Excerpts from the 2009 IR Magazine West Coast Think Tank, looking at new regulation and a new buy- and sell-side landscape following the economic crisis
Disclosure: the new concept of ‘fair’
Guidance in the financial crisis
‘In this environment, hardly anyone knows how the business is going to look a week out, never mind next quarter. You see companies pulling back and giving yearly guidance. We gave really wide guidance this year, but we also reinitiated our mid-quarter update.’
‘We had to give very broad ranges for our annual guidance. We also deviated and gave quarterly guidance because consensus was too high, explaining that it was a one-time move because of exceptional volatility. When we got to the next quarter, and some people were surprised we didn’t give quarterly guidance again, we confirmed we were going back to our normal practice of annual guidance.’
New trend?
‘We just went to an investor conference where there were no presentations and no webcasts. We brought handouts only. It was essentially a 75-person breakout. They called it a ‘fireside chat’, and the investors really seemed to like the format.’
‘They must have sold attendees on the fact that they were going to get some information others weren’t. If you hear that, to cut costs, a conference won’t be webcast, you should reply that, to cut costs, you won’t be attending. I’m confident the SEC is going to be cracking down on breakout sessions, lunches and dinners.’
‘Everyone expects more aggressive enforcement. The SEC has been quiet on Reg FD, but that probably won’t continue. Transparency and disclosure continue to be the watchwords.’
Getting to grips with the sell-side reshuffle
Hand-holding in the crisis
‘In this financial crisis, our institutional investor clients want to have their hands held for longer and more firmly by their portfolio companies. IROs should be actively reaching out to existing investors; they can forget about new investors for now. This is the time when companies should be out on the road.’
Reduced resources
‘I have witnessed the thinning of the ranks. We used to be a team with three senior analysts; now it’s just one. From covering 12 companies, I’ve gone to covering 20, and with fewer resources. My main theme is to do more work on my existing group of companies rather than trying to spread myself too thinly.’
‘The quality of research has gone down in the last 10 years. The amount of time an analyst can spend on a particular idea has gone down. That’s why I think some of the smaller firms, where the analyst can focus on research and building relationships, are doing better work than some of the larger firms.’
‘We also find the quality research to be coming from boutique houses. A lot of the larger names are just ‘me-toos’ and follow each other. Meanwhile, buy-side analysts are increasing in sophistication every day; it’s a pleasure dealing with them.’
SEC rules agenda and proxy-season hurdles
Lawyer’s view
‘There is a confluence of factors shifting the balance of power firmly in shareholders’ favor: majority voting, the elimination of the broker vote, and shareholders’ right to call special meetings. There has never been a more important role for IR professionals, proxy solicitation firms and financial PR. It is more about getting the story out and less about clever legal machinations and maneuvers.’
IROs and say on pay
‘You have to take your story to investors, whether you have a proposal or not. The same things that are going to get shareholders to support your compensation plan – adequate disclosure, making clear why it works – are likely the same things that will mitigate the risk of being targeted for a proposal in the first place.’
‘We don’t agree with say on pay. We think boards and compensation committees should have the ability to set pay levels, making sure they are in line with peers and performance, and boards should be accountable through the director vote. We see say on pay as sort of passing the buck to shareholders.’
Eliminating the broker discretionary vote
‘I don’t think companies are going to be successful in slowing down the SEC on the elimination of brokers’ discretionary voting in director elections. Corporate groups are saying we have to fix the entire system, but the broker vote is a low-hanging piece of fruit and by next year it will be gone.’
The post-crisis buy-side landscape
The portfolio manager
‘Assets under management at mid-sized or smaller firms are becoming untenable for survival, so there is going to be consolidation for the traditional long-only buy. The same goes for hedge funds, many of which don’t have the size needed to survive. In general, none of the hedge funds earned their 20 percent last year, so many people will be leaving that industry. We’ll see a lot of consolidation and hedge funds closing.’
When value looks like growth
‘Our hedge fund ownership has gone down from 10 percent to less than 3 percent. Traditionally, we’ve been owned by deep-value funds. Since the financial crisis hit, however, I’ve been getting calls every day from growth investors and I have to try to make it clear that we’re not a growth company. They’re looking for a place to hide – they want real assets that will hold their value.’
Where has the money gone?
‘There’s $1 tn sitting in money market funds that wasn’t there 12 months ago. Look at a lot of the companies in this room: they’re great technology or consumer products companies and they’re sucking wind because the market is, but overall they’re doing pretty well. There’s more interest than ever in certain companies because these portfolio managers are just dying to latch on to that thing that will take off when the economy turns.’
IR Magazine Think Tanks are free, invitation-only events for senior-level corporate IROs. See www.irmagazinethinktank.com for more details.
