WALL STREET JOURNAL.
Companies Adjust Financial Communications to Resonate With Humans
As markets scour financial statements for trading clues,
executives turn to machine-learning tools, perception studies and
speech recognition to help them choose their words carefully
Smurfit Kappa, Europe’s largest producer of paper-based
packaging, commissioned an investor-perception study to
fine-tune its communications. PHOTO: ALEXANDER SHCHERBAK/ZUMA
Nov. 19, 2019 2:56 pm ET
After a year of deal-making and deal-avoiding—including
seven acquisitions and the rejection of takeover bids—executives at
Smurfit Kappa Group PLC thought
it would be good to gauge how well they had communicated the company’s
strategy and its story along the way.
The Dublin-based company commissioned an investor-perception
study from consulting firm Rivel Research Group, which polled dozens of
shareholders and analysts. The results were an eye-opener for executives, who
had assumed Smurfit Kappa—Europe’s largest producer of paper-based
packaging—would be viewed as focused on growth.
“People thought of us as a leveraged vehicle and felt that our
approach was much more about debt reduction than about investing,” said Ken
Bowles, Smurfit Kappa’s chief financial officer. “It didn’t fit with where we
were and what we were doing.”
The company pored over its corporate communications—annual
reports, presentations, news releases, earnings-call transcripts—and realized
that executives’ talk of efforts to reduce the company’s €3.1 billion ($3.4
billion) debt pile at the end of 2018 was what actually resonated with the
outside world. Not
“We misfired with our communications,” Mr. Bowles said. The
company has since revised its corporate literature to address the mismatch and
now chooses its words more carefully, highlighting its focus on sustainable
growth instead, he said.
Smurfit Kappa is part of a growing group of companies turning to
external assessments to fine-tune their communications. The target audience
isn’t just human analysts and investors: Machine-learning tools, perception
studies and speech recognition are also used by finance and investor-relations
executives seeking to anticipate the reaction of robots that
increasingly sway the market by buying and
selling shares on the basis of data analysis.
Meanwhile, campaigning from activist investors, a stronger focus
on environmental, social and corporate governance and changes to financial
regulation also add to the need to get the message across.
“We really have to change the way we are writing and scripting,”
said Hala Elsherbini, senior vice president at Halliburton Investor Relations &
Communications, a Richardson, Texas-based investor relations and communications
agency unrelated to oil-field services company Halliburton Co.
These days, a lot of investors are using language- and
sentiment-analysis tools, which means companies have to adjust how they talk
about their finances, said Ms. Elsherbini, who said she is working with about 20
U.S.-based companies to help them communicate more effectively.
Algorithmic traders using sentiment analysis—an automated process
that identifies positive, negative and neutral opinions in a body of text—can
react negatively to wording such as “contrary to,” Ms. Elsherbini said, adding
that she prefers the more positive-sounding “different to” when drafting a
company release or an earnings call script. Similarly, she avoids frequent use
of terms like “shortfall” or “decline” and focuses on just numbers instead.
“Don’t overstate the negative,” she said.
Other companies are pitching data-crunching software tools that
they say can find signals in companies’ public statements.
Prattle, a St. Louis-based text analytics company, uses machine
learning and natural language processing to create a lexicon of a company’s
commonly used words. This can help institutional investors get a better
understanding of a company’s tone and the potential implications.
Carlos Brito, chief executive of Anheuser-Busch InBev, poses
with a beer after a news conference. The company now focuses on more
face-to-face interactions between executives and investors. PHOTO:
Most of Prattle’s revenue comes from
quantitative hedge funds that subscribe to its services, said Chief Executive
Evan Schnidman. The company—which was founded in 2014 and acquired this year by
investment network Liquidnet Holdings Inc.—also has a tool that corporate
investor-relations teams can use to test the potential market impact of their
company’s language, he said.
Rival software firm Amenity Analytics, based in New York, has
come up with a “deception score” tool that warns investors when companies may be
using evasive language, euphemisms or stalling tactics, according to CEO
Nathaniel Storch. “As an investor, you are always trying to understand something
that other people are missing,” said Mr. Storch, whose company has more than
doubled its customer count over the past year, according to a spokeswoman.
Big companies aren’t all using these technologies to improve
their communications. Brewing giant
Anheuser-Busch InBev SA, for instance,
recently gathered information on language-recognition technology to get a better
understanding of what is possible, but so far isn’t using it, said Lauren
Abbott, global vice president for investor relations at AB InBev.
Still, AB InBev over the past year has adjusted its communication
strategy following an investor-perception study similar to the one commissioned
by Smurfit Kappa. The company now focuses on more face-to-face interactions
between executives and investors and uses its earnings release to provide a more
strategic update instead of regurgitating numbers, Ms. Abbott said.
Brian Rivel, chairman and CEO of Rivel Research, which conducts
nearly 170 investor perception surveys a year, said the firm’s revenue from that
part of its business has roughly doubled to $8 million this year from $4 million
in 2009. Behind the increased interest, he said, is his clients’ belief that
calibrating their communications can boost their shares.
“There are two things that motivate people: fear of activism, and
opportunism,” Mr. Rivel said. “CEOs want their companies to have a higher stock
Nina Trentmann at