Chief executives master the art of letter-writing
Who says writing letters has gone out of fashion? Investment guru Warren Buffett has built his career on sending quirky yet quality letters to shareholders. The head of fund management giant BlackRock is directing missives to chief executives to try to change the world. And Facebook’s chief executive is messaging mea culpa for the social media platform’s recent troubles. Letters from chairmen and chief executives to shareholders, other stakeholders, customers or the chief executive community at large, can be trickier than they appear, however.
Rarely actually penned by the executives whose signature is at the bottom, it is easy to dismiss them as just another part of the corporate machine.
Get them wrong and they look cheap, gimmicky, insincere and inauthentic. But pen such stakeholder communications thoughtfully and they can still be a highly-effective way for senior management to engage with their investors, engender loyalty and get their messages across.
Indeed, the annual treatises of Buffett, chairman and chief executive of Berkshire Hathaway, have become so revered that a compendium covering the first 50 years was published in 2016. Highlights include the letter that took full blame for what was then Berkshire’s worst performance – a 0.5 per cent improvement in book value in 1999 that compared poorly with the 19 per cent rise of the benchmark S&P500 Index.
‘Even Inspector Clouseau could find last year’s guilty party: your chairman,’ Buffett sighed. ‘My performance reminds me of the quarterback whose report cards showed four Fs and a D.’
In his letter for 1998, when the value of Berkshire Hathaway jumped by $25.9 billion or 48 per cent, Buffett still complained about his decision to sell shares in McDonald’s, berating it as a ‘very bad mistake’ and adding: ‘Overall, you would have been better off if I had regularly snuck off to the movies during market hours.’
And after Berkshire’s value grew by 34 per cent in 1997, Buffett was grudging, stating that any investor could make huge returns in a booming market. ‘One must avoid the example of the preening duck that quacks boastfully after a torrential rainstorm, thinking that its paddling skills have caused it to rise in the world,’ he wrote.
Buffett is the gold standard for shareholder letters and more or less the only one with genuine authenticity and personality
Despite all this colour, Buffett’s letters all start the same, with a dull rendition of the Berkshire’s relative and absolute performance during the year and its consecutive performance under his management.
‘The letters are not for the faint of heart. Most average about 30 pages,’ says Joshua Kennon, managing director of US asset management firm Kennon-Green & Co. ‘But they’re brilliant and insightful and just plain good reading.’
Kennon believes the Buffett letter collection is ‘one of the most important and informative bodies of work ever written in the business and investing world’ and an ‘absolute must-read’ for budding investment or corporate managers. Buffett is a rarity: a business celebrity whose folksy and home spun manner resonates with the world’s leading nation of popular capitalism.
‘Buffett is the gold standard for shareholder letters and more or less the only one with genuine authenticity and personality,’ says Andrew Clark, senior director of corporate and public affairs at PR agency Burson-Marsteller. ‘His is the only shareholder letter that truly reads like the chairman’s thoughts.’
Peter Vozzo, managing director of US investor relations consultancy Westwicke Partners, goes further. ‘Buffett has taken one of the staple obligations of a public company CEO and turned it into something much larger – a kind of State of the Union address from the desk of one of our most important business leaders,’ he states.
There are few UK parallels to Buffett’s penned prose. Sir Richard Branson’s books display a writing style that resonates with the Virgin founder’s casual, mildly rebellious, customer-centric approach.
Yet Branson rarely has the kind of investors that chief executives write to, since he famously distrusts the City. Britain’s closest corporate letter writer to Buffett is therefore possibly hedge fund manager Crispin Odey, a straight-talker who once complained that his father was a ‘wastrel from beginning to end’, surviving on handouts from his son.
The Odey Asset Management founding partner is a characteristically blunt eccentric contrarian who proclaimed in his 2016 correspondence that the developed world’s two biggest problems are the disparity between ‘the Haves and the Have-nots’ and the ‘brutal difference in lifestyle of the young and the old’.
This is hardly staple stuff from the traditionally reserved and anodyne fund management community. Financial industry leaders who are willing to use their positions as guardians of some of the world’s biggest funds to say what others regard as unspeakable therefore have an important shock factor which gives them credibility.
Take the letter sent in January by Larry Fink, chairman and chief executive of asset manager BlackRock, to the chief executives of some of the world’s largest companies. BlackRock is the largest money management firm in the world with more than $6 trillion of assets undermanagement and Fink writes an open letter to chief executive every year.
This year’s missive, however, was headed A Sense of Purpose and drew an uneasy comparison between peaking stock markets and life for the less comfortably off. ‘Popular frustration and apprehension about the future has simultaneously reached new heights,’ Fink acknowledged.
‘We are seeing a paradox of high returns and high anxiety. At the same time, many individuals across the world are facing a combination of low interest rates, low wage growth and inadequate retirement systems.’
Fink’s letter is a rallying cry to private sector chief executives to fill gaps left by cash-strapped governments and respond to broad societal challenges, rather than just their company’s balance sheets.
It demanded that companies serve a social purpose well as a financial purpose and announced a newmodel of shareholder engagement strengthening and deepening communication between investors and the companies they own.
For BlackRock, this means taking a more active role in policing the stewardship of leaders of investee companies. But Fink also warned that US companies benefiting from President Trump’s sizeable tax cuts will be expected to explain how they will use the cash to create long-term value.
‘The real strength of this letter comes not just in its meaning but in who has written it,’ says John O’Brien, European managing partner of One Hundred, a consortium of purpose consultancies owned by advertising and public relations group Omnicom.
Fink’s letter represents a watershed moment in the sustainable investment space
‘BlackRock has huge influence over the boards of the world’s largest companies. But in this letter Fink extended his influence to the hundreds of millions of people who are employed by them. The letter puts ethical and purposeful leadership into the mainstream expectation of the investment sector and I believe it will help shape the future of society this century.’
That’s a heady claim for a mode of communication that is supposed to be outdated. However, Lorenzo Bernasconi, senior associate director of The Rockefeller Foundation, which runs one of the world’s biggest philanthropic funds, believes it is justified.
‘Fink’s letter represents a watershed moment in the sustainable investment space,’ he says. ‘With one letter, he gave legitimacy to a set of issues and concerns which had remained on the sidelines of mainstream concerns in finance. I don’t think it was just his stature that made his letter so influential. The simple, well-structured and compelling logic of his argument, devoid of jargon or politics, has forced a conversation on the issues, unlike many letters of this sort, which read more as marketing gimmicks.’
Unilever chief executive PaulPolman, the flag-bearer of the sustainability movement in the UK, has also shown he can be deft with the pen.
In 2015, he posted on Twitter a letter to the year 2030, dedicated to his newly-born granddaughter and her generation, who would come of age that year. Outlining how the company’s Sustainable Living Plan aims to impact society for the better by 2030, the letter promises improvements ranging from better management of water to the empowerment of women and the adoption of solar and wind energy.
‘It’s the only way to ensure our business will be around to serve society in generations to come,’ Polman wrote, before resorting to more emotional pleas for one billion people to not ‘have to go to bed hungry every night, unsure if they will wake up in the morning’.
All this might sound highly populist. However, two years later, Polman’s societal and environmental credentials helped Unilever defeat an opportunistic takeover approach from America’s Kraft Heinz. Polman said in an interview last December that if the bid had not been pulled, a 100,000-signature petition against it would have been ready the following day, while U2’s lead singer Bono was prepared to write a song in support of the company.
He said there would also have been an outcry from the army of non-governmental organisations (NGOs)that Unilever works with. And all without the company having to ask for or organise any of these protests. Polman, of course, has used many channels to proclaim his vision of a softer capitalism. But a letter was part of the armoury.
At technology and consumer companies, stakeholder letters can also be an effective tool. Since 1987, Jeff Bezos, founder of Amazon, has published a shareholder letter said by fund managers to be a ‘must-read’ because of the information it gives about the chief executive’s management ethos and long-term vision for the company.
This year’s letter has some of Buffett’s hallmarks. It reflects the writer’s passion – Bezos’s obsession with the customer experience and his conviction that Amazon has to have high standards that are ‘teachable’ and contagious within an organisation. It also offers important nuggets of data, disclosing that Amazon’s Prime members club now has more than 100 million people signed up.
Then Bezos future-gazes about Amazon’s Echo devices and its Whole Foods grocery store network and regales an anecdote about a friend who wanted to execute a perfect freestanding handstand and hired a coach, only to be told that it would take six months to master this skill. The message is that building a culture of high standards will take time.
At Starbucks, chief executive Kevin Johnson’s maiden letter to investors last year drew on his relationship with the company’s long-time leader Howard Schultz, now its executive chairman. Referring to the handover as a ‘seamless transition’, the letter sought to provide reassurance that Starbucks is staying true to its original mission and core values, despite the change at the top.
This was a more measured tone than the passionate letter that Schultz wrote to employees the previous year, protesting against President Trump’s travel ban order and announcing plans to hire 75,000 refugees over five years in 75 countries.
This year’s shareholder letter spoke of ‘many intentional, impactful moves’ during the year, despite the retail sector experiencing ‘profound disruption’. Although more retail stores closed in 2017 than in any of the previous ten years, Johnson said the opening of a net new 2,250 Starbucks outlets in the 12 months showed that the brand ‘continues to resonate with customers around the world.’
Meanwhile, Facebook’s Zuckerberg penned a 6,000-word post to the social network’s community in February to address the future of the company, following the furore over its use of customer data and the proliferation of fake news.
The chief executive’s first revision to the letter he wrote ahead of Facebook’s stock market flotation more than five years earlier, it is an updated manifesto that uses the word ‘community’ no fewer than 80 times and ends with a quotation from Abraham Lincoln.
It states that while Facebook has focused so far in its history on connecting friends and families, its next focus is developing ‘the social infrastructure for community – for supporting us, for keeping us safe, for informing us, for civic engagement and for inclusion of all’.
Consistent in style and tone with the pre-float letter, the latest missive explains the changes to the company’s mission in clear, engaging language that captures its chief executive’s voice. However, it failed to convince some sceptics.
In a Wired magazine article headed ‘The case for a Zuck-free Facebook’, writer Felix Salmon said that while Zuckerberg was continuing his previous habit of being a ‘serial apologiser’, his latest efforts were failing to have the same kind of mollifying effect as his reactions to previous company crises.
Arguing that Zuckerberg’s letter did not go nearly far enough and calling for his resignation, Salmon wrote: ‘He should sketch out a new path for Facebook: one that puts users first, rather than advertisers and developers…‘Facebook has gone way too far in terms of treating its users as eyeballs to be monetised and it needs to address the fact that its long term future has to put the humans who use the service first… The company’s leadership has to effectively communicate that change of heart and change of priorities, so that Facebook users start trusting the company, rather than mistrusting it.’
Shareholder communications, such as letters from the chief executive, are a way to circumvent the media and to have unedited, totally-owned content go directly to your investors
The lesson is perhaps that even if the language, tone and voice are right, the words still have to match the actions being taken. But what are the appropriate ingredients for a letter to stakeholders fit for the modern age: maybe a correspondence that does not distinguish between online or offline distribution, treats consumers with the same reverence as investors and does not dig holes from which the writer may struggle to escape.
‘Firstly, it really shouldn’t be a letter because that sounds very 20th Century,’ says Clark. ‘I’m half-joking but shouldn’t it be an email or better still a video? More significantly, shareholder communications, such as letters from the chief executive, are a way to circumvent the media and to have unedited, totally-owned content go directly to your investors rather than have to try to land messages with pesky journalists. And that sort of fits in an era of social media.’
John Bick, director of financial public relations agency Gable Communications, believes chief executives and chairmen should remember that their shareholders above all want clear direction about their investments and easy-to follow narratives. ‘Brevity works best for me,’ he states. ‘Letters need not be unduly long. These letters are nearly always dictated by securities rules and regulations and they have become as much the preserve of investor relations directors and corporate lawyers as they are the art of in-house communications department these days.
‘I would say that the most important qualities are to be clear, concise and brief. The key is to inform and you can always add additional resources for shareholders to find on your website if investors want to investigate further.’
Vozzo also believes that the basics of complete accuracy, jargon-free clarity, consistency and a rigorous review process are overlooked at a chief executive’s peril. Other factors are also driving changes in the shareholder letter. Ed Trissell, partner at Joele Frank, Wilkinson, Brimmer Katcher, a New York-based corporate communications and investor relations agency, sees two main trends. ‘Firstly, smart companies are moving their best content from annual reports to proxy statements, ‘he says. ‘This is happening because investors are paying closer attention to proxies, due to wanting to have a say on director remuneration and contested elections and board decisions. Secondly, these letters are coming less and less from the chief executive and more frequently from the chairman or lead director.’
Both of these approaches enable companies to provide more context and perspective around broader company, industry and business issues as they communicate with a wide variety of stakeholders, says Trissel.
Letters are only a medium, even if they are one of the world’s oldest ones. But they have also proved highly resilient to change. Remember when technology and media companies told us 20 years ago that content would become king? They have been proved correct in this regard in a way that they perhaps did not imagine. But before you get your quills and ink at the ready to pen a missive for your chief executive, remember that letters are also a two-way street.
Buffett, Bezos and anybody wanting to imitate them had better be prepared for a bumper postbag that can’t simply be returned to sender.