The Five-Step Process to Respond to Negative Research
Capital markets activity for a public company often boils down to who throws the first temper tantrum.
If management exhibits a personal reaction toward negative research, the reaction ends up serving as validation.
The best solution always revolves around organically responding and executing on the business to dissolve any negative research or negative investor sentiment.
Management must remain patient and disciplined throughout the process in order to end up at the optimal outcome.
Here is the five-step process that allows management and a company to best respond to negative research.
The Five-Step Process Response to Negative Research
Avoid Taking it Personal: Investors and Analysts are independent people and do thorough research to develop independent conclusions and investment thesis. The majority are only seeking to analyze the facts and address real issues. The focus on facts represents why throwing the first temper tantrum response is so negative for management teams.
Respond Constructively at All Times: Management teams have several tools available to address negative research constructively. The best response is always to develop well-thought responses to key investor debates. Management can use the investor deck, earnings release and earnings script, and even 1x1 investor meetings. The point to remember is that if a management team cannot provide a constructive defense, then the negative view point has validation.
Do Not Attack: The best bet is to identify the primary points of negativity and develop constructive responses where appropriate. A management team always gets credit for explaining or educating Investors on why a specific take or thesis may be erroneous.
Let the Analyst Mess Up: Not every piece of negative research is true or accurate. Allow time to uncover the truth and discredit mistakes. Remember, everything comes out in the wash!
Do You Have an Enforcer? A well-respected Investor Relations Officer (IRO) can help enforce appropriate boundaries to resolve negative research in a positive way. Over time, IRO conversations will provide the foundation for a positive resolution to the negative research.
Finally, protect your boundaries, by ensuring your activities and responses all tie back to the five-step response process. The more management filters out the noise, the sooner it can repair credibility and get the company and stock back on track.
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