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6 tips for better shareholder letters

With the right attitude, yours could be a page-turner

UNconventional Wisdom is a periodic guest blog where the conventional wisdom is held up for fresh inspection, often with divergent recommendations. If you have some "UNconventional Wisdom" to share, email scocheo@sbpub.com. UNconventional Wisdom is a periodic guest blog where the conventional wisdom is held up for fresh inspection, often with divergent recommendations. If you have some "UNconventional Wisdom" to share, email scocheo@sbpub.com.

It has been said that the shareholder letter is up there with reading ingredients on the back of oatmeal boxes and academic studies on monophase phosphates. And in the spectrum of shareholder letters, bank letters happen to be on the snoozy side of yawnsville.

Of course, it doesn’t have to be like that.

Berkshire Hathaway has undoubtedly the best shareholder letter in corporate America. It is better than 80% of most novels and 90% of most financial text. It makes you laugh, cry, and feel young all over again.

While it is difficult for banks to achieve that level of financial storytelling, banks can at least include some personality and insight in their annual letter. The shareholder letter is usually the single most important piece of shareholder communication and most CEOs don’t give it the attention it deserves. 

We have reviewed about 90% of public bank letters and more than three dozen private bank letters to distill some tips on how to make your next shareholder missive a bestseller.

Some basics for sprightly letters

To have a good letter, it helps to have some clear graphics of performance; some simple narrative of performance; a paragraph on the non-quantitative side of the business ; a paragraph on some notable achievements (awards, milestones, charity work, etc.); and a brief outlook for the coming year.

Of course, every halfway decent letter must give at least a head nod to their “talented and dedicated employees that are a key to ongoing success.”

You can skip your tireless board, but don’t forget your employees.

In addition to the entry level inclusions above, make sure you are transparent, balanced, and honest about your bank’s challenges. Candor and share price tend to be statistically positively correlated, so usually any goodwill sacrificed in delivering bad news is recouped over time in the form of trust and respect.

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If you run your letter by your public relations agency or department, be careful. Smart investors can smell positive spin eroding that trust.

In the same vein, good letters tend master the understatement. Get your achievements out, but do so without ego and without coming off like you’re Donald Trump.

How to be exemplary

Any bank can present neat tables and stunning graphics in its letter to help clearly convey financial performance. However, beyond the above-mentioned basic elements, there are six items that set top letters apart.

1. Educate. Great letters lift the reader up, and make them smarter, not just on the company, but on the industry. Try to add insight into the industry and you will gain the respect of investors and analyst alike. 

2. Show some culture. If investors are reading your report, chances are they are ready to be quantitatively wowed. However, the letter is the time to show some personality and highlight your strong corporate culture.

Tell a story or paint a picture of what your employees are like and how the bank supports them. After you write your letter, step back and see if it does double duty as a recruiting tool. If it does, you are on the right track.

3. Business model and metrics. Every investor and analyst will assume your bank is like any other bank.

So include a paragraph that explains why you outperformed your competition and highlight any special metrics that you use to drive franchise value. Customer satisfaction, customer lifetime value, employee happiness, transaction speed, or whatever you focus on, let the public know what your bank’s value proposition and your metrics are. You will gain instant interest because you are different.

4. Innovation. In this day and age, you almost have to give a tip of the proverbial hat to your bank’s commitment to innovation. New products, new technology, and cost savings processes should all be highlighted.

5. Be clear on your message/mission. The annual shareholder letter is an opportunity to drive home a consistent message of your vision. Every letter should underscore your main objective and clearly state what mission you hope to accomplish.

6. Call to action. Hopefully, by the time your readers finish the letter, they not only want to purchase more stock, but want to help further.

Leverage that goodwill and ask your readers to do something: try a new product, open an account, refer a customer, or help achieve a goal.

Whatever it is, just the act of asking for help will make readers psychologically be more attracted to you.

Some will actually do what you ask.

Learning from the best

Outside of Berkshire Hathaway, Jamie Dimon for JP Morgan Chase writes the best shareholder letter of any bank. His letters are clear, straightforward, and educational for any bank investor. 

JP Morgan also goes out of its way to provide departmental-level information and strategy, both which serve to give investors comfort. Next to JP Morgan, M&T does the second-best job in banking. Robert Wilmers, M&T’s CEO, not only gives a healthy dose of financial information but intones personality and education in a very relevant way.

Finally, one last example, by the way of illustration: Amazon’s CEO Jeff Bezos writes an awe-inspiring letter incorporating much of the above.

He is orthogonal in his approach and has consistently educated investors that their traditional valuation of retailers is misguided when it comes to the online world. Over the course of the last 18 years, Bezos has singlehandedly shifted investors’ thinking on the reason to put the customer first and to invest long-term. He has highlighted his bold bets in technology and customer service and has steadily grown revenue by strong double digits as proof of his business model.

Bezos has done all this while making a case that most all profits should be ploughed back into the company due to the opportunity.

As always, Amazon concludes the current letter by reminding everyone what the company originally said in it’s very first letter, reminding all that “It is still Day 1” and that Amazon is just getting started. That alone is an amazing, paradigm-shifting perspective of what “long-term” means—a message that is the opposite of reading the ingredients of oatmeal.

This article originally appeared on Chris Nichol’s Linkedin blog.

Chris Nichols

Chris Nichols is chief strategy officer at CenterState Bank Central Florida, N.A., Winter Haven, Fla. He frequently contributes to "UNconventional Wisdom" and other parts of www.bankingexchange.com. Nichols is a member of the Banking Exchange Editorial Advisory Board.

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