A recap of the eighth annual think tank in Toronto
Current perspectives on the US market
‘New conflict minerals disclosure requirements in the US affect Canadian manufacturers listed there, and it can be a scary and expensive new process. But they also affect any firm that may be part of a public company’s supply chain, because it could be part of the due diligence process. Over the next year, as the investment community and other constituencies become more sensitive to the disclosure rule, you’re going to start getting more questions about the sources of your minerals.’
‘The great thing about the JOBS Act is that while almost every other US regulation adds new requirements, this one actually makes it easier for companies to raise capital and talk to investors. That’s because of an amendment to rules allowing for general solicitation in connection with private placements. Now you’ll be able to run an ad in a trade publication, send information packets to new investors, or do other new things to tell your story to prospective investors in the US that you couldn’t previously do.’
‘We’ve spent a lot of time looking at our shareholder base, both in the US and globally. Certainly we’d like to see it increase, but it’s a slow burn. When we look at the time our management has to spend on the road in the US, we have to recognize that while we have already moved our US ownership from 7 percent to 10 percent, getting it from 10 percent to 13 percent would require even more time and resources – and we have to decide whether they may be better spent in terms of our global IR approach.’
Making your sell-side wish list come true
‘Sell-side people are generally not providing enough intelligence to IROs. There should be a lot more to the discussion than just which firm they’re meeting with. It should also be about the personality of the portfolio manager, why they care about the stock at this point in the cycle, and other intelligence around that individual’s personality.’
‘Since I’ve been doing IR, many sell-side firms have had to let people go. Now an analyst might cover 20 companies when before he/she was covering perhaps eight. There’s no way analysts can do high-quality reports when they’re covering 20 companies, and over the past several years the quality of reports has really gone down.’
‘Many companies are covered by numerous analysts. If you don’t get good-quality feedback, airtight logistics and access to senior salespeople who have deep relationships with the decision makers in accounts, you should fire your provider. You have lots of other choices.’
‘When a new analyst calls and wants to begin coverage, I try to help him/her out. The more analysts we have, the more reports get out there to more investors, and the better the chance of people knowing about our company. It’s a lot of work – after our earnings call I have to make at least 20 calls. But if there are quality analysts who want to tell your story to the world, I think we as IROs should take on that extra work.’
Crisis management: case studies & hypotheticals
‘We have a crisis communications plan that gets updated at least twice a year, as well as after every crisis. The first thing that happens in a crisis is that I pull out our plan – it’s the go-to checklist – and everyone stays calm and knows what to do. Our CEO and CFO become the go-to folks on the messaging to investors while I oversee communications with my team, including employee communications. Every one of our 10,000 employees could potentially answer questions from consumers, media or investors, so everyone has to be on-message.’
‘Today there are a number of tools that allow you to stay in front of the news. With the explosion of social media, and the speed with which a story can develop, you need to be able to address and potentially defuse an issue before it actually becomes significant enough to affect your company from an IR point of view. Reach out to your communications team because in many cases it already has such tools in place.’
‘To be prepared for activist attacks, IROs need moles in the hedge fund community. You may not want [hedge funds] in meetings with your CFO, but they all talk to each other and each knows what the other is doing, so you might get a tidbit of information well before the disclosure of a position in your stock.’
Looking ahead to 2013: tackling short-term thinking
‘Canada has gone from feeling cocky relative to the US to potentially feeling inferior. The Canadian economy and Canadian consumer pool have definitely contracted and that mentality of optimism driven by employment and the wage outlook has started to deteriorate. Unlike in the US, our housing market has generally done nothing but go up, although now we’re seeing a slowing and even a decline in some markets.’
‘We think equities relative to bonds look very good, and North America looks good relative to the rest of the world; equities have had a big run here. But when we look at the big picture over the last decade, equities have dramatically underperformed, and we believe over the next decade they’ll perform far superior to bonds, particularly public bonds.’
‘Investors are overpaying for safety – for example, for companies that have high dividend yields. That could be a frustration for IROs. If you have a really high dividend yield, it doesn’t matter what the underlying value of the business is; people will put a very high multiple on your equity even if it’s a low-growth business. When interest rates go up, that trend will reverse itself.’
‘It’s been a challenge for fundamental stock-pickers for several years. The correlation factor among stocks is as high as it’s ever been. Entire sectors – even the entire equity market – are driven by what’s going on in Europe or China. But there are signs this is starting to abate and, in the long term, corporate fundamentals like earnings growth, revenue growth, margins and return on invested capital are the factors that will drive stock prices.’
Governance & regulatory briefing
‘Proxy advisory companies should have to disclose the methodologies they use to reach their conclusions, and they should give every issuer 48-72 hours to review their reports so they can correct any factual inaccuracies before those reports go into the marketplace. We’re also recommending that an issuer’s comments be included in the final proxy advisory firm report so institutional investors will see whether there is any disconnect.’
‘The Canadian Society of Corporate Secretaries’ shareholder democracy initiative is looking at how complex the proxy voting system is and how it can be simplified. We suspect it’s going to be a five-year initiative, and we think there needs to be a full-time person lobbying for changes. With notice and access coming in, issuers are going to generate some cost savings, so we’re hoping they’ll see the value of putting some of those back into fixing the system. We don’t want to knock players out of the system, but we do want to help straighten out the jagged lines.’
‘As corporate board members become more concerned about proxy voting, it’s the perfect storm for IROs and corporate secretaries. We each bring to the table a different understanding of the shareholder base. On the corporate secretary side, we’re not concerned whether shareholders are buying or selling, but we are concerned about how they’re going to vote once they’re invested. We both have intelligence we can share with each other – particularly around annual meeting time – about whether there’s anything contested or disconcerting on the agenda.’
About IR Magazine Think Tanks
IR Magazine Think Tanks are invitation-only events for select groups of corporate IROs. The next one will be held in Palo Alto, California on April 4. Find out about that and other upcoming think tanks in London, Toronto, Chicago and New York at www.irmagazine.com/events.
