As they see it

Jan 16, 2008
<p>Excerpts from the IR Magazine East Coast Think Tank, November 8, in New York</p>

Monitoring investor sentiment

The IROs

‘I have become a huge fan of the investor perception study (IPS) and would highly advocate doing one on an annual basis over a long-term period. The points raised in our study were absolutely valid critiques of our business and problems with our performance. Having the data from an IPS to validate some of our team’s perceptions – and the buzz among the institutional and analyst communities – to present to the board was absolutely critical.’

‘Monitoring investor sentiment involves one-on-one contacts with your analyst, your trading desk and your network of influentials in the public markets. We’ve made great introductions through our analysts. Your stock exchange can also help; NASDAQ facilitates some of those contacts for us, and I’ve found a lot of market makers are willing and interested in talking to IR professionals.’

The technical market analyst
‘In 2005, the NYSE traded 78 percent of the volume in its stocks and, in 2006, 68 percent. In the last month, it was 40 percent. Electronic trading is dwarfing what’s going on on the floor. It’s harder to get a handle on that. Most of the volume you are not going to see.’

The exchange
‘Companies ask more from their exchanges every day. We think you should. What an exchange can do is let you know, through electronic tools and human contact with analysts following your stock, what’s going on in trading, what kind of block trading you are seeing, and whether there are particular market makers who are repeating their block trading activity throughout the day.’

 

Algorithmic trading

The technology developers
‘A computer is able to read news, process it and send the execution order to a trader or a trader’s computers and actually execute that in a matter of milliseconds. You are really talking about very quick responses to the types of news you are putting out or the types of news [reporters] are uncovering when they are out in the field.’

‘What’s emerging right now is actually news algorithms that will mine the details of the news. We have a product that will measure the tone of the article, assigning sentiment scores to the words and phrases the author is using based on how positive or negative they are: ‘challenging management environment’ is a negative phrase and ‘exceeds expectations’ is a positive phrase. You can develop some trading strategies around this.’

‘Be right out there. Be open with information. Adopt XBRL. It’ll be much more efficient. It’ll help you out in the longer term to understand what the market is doing with your particular results. It helps the overall investment community understand your company a little bit better.’

The trader
‘Market impact was one of the key things an algorithm was originally designed to avoid. An algorithm [trade] is now 300 shares, where five years ago it was thousands of shares. From a positive point of view, it creates a less volatile environment, especially for the more illiquid stocks. It helps trade stocks more efficiently with less market impact. We hit these dark pools, we hit the major exchanges in milliseconds. That 200,000 share order doesn’t go off as one print now. It goes off as hundreds of these 300 share executions.’

 

Trends in corporate governance

The proxy advisers
‘There’s an opportunity for IROs to reach out to their top investors, engage them on general issues and issues specific to their firm, and report back to senior management and the board. I think that can alleviate a lot of misperceptions that can percolate into problems at proxy time.’

‘There are all kinds of definitions of what good governance is, and I think companies have an opportunity to frame and message their good governance features.’

‘One area under-communicated is the board as a key intangible asset – whether it is truly independent, not just on paper, but also in thought and action.’

The lawyers
‘If the first time you hear about a shareholder idea – particularly an adverse one – is in a request for a proposal for a proxy, something is wrong. You should be engaging with shareholders, talking with them, hearing about those ideas, floating them and discussing them much earlier.’

‘Companies and boards shouldn’t have automatic negative knee-jerk reactions to shareholder requests. Sometimes shareholders are right.’

‘If and when you get hit with a derivative suit [for ignoring a majority shareholder vote], the first thing somebody like me is going to have to stand up and say to a judge is, Why the heck didn’t you listen to your shareholders when you are supposed to have a duty of loyalty and duty of care to them? This is what they are saying they want.’

The corporation
‘A lot of our investors specifically say they could have voted to withhold against [one of our directors] because she’s been there longer than 10 years, but because of her engagement with investors, they voted for her.’

Investor meetings/corporate roadshows

Head of corporate access
‘Right now, corporate access is about the only thing the Street is paying the sell side for. There are a lot of problems inside sell-side firms. But corporate access is delivering. We’re up 20 percent year over year in terms of the number of meetings we’re setting up with the buy side and with companies.’

The hedge fund manager
‘Corporate access is kind of an evolving issue. I would say the sell side is underinvested in people and systems to deliver corporate access to the level we would like to have it. So we had a summit meeting of our 10 largest firms to develop a centralized process for [setting up] meetings.’

The IROs
‘We don’t have a formal analyst day. The last one we did, we were crucified because we didn’t say anything new.’

‘Today’s negative analyst is probably tomorrow’s positive, so it’s important to keep up relationships. But I think the sell side has forgotten it’s not just the rating that differentiates analysts, but also the quality of the dialogue. They’re forced to cover so many companies right now that they really aren’t able to have a very coherent dialogue.’

‘I find the sell side is targeting its clients; you seem to meet the same clients over and over even though you try to give sell-siders a list of individuals you want to meet with. The one flaw with the sell side is that it is looking for those new commissions.’

‘Part of my bonus was based on meeting with firms that owned our peers but not us. I told the sell-side analysts who took us out, Here are the cities, here are the firms, can you get us in? Some said yes, some said no. But it worked out: I met with people who didn’t own us.’ 

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