How to Build Trust and Communicate with Healthcare Investors in 2023
February 03, 2023
As many healthcare companies look back on a productive, but subdued (and wet) J.P. Morgan Healthcare Conference last month, the industry is facing prolonged uncertainty around dealmaking, corporate strategies and how to weather the anticipated economic turbulence of 2023. Whether publicly traded or privately held, healthcare companies of all sizes are going to be impacted by a variety of economic, societal and political externalities, including, but not limited to, a prevailing bear market phase, currently tempered inflation at risk of spiking again and geopolitical instability impacting the U.S. and global economy and supply chains. Additionally, healthcare companies may also see unknown downstream impacts of the “Tridemic” (COVID-19, flu and RSV) this past winter. Whether the capital markets will return to normal, the continued dormant IPO market and sustained subdued deal counts (both volume and value, minus a few exceptions) have resulted in more companies shifting from growth mode to finding a pathway to profitability, engaging in corporate rightsizing and seeking private capital.
And yet, healthcare companies are still hitting the ground running. As companies execute against their communications strategies, the following outlines several best-in-class considerations and recommendations to support their goals in 2023.
1. Audit, Assess and Improve.
When building a communications plan, healthcare companies must take a strategic approach to both assess what worked in the past, as well as identify where there are opportunities for improvement. Edelman Smithfield’s Trust Barometer Special Report: Healthcare Institutional Investors showcases the importance of investor communications – with investment in the space increasing by 78% during the pandemic despite the heightened uncertainty and most investors viewing healthcare companies as poor communicators.
Building and evaluating a communications plan offers a chance for companies to reassess their strategy in order to make sure they are employing best-in-class tools, tactics and considerations to reach investors where and how they seek information. In addition to a multi-channel approach incorporating digital content and an accessible, well-designed investor relations (IR) website, clear and consistent communications around quarterly earnings and intra-quarter updates are equally important. Remaining visible via thought leadership in between natural business catalysts is also critical to maintaining visibility and momentum.
2. Prepare for Proxy Season 2023.
For public companies getting ready for the 2023 proxy season, there are several factors to keep in mind:
- Universal Proxy: All nominated director candidates will now have to be on the same proxy card, regardless of who proposed them. This change has the potential to increase shareholder activism, as it is now – according to the Harvard Law School Forum on Corporate Governance – dramatically easier and cheaper for activists to launch proxy fights. While potential proxy issues can vary across company sizes and industry subsectors, clear and consistent communications around a company’s approach to Board composition and governance, as well as the investment thesis behind any shifts in corporate strategy, are now more critical than ever. Companies should prepare by ensuring they have a strategy and plan in place before any activism occurs via vulnerability assessments, scenario planning and simulation exercises. Most critically, healthcare companies should consider if their Board of Directors’ skills and qualifications reflect their strategy and values, while bringing the right skills to the team.
- Pay vs. Performance: Adopted in August 2022, the U.S. Securities and Exchange Commission (SEC) will now require disclosure of financial performance relative to executive compensation for the prior five years. Companies should analyze how this rule applies to them and prepare – whether via tough Q&A or key message development – to be able to clearly communicate how they approach executive compensation if asked.
- Cyber Security: As previously shared, most investors think healthcare companies do not communicate well during normal course events, let alone transformative or crisis situations. Cyber security has been widely recognized as a broad governance issue requiring Board oversight, so as incidents continue to increase, companies must prepare to communicate around them. Scenario planning and customizable, templatized playbooks can help leadership and communications teams proactively plan ahead, while staying on message and on track should an incident arise.
- Environmental, Social, & Governance (ESG): As the investment community has become increasingly mindful of ESG, primarily following Engine No. 1’s campaign against Exxon Mobil, the SEC has recently focused on enhanced disclosures, which have coincided with a rising rate of shareholder proposals on the topic. According to our Trust Barometer Special Report: Healthcare Institutional Investors, 73% of healthcare investors will not invest in a company without sufficient ESG mandates. As such, IR teams need to be well-versed in and prepared to address questions on this continuing hot topic in order to maximize valuation through ESG communication.
Executives and their communications teams alike need to be prepared to communicate around these important topics and should develop key messaging ahead of time to be prepared and equipped to discuss. This also means having a keen sense of, and pulse on, your shareholders and their needs, expectations and priorities. With the increased potential for shareholder activism given these several factors, your engagement strategy should account for these complex issues.
3. Support the "Health" of the Company Through IR Preparedness.
With increasing market uncertainty and complexity, IR teams must ensure that the C-suite is thoroughly prepared to communicate their strategy and vision, including steps for getting there. A study by Irwin Research found that 33% of C-suite executives feel as though preparation for and engagement with investors will be a top challenge in 2023. The same study also found that 67% of C-suite executives feel IR is more important now given market conditions.
The importance of communicating with investors to articulate company strategy, vision and execution is also reflected in our Trust Barometer Special Report: Healthcare Institutional Investors – especially for CEOs and Boards of Directors – with 69% of investors surveyed indicating vision and leadership are most important to building trust in a company, second only to financial performance.
Healthcare companies of all sizes should set the IR function and C-suite up for success in 2023 and beyond through a variety of approaches, including:
- Ensuring appropriate research into all investor inquiries and meetings, whether proactive or reactive;
- Preparing briefings and conducting any needed trainings with leadership prior to investor meetings;
- Articulating a company’s value creation strategy consistently across all materials;
- Leveraging feedback from shareholders to ensure messaging is resonating, whether gleaned from adhoc meetings or a formalized process such as an investor perception audit;
- Shoring up vulnerabilities via proactive review of governance practices, executive compensation or other common activist issues; and
- Highlighting financial performance in conjunction with clear articulation of the company’s vision and strategy via a multi-channel approach investors use in order to build trust.
4. Review and Refine Your Investor Narrative and Deck.
A key method for communicating a company’s differentiated value proposition and investment thesis is its investor narrative and investor deck. Make sure your differentiated value proposition is clearly and concisely communicated – and easily accessible – to investors through publicly available presentations on an IR website. One way to find out if your positioning is hitting the mark is through a perception audit to confirm your investment thesis and narrative still resonate with investors. If improvements are needed, use the data to refine your positioning accordingly as the company evolves.
Most importantly, make sure to confirm your narrative underpins all multi-stakeholder IR materials, collateral and communications to ensure consistency in messaging.
Equally, innovation is an increasingly important factor to consider when refining an investor narrative and investor deck, with 76% of investors interviewed in our Trust Barometer Special Report: Healthcare Institutional Investors indicating that innovation has a positive financial impact on the industry. Whether public or private, healthcare companies should be prepared to communicate and demonstrate their efforts in innovation.
5. Consider Investor and R&D Days and Investor Targeting.
No matter the time of year, healthcare companies that keep investors engaged, apprised and clear on their progress, performance and upcoming catalysts can better maintain investor interest in between business announcements. Investor and R&D Days offer the opportunity to showcase company progress in a creative group setting, provide access to key leadership, and reset market perception.
Equally, investor targeting should also be considered to potentially expand, diversify and/or rebalance your current shareholder base, particularly with high quality, long-term focused institutional investors. Investor targeting equips IR teams with a rolodex of potential shareholders to engage with ahead of and following any major announcements, conferences, roadshows and normal course business updates.
While much still remains to be seen with the markets over the coming months, the above recommendations – from preparing for proxy season to reassessing current materials, positioning, and ways of engagement – can help guide healthcare companies as they navigate 2023 and heightened investor communication expectations.
Lynn Malka, Vice President, Edelman Smithfield Healthcare
Harrison Silvers, Vice President, Edelman Smithfield Healthcare
Isabella Hershey, Account Executive, Edelman Smithfield Healthcare