Imagine a 10K or Proxy That Someone… Actually Reads

I recently met with a board member of a micro-cap that was a multibillion-dollar company during the pandemic but has since shed most of its market capitalization. Once upon a time, this large-cap company was exclusively traded by iconic institutional investors. Now, because of its size and illiquidity, it’s almost exclusively owned and traded by retail investors (i.e., nonprofessionals). Sound familiar?

We had a broad-ranging chat.

She asked me who I thought was the most impressive small-cap fund manager to listen to (Carlo Cannell), my favorite air carrier to Europe (Swiss), least-heralded whisky (Glenfarclas 21), and how a much greater percentage of my hair is now grey since our last coffee (ahem).

Regarding her company, she expressed the same key frustration as the CEO had a week earlier: “Just doesn’t seem like the people who could buy our stock really get what we do and the value proposition.”

I went home and did what I always do when leaders (frequently) tell me this: (1) I look at the above-the-fold portion of their website; (2) I read the “About Us” portion of their most recent PR; and (3) I skim their most recent 10K and proxy.

When you’ve seen 1000s of stories as a fund manager, you can get a great sense from this “audit” about the caliber of storytelling you’re dealing with.

Particularly since this company’s 10K and proxy were uniquely abhorrent a few candid thoughts in that regard.

• No matter what anyone tells you – particularly your lawyers – 10Ks and proxies are primarily storytelling documents. That is: here’s what our company does; here’s who we compete with; here’s why we win (or lose); here’s where we think we’re heading; here’s who operates and governs our company; here’s why we think they’re the bee’s knees; and here’s what we pay them and why.
• If you’re like most public company board members, you govern a micro- or small-cap that is majority-owned/traded by retail investors. If so, show salient bits of your 10K or proxy to someone sitting next to you at a Little League game sometime and watch their faces as they try and decipher it. Now you know the dreadful mistake your company has been making.
• Not only is plain English not their forte, but many corporate lawyers aren’t skilled storytellers. And even if they are absorbing raconteurs, how on earth would they know your story better than you? Your executives need to take the pen away from the lawyers and write the “story” parts of those filings. Thereafter you can let the lawyers do what they excel at: infusing the “save your respective bottoms” phraseology.

Look, I was a large firm lawyer when GHWB was president. This isn’t lawyer bashing; great legal counsel is integral to public company success. Rather, it’s being smart(er) about how you communicate with the people who… determine the value of your company.

If your existing/prospective investors are nonprofessional generalists, what’s the point of communicating with them as if they’re PhDs at CalPERS?

Here’s the bottom line: if outside lawyers are drafting most of your small-cap’s 10Ks and proxies… you’re doing it wrong.