Wisdom of the IR valley think tank
Activism and other governance challenges
‘The magnitude of the capital flow into funds dedicated to activism is large. The value investment cycle goes with the economic cycle so, coming out of the great recession of 2008, it’s been a target-rich environment.’
‘As you see money flowing in, it has to be put to use. In 2011, $20 bn flowed into activist funds; in 2012, that had risen to $50 bn.’
‘Activists are always changing their strategies to accumulate shares under cover. For a while, one way was to invest in European options, then have them convert on one day. It’s incredibly frustrating to be in IR and be told you have to have better outreach with investors, and yet you’re blind.’
‘When surveillance shows activists might be accumulating your stock, it’s important to understand their nature and their track record. Look at their history with other companies. You also need to understand other shareholders’ feelings. A lot of boards capitulate because proxy fights are expensive, but if a large, long-term shareholder says you shouldn’t give certain people seats on the board, and you pass that sentiment on to your directors, they might have more of a propensity to fight.’
‘Having an activist as a shareholder and having one on the board are completely different types of situations. When investors are on the board, they want information we wouldn’t normally give external investors and we have to navigate that. IR is about getting access to information and helping educate investors, so with an investor on the board, there’s an incremental focus on getting him/her to the right executives to explain things.’
Next steps in technology
‘Sixty-five percent of shares outstanding for all US firms are institutionally held, yet when we talk to companies they almost always tell us they’re 80 percent to 90 percent institutionally held. Then, when we look closely, the retail portion of their shareholder base is actually bigger than they think. The reality is that there’s a big block of people who would probably vote your way if you could reach them and get them to vote.’
‘Analysts, portfolio managers and algorithmic traders are taking sentiment analysis, customer comments and all kinds of other data points and incorporating them into their decisions. They’re also following blogs, seeking out industry expertise and people on the ground. If you’re not aware of what they’re following, you have an information hole.’
‘When the SEC said it would allow disclosure via social media, I wondered whether it ever actually talks to investment professionals. Does it understand that some have zero access to Facebook and Twitter because of security and liability concerns? It’s true they’re using their own mobile devices, but there’s an automatic barrier to social media at a company level. The SEC’s ruling is more about making companies accountable for social media comments than it is about proactive communications.’
How do you measure the success of your annual meeting?
Voting activity – 100%
Other – 0%
Has your company discussed doing a virtual annual meeting?
Yes – 50%
No – 50%
Which social media does your company use for IR?
Blog – 25%
Twitter – 25%
Facebook – 17%
Virtual shareholder forum – 5%
Do you use social intelligence to listen to analyst and investor sentiment?
Yes – 75%
No – 25%
Do you have a mobile strategy for IR?
Yes – 30%
No – 70%
Dos and don’ts from an analyst and a fund manager
‘I’m amazed when we’re managing billions of dollars of a company’s stock yet the only person IR deals with is an analyst who may have only two or three years’ experience. So if portfolio managers come to your meeting, get their card, thank them for their time, answer questions and follow up. You’ll stand out. And you’ll make your company hard to sell because you’ll have built a relationship.’
‘Know that if you meet with someone who is short your stock, it’s going to be a lot easier to get that person to become a buyer than it will be to get someone with no position to become a buyer. The completely new investor might be a long time and lot of work away from buying, while a short has done the work, and many shorts become long, or at least neutral.’
‘Try to change the language of guidance to ‘goals’, and then move the information up your income statement as much as possible. EPS is the worst, income is a little better, pre-tax is better, operating profit is better still. Growth, profit and revenue are probably the best.’
‘Management teams often ask what we think they should do with their cash. The first question I’ll ask is what they think the business is worth. If your CFO can’t answer that, you shouldn’t be making acquisitions, buying back stock or paying dividends. Triangulate what your business is worth and that should drive your capital allocation decisions.’
‘Investor days: don’t do them. They’re a waste of everybody’s time, except if your business has significantly changed, like when Netflix was going from DVDs to streaming. Another good example is eBay. It does an investor day every three years and gives a three-year outlook. That’s valuable new information and everybody wants to be there.’
‘Several years ago, when we started reading all these articles about dark pools and new types of trading instruments, we said, We need to understand this, and we developed a three-prong strategy for investor relations: I think a lot about our investment thesis; I think a lot about the investors we reach out to; and I think a lot about market structure and how it influences the other two.’
‘Options expirations come at the same time as earnings calls typically do, around the middle of the month. I try not to inject more information into the market at that time; it’s just a recipe for more volatility. So I use the options expiration calendar from the Chicago Board Options Exchange as a beacon and it guides everything I do in terms of the timing of communication. We moved earnings reporting to later in the month, for example, and that has been very effective.’
‘Our stock in particular is volatile around its 50, 100 and 200-day moving averages. Sometimes there are days when we have unusual upside or downside coincide with breaking through the moving averages, particularly if we break through more than one on the same day. I keep an eye on where we are relative to the moving averages every single day. I know that if we’re sitting on top of all three and we end up drifting down on higher volume, we’ll fall quite a bit before hitting a support level.’
‘As IR people, we are woefully under-appreciative of the animal spirits in the market. I recommend two books: Octopus: Sam Israel, the secret market and Wall Street’s wildest con by Guy Lawson, and The pit: a story of Chicago by Frank Norris.’
‘I’ve done IR for a long time. Pursuing an understanding of market structure has made my job more fun. I really enjoy it, and it has added sophistication to the way I approach things, which is timely considering what’s happening in the market.’
IR Magazine Think Tanks are invitation-only events for select groups of corporate IROs. Find out about upcoming think tanks in London, Toronto, Chicago and New York at www.irmagazine.com.