We’re about to begin the first earnings season of 2013. For most companies, this means intense focus on closing 2012, preparing to report the results to investors, and setting guidance for the new year. Whether your company is facing good news or a tough quarter, there are three words that might guide the tone of your company’s announcement:  Transparency, Humility, and Optimism.

I first recommended this to a client on the night before an announcement of disappointing results. We had discussed and debated the appropriate tone of the call script. How apologetic should it be? How much explanation should we provide?  How should we approach the future, post the disappointing news? As a team, we worked out the messages and the details. In final preparation for the call, I suggested that management keep in mind these three guiding words.

TRANSPARENCY
Transparent disclosure is an investor relations best practice when the news is good but especially when the news isn’t so good, or when it comes as a surprise to investors. Consistent disclosure is important, but there are times when greater transparency may be necessary. In these situations it is important to provide the right amount of additional information and not go overboard with detail. Keep the list of negatives relatively small. There might be seven or eight different issues contributing to the adverse results but try to focus on the top three or four.

HUMILITY
When results disappoint, it is important to take appropriate responsibility and acknowledge the issues – this can take some of the sting out of the surprise. There is a fine line between humility and apology, and it is important to walk that line carefully. Even when the results are as expected or better than expected, we all know that our time will come – all businesses face issues and surprises at some point – so a little bit of humility goes a long way towards building credibility and trust.

OPTIMISM
It is especially important for both external and internal audiences to believe management has a solution to the issues at hand, can see beyond the immediate results, and has an implementable plan to get the company back on track. Investor relations best practices require a balanced approach between setting expectations for the short term and the long term, as well as a measured dose of optimism and confidence to lead a team successfully toward achieving a bold vision.

Tone is a key consideration in evaluating an earnings call script. Because management must balance the results of their recent quarter with guidance for the rest of the year, or the year ahead, there is always much debate about the overall tone. Is it too positive? Is it too negative? When the recent quarter was disappointing, how positive should our tone be for the coming quarters? When the results are very good, should we tone down our comments about the future, i.e., can we keep up this pace and momentum in an uncertain economic environment? Most managements I know want to be balanced but with a positive bias, if at all possible. Even after management aligns on the key messages and points of disclosure, it is a good idea to review the earnings release and call scripts for overall tone.

The client I mentioned earlier chose to post the three words on the boards in the conference room where the call was held, as a reminder of the desired tone while they delivered the script and then took investor questions. That call went well given the circumstances: while the stock price did take a hit to reflect the results, and it took a few quarters for management to rebuild its former valuation, the news was received in a constructive way, and investors appreciated management’s approach, proactive explanation and candor, judging by their “tone” in the subsequent First Call reports and feedback.

Deb Kelly