Highlights from IR Magazine’s fall think tanks in North America
At think tanks in late September and early October – in Silicon Valley, New York and Toronto – nearly 200 investor relations officers met to network and learn from each other. Distilled from many hours of discussion, here we present some of their insights, along with comments from third-party experts at the events.
Advanced course in shareholder activism
Activism has been on think tank agendas for a decade but this was the first year that every table of IROs had at least one attendee – often two or three – with firsthand experience to discuss. Activists themselves talked about the hair-raising amount of co-operation they now get from mainstream institutional investors.
‘The level of interaction with large, long-only fund managers is the single biggest change I’ve seen in my 13 years in activism,’ noted one hedge fund manager. ‘It’s a new phenomenon and it’s great for driving change. One reason we’re seeing so much new capital coming into activism is that our ability to succeed is so much greater when we have that long-only support.’
Another activist said the majority of his ideas now come from long-only investors, analysts, bankers and former executives and board members who phone him. ‘Often it’s sour grapes, or they’re just trying to get out of a bad investment. But a lot of the ideas in our portfolio have come that way,’ he explained.
Activists do a lot more work than just reading public filings and listening to earnings calls. They look at LinkedIn and Facebook profiles for a whole range of people in a target company, they talk to former executives and board members, whether happy or disgruntled, they talk to suppliers and vendors, regional managers and company employees and franchisees. If the IRO doesn’t have the same knowledge as the activist of what people are saying about his or her company, he or she can’t give good advice to senior management and the board.
A securities lawyer said the biggest growth area for his firm is activism preparedness, and the second-biggest is in new kinds of activism. ‘We’re seeing a ton of debt activism,’ he warned. ‘These investors buy up your debt, read those documents better than any lawyer ever, then try to figure out a way to put you in default.’
Focus on the sell side
Sell-side corporate access desks continue to expand. Institutional investors are clearly telling the sell side it’s fine to hear about the research opinions of analysts, but if they can’t see the management team and understand what it’s all about, the chances of them investing in that firm are pretty slim.
IROs in Palo Alto were interested to hear about the shake-up in Europe, where the UK’s Financial Conduct Authority (FCA) is stopping investors from spending trading commissions on corporate access even though brokers and institutions say it’s part of the research process. Even more alarming, a Europe-wide law on financial services – the new Markets in Financial Instruments Directive – threatens commissions for any kind of research. The extent of the FCA’s reach is still uncertain but a number of global fund managers have already stopped ‘voting’ for corporate access when allocating commissions.
Hedge funds and the sell side’s predilection for them also came up for discussion. ‘Every investor is addicted to corporate access but hedge funds crave it a little more,’ said an expert observer. Hedge fund professionals go to between 30 percent and 40 percent more management meetings and allocate about 5 percent more commissions to corporate access than long-only funds. ‘They value it more, and pay more for it, partly because they have a harder time getting it,’ explained the expert.
One IRO declared she marketed with all the analysts covering her company, regardless of their rating. What’s more, research coverage is not a prerequisite for going on a non-deal roadshow, according to one corporate access executive: ‘You can bring management on the road, we’ll give you feedback and you don’t have a note written. Then you can go on the road with a covering analyst who has a hold or a sell on you, knowing what the elephant in the room is.’
IROs were also interested to hear about how the corporate access desk fits in with other business lines at a bank. Capital markets, buybacks or lending could be the first step to doing corporate access, a sell-sider explained as she exhorted IROs to ‘get to know the whole team, not just the analyst.’ Along with research coverage, consider a broker’s capacity, its volume of roadshows and where its sales team is strong.
Strategic planning and time & budget management
We regularly ask think tank attendees about their top challenges. Most go in and out of fashion but certain ones crop up year after year: managing an increasing flow of information and coping with rising demands on the IRO’s and management’s time.
For this fall’s round of think tanks, we tackled these head-on. Outbound social media and inbound monitoring came up as a way to manage information and save time, not waste it. Social media monitoring is getting easier, though IROs today rarely use it. ‘But I bet if you went to marketing or PR or legal, they’re monitoring already and you could piggyback off their budget,’ advised one expert, who also pointed to cheap or free tools like Google Alerts, which now has more intuitive search algorithms, as well as Topsy, Trackur, TweetDeck and Hootsuite.
On the premise that having clear goals aligned with overall corporate strategy can help deal with time and budget pressures, we asked IROs to give their goals for the coming year. Here’s a selection:
- ‘To increase engagement internally: as a small IR team in a huge company with more than 10,000 employees, my goal is to spend coffee breaks and lunches getting to know as many as possible, from corporate communications to product groups and all the layers below. It will elevate me, my team and our role, and it will establish connections to get quick answers on any possible question.’
- ‘I want to deliver sentiment from the Street to operational management members a level below the C-suite. It will help accelerate our progress and, as these people are aspiring to be the next CFO or CEO, it’s important to introduce them to the views of the investor base.’
- ‘We recently switched to a new market intelligence provider and the ownership reporting is phenomenal. It has totally changed the way we give information to the C-suite and the board. Now I want to add the contact management part, overlaying our past meeting schedule on buying activity.’
- ‘There’s no danger of activists staging a proxy fight at our firm, but I’m beginning to realize they could start a PR fight. I’m going to integrate that thinking into how we deal with hedge funds.’
Overseas marketing
Targeting foreign investors is another perennial topic. This year expectations for Europe and Asia were kept in check.
‘It sounds glamorous and it’s great fun to go to Europe, but you really have to do your homework to determine whether it’s the right fit,’ said an IRO leading the discussion. ‘Especially if you’re a small or mid-cap, if you’re not going to go regularly, you’re better not going at all.’
Even small companies have found a welcome reception from Europe’s mushrooming socially responsible investors, however. ‘US investors couldn’t give a fiddler’s for CSR but we could have a week-long European roadshow talking about nothing else,’ said a US IRO. ‘It’s patient capital and it’s an expanding pool.’
A targeting expert recommended meeting foreign investors without leaving the US, pointing out that Chinese, Singaporean and Norwegian sovereign wealth funds (SWFs) have offices in New York, while foreign mutual funds like Aberdeen Asset Management have set up shop in the US.
It was also noted that more SWFs are coming online or at least are planned, including gargantuan ones in Saudi Arabia and Japan. Moreover, many existing SWFs are becoming a lot more active, with funds from the likes of Korea, Quebec and British Colombia bringing more fund management in-house. ‘It’ll be choppy at first but there will be a lot more SWFs investing directly in your stocks,’ noted the expert.
Putting feedback to work
The New York group concentrated on advanced ways to get feedback from analysts and investors. ‘There are 1,000 things you and your management could be spending time on. A formal investor perception study by a third party gives you the four or five that will have the greatest impact, and you can track your progress over time,’ said an expert in perception work. ‘It helped with messaging for our investor day and quarterly reports, but it also laid the groundwork for operational changes,’ added another IRO.
Less formal online techniques are also being used, like a SurveyMonkey survey of analysts and investors a few weeks ahead of an investor day. Fifty were invited and more than half responded to easy questions about what they wanted to understand better about the company, and which two or three things would make the investor day a successful event.
Big data & retail investors IROs in Toronto got a briefing on how companies are starting to use data on retail investors to engage better with them. Moving from basic questions like who and where they are, IROs are now mining information about what type of stocks retail investors hold, how long for, whether they vote their proxies and even how they vote on certain types of proposals.
Big retail brands are the heaviest users and the initial goal is usually simply to increase voting participation by retail investors. ‘They’re trying to build reserves in their shareholder base so they can be better prepared for threatening situations,’ said a proxy expert.
For example, a huge tech company with millions of retail shareholders used big data to identify a group of around 5,000 that have held 10 percent of the company for a long time. The company targeted this hitherto unrecognized voting block of investors with the same high level of communications its top shareholders get – and bumped its voting rate by 10 percent.
Canadians look to the US
Around half the IROs at the Canadian think tank were cross-listed in the US, most of them on NASDAQ or the NYSE. In a session on the US market, the main message was that having a listing in the US, or at least a ticker symbol, is only the start.
‘You have to be visible in the US, with roadshows, a media push, a marketing plan,’ said an IRO on the panel. She also emphasized that managements and boards should think about both the pros and cons before committing to a US listing. ‘It can be a lot to undertake, especially for small companies, but if done right it can increase liquidity and diversify your shareholder base,’ she added.
The session focused on OTCQX and OTCQB, over-the-counter platforms that give a growing number of Canadian firms access to US investors without the burden of an SEC filing or SOX compliance. ‘A US ticker gives you a window on the US market while legalizing your securities for US broker-dealers,’ explained another speaker.