So, the CEO and CFO have finished their earnings call prepared remarks and have asked the operator to queue the analysts’ questions. And let’s say that the Q&A portion of the call is usually a robust thirty minutes or so, with questions from a variety of firms. But this time, after an awkward pause, the operator intones, “There appear to be no questions at this time.” Or perhaps there are only one or two questions, instead of the usual ten to fifteen. What do you do?
The answer is even more significant if you consider a recent paper co-written by three university professors entitled The Price of Silence: When No One Asks Questions During Conference Calls (June 2014). The paper identified a measurable “negative market reaction” when there are no questions or “too few” questions during the Q&A portion of an earnings call. The authors’ theory is, in part, that silence is interpreted by those on the call as a lack of investor interest, which bodes poorly for the company’s future stock price.
Whether a negative market reaction occurs in those circumstances may or may not be the case. What is clear, however, is that no executive wants to be caught off guard by silence. And it does seem intuitive that a flustered or defensive reaction by the CEO could exacerbate whatever negative impact there might be on the stock price or on the company’s reputation.
It’s worthwhile to be sure the CEO and CFO are prepared for the possibility (however remote) of a disappointing Q&A session. It’s a bit like preparing for unexpected questions at an annual stockholders meeting–they don’t happen too often, but most executives like to be prepared ahead of time, just in case.
Executives should be coached to avoid conveying astonishment, confusion or disappointment. They should try not to say things like:
“Wow! That’s the fewest questions we’ve ever had.”
“That’s strange. I wonder why there are no questions?”
“Operator, could there be a technical problem?”
“Hello. Where is everyone?”
Instead, it would be good to have a few Q&As ready for management to ask and answer themselves. After being informed that there are no (or no more) questions, the CEO might say something like:
“Here are a few questions we’ve heard recently from various stakeholders,” or
“This is a good opportunity for me to expand on some points I made earlier,” or
“Some of you might be wondering about [XYZ].”
In addition to bridging what might otherwise be an awkward moment, this approach provides more time and content to trigger additional questions.
Fortunately, this sort of thing does not happen often, but it does happen. It’s a good idea to give a little thought to how you might handle such a situation to minimize embarrassment…or worse.