Palo Altow powwow: IR Magazine's West Coast Think Tank

Jun 01, 2008
<p>Excerpts from the 2008 IR Magazine West Coast Think Tank, where hot topics were the make-up of shareholders, proxy voting, and career progression in IR</p>

Who owns your shares?

The market intelligence experts
‘Over the last few years there has been a crescendo in trading. A certain amount of that activity is visible through public information like 13Fs. Today an average of about 35 percent of the activity is visible, which is definitely lower than it used to be. We have also found a correlation between that visibility level and volatility. The less ‘trackable’ your shares are using public disclosure, the higher your volatility.’

‘Sometimes there’s an over-reliance on identification when characterization would be as good or better. Do you need to know the identity of every arb in an M&A situation? Probably not. But you can know how much of your stock is owned by arbs, and you can predict their general behavior.’

‘A lot of the trading this year has been noise coming from very fast money. At the same time, the market has been pretty technical, which is difficult to fight against. But even if it’s noise, you still need to understand it. Is it a hedge fund doing a paired equity/debt trade? Is it an options trader? Is it a quant trader on the Street who’s never going to talk to you?’

The IROs
‘On any given day, more than half our trading comes from fast money – quants or hedge funds – yet 90 percent of our stock is still held by large, long-term institutions. We have to parse that for senior management, separating the near-term activity from the long-term valuation. As it turns out, however, I’m spending much more time than I would have expected on communicating our fundamentals to long-term investors.’

‘You should get a good two-way information flow going between you and your market intelligence provider. Pass along the information you’re getting from NYSEnet and your specialist, or from NASDAQ and your market makers. Communicating all that to your surveillance team can really improve the information you get back from it.’

‘We use surveillance and shareholder ID to measure the investor relations team’s performance. We know our top 20 shareholders really well, so we look at the next 20 as ‘hot leads’ in marketing terms. We spend time helping them figure out the company, then take a look at how their holdings have changed after six months or a year so we can show management how we’ve moved the needle.’

Proxy minefield

The proxy solicitor
‘The current pace of acceleration in hedge fund activism is unprecedented. Not a week has gone by this year without at least one of our clients getting hit by a 13D, a demand for the shareholder list or even an active proxy fight. One trend I’ve noticed is a close collaboration between the IRO and the corporate secretary.’

The hedge fund activist
‘Activists are, by and large, deep value-style investors. They’re buying a dollar’s worth of assets at 50 cents on the dollar. They’re looking for deep discounts, and deep discounts occur in credit crises because liquidity-driven investors sell securities at prices that are irrational.’

‘Strong IR is a good way for management and the board to keep activism from escalating. You can diffuse an activist’s campaign just by engaging in a dialogue in a give-and-take environment instead of going into the bunker.’

The securities lawyer
‘Hedge fund activists are targeting companies they want to change from a balance sheet perspective. They know they need mainstream institutional investors as allies, however, so they get their support – and the support of RiskMetrics – by talking about governance issues. Meanwhile, they’re pushing capitalization structures with other hedge funds. If those two forces combine, you can easily have a majority of your stock in the hands of investors opposed to you.’


‘Last year we had several shareholder proposals on our ballot, including say-on-pay and human rights proposals. That was absolutely an opportunity for IR to become engaged. As soon as the deadline for proposals passed, we got to work negotiating with the proponents before our proxy statement went to print.’

Career talk

The executive recruiter
‘A recession is not the time to change jobs unless a specific opportunity comes along. It’s the time for an IRO to stop and think, What is my brand? What are the value-added propositions I bring my employer? As your company shifts and changes because of what’s going on in the economy, try to acquire responsibilities for strategic planning, corporate development, finance or even marketing. The more you are laterally valuable to your company, the better you’ll come out of the recession.’

The IROs
‘IR takes a combination of financial skills and communication skills, and it doesn’t hurt to have a bit of the revivalist preacher in you.’

‘The perfect candidates for our IR team are well entrenched in financial concepts, with a strong logical, analytical side. They also have to be very creative and able to communicate effectively. If candidates are weak on financial concepts, we can work on them; those are easier to teach than the softer skills. I like individuals who have had direct contact with products or customers, and can bring that experience into the role.’

‘If you don’t have the trust of senior management and the kind of insight that comes with it, investors will notice. They need to believe you are part of that inner sanctum.’

‘The idea that XBRL is going to make IROs extinct is a joke. We are going to continue to have our fingers on the pulse of those who create the market in our stock, whether in the short or long term.’

IR Magazine Think Tanks are free, invitation-only events for senior-level corporate investor relations officers.

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