
The goal should always revolve around reaching the largest set of investors possible. Ideally, multiple types of investors within an investor base will provide the company a safety valve. For example, constituency A might not like your plan, but constituency B does like your plan.
The Most Basic Example:
A company is either in turnaround mode or faces some crisis from which it needs to pull itself out of either financial or perception. In this case, the investor base focus would be deep value investors, as their time horizon's are the longest, and they will provide management the necessary runway to turnaround the business.
Once the turnaround is established and working, the value investors will then churn out making way for growth investors, think growth-at-a-reasonable-price (GARP). As growth accelerates or becomes the norm, the GARP-types will then make way for the momentum investors. As the company transitions from GARP to momentum, the company will likely see additional interest from passive investors (index, ESG, et al.). In the best case scenario, the company will be added to several major indicies, which will in turn drive significant passive investment.
If the corporation does not fully appreciate where it sits within its development cycle or what its persona truly is, then the risk will be a suboptimal investor base.
The best example of a suboptimal investor base revolves around the hedge fund hotel. Stocks that are hedge fund hotels suffer from only hedge funds trading in and out of the shares. These companies lack significant long-term focused cornerstone shareholders.
How Do You Solve a Persona Problem?
There are two ways to break free of the persona dichotomy.
The first option is to strongly define your persona via strategy at an analyst day.
The analyst day allows the company to set the strategy that it can consistently tie back to for investors. Furthermore, publishing the strategy forces the C-suite to disagree but commit to something, which can be quantified and reported on regularly.
The second way to solve the problem revolves around running a perception study.
Running a perception study allows the company to canvas the most important constituents: buy-side, sell-side, C-suite, and Board of Directors. The perception study will illustrate what is most important to the corporate narrative. Additionally, it will illustrate any sort of corporate persona dichotomy that exists.
Remember, like people companies have their own individual personas. Just like people, when a company fails to understand its true persona, the company will face suboptimal investor interaction. A corporate persona dichotomy will most certainly be illustrated via share price.
