Someone should’ve said No

July 6, 2009 by Dick Johnson

Well, there’s knowing your shareholders – and then there’s going way too far.

The German magazine Der Spiegel reports today that the country’s largest bank, Deutsche Bank, hired private investigators to look into members of its management and supervisory boards – and a pesky shareholder.

To be sure, the bank was investigating information leaks it saw as threatening – but it seems obvious someone should have said “No.” Now, the bank faces reputational damage, scrutiny of top executives’ roles – and possible legal action.

A 2001 case involved a union representative on the company’s supervisory board, suspected of leaking earnings info to the press. In 2006, the bank investigated contacts between management board members and German media mogul Leo Kirch, who was tangling with the bank legally. Among the targets, Spiegel says:

The bank also had external helpers investigate a shareholder believed to have links with Kirch – Michael Bohndorf, a lawyer who resides on the island of Ibiza. The investigators compiled detailed reports on his movements and even looked into whether he had any personal weaknesses: alcohol, gambling, women? One insider reports that the agency resorted to hiring women to test him.

For years, Bohndorf has been annoying Deutsche Bank by asking dozens of questions at annual shareholder meetings and taking legal action if his questions aren’t answered. The bank has already informed Bohndorf of the spying operation and apologized for it. 

Two other German companies, Deutsche Telekom and Deutsche Bahn, face spying scandals. American firms have fallen into this trap in the past.

When the company is in the heat of battle – litigation, proxy fight, M&A contest – a mood of paranoia can take over in the executive suite. But when it comes to violating the law – or doing something that will look stupid in The New York Times or Der Spiegel – someone on staff should be saying “No. Don’t go there.”

The sanity check, sometimes, might even come from investor relations.

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‘Macro’ drives ‘micro’

July 1, 2009 by Dick Johnson

The headline of the day, in my book, comes in a post on the Wall Street Journal Real Time Economics blog marking the arrival of July 1:

It’s The Second Half — So Where’s The Recovery?

Investor relations professionals may feel the same ambivalence today, as we enter the back half of the year wondering about macroeconomic trends and seeing the big picture’s influence on our companies’ fundamentals (and stock prices).

Investors are trying awfully hard to be there waiting on the dock when the good ship Recovery pulls in. So the market rallies … when Ford’s sales drop only 11% (the best of the automakers) … when manufacturing shrinks, but less than it has been declining for the past year … when unemployment keeps rising but probably at a slower pace. In a market eager to be hopeful, exuberance seems to come cheaply.

Anyway, the second half has arrived – and  let’s hope recovery really is at hand.

One of the challenges of investor communication is to explain how the business cycle works its way through industry and company-specific performance. We need to offer insight into how our P&Ls are affected by changes in product demand, sales volumes, pricing power, cost of materials and so on – and the timing of these changes within the economic cycle. Part of this is saying which “macro” metrics matter to our businesses – and providing the data for our shareholders.

IR people should be students of the macro environment (among other things). Three good sources on the dismal science are blogs that aggregate and report the daily economic news: Calculated Risk, The Big Picture and WSJ’s Real Time Economics. Following all three, of course, could be too dismal for most of us.

Another challenge for IR is to understand how our companies diverge from the economy as a whole. We must explain actions we’re taking to outperform, smooth the cycles or propel the recovery of our P&Ls beyond the macro trend. 

The next couple of quarters promise to be interesting. Happy H2!

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Who’s doing this to our stock?

June 26, 2009 by Dick Johnson

BlueCandlestickGraphAs investor relations people we should always, always be students of the market. We should keep on digging to understand capital markets as a whole – and specific supply-and-demand dynamics of the stocks we are hired to understand.

I like the perspective offered by Tim Quast, managing director of Modern IR, an equity market analysis and consulting firm, in a post called “Did a Market Strand Snap?” in the company’s online Market Structure Map. He describes the market for your company’s stock as three strands braided together:

If the three-strand cord that constitutes your price and volume braids rational investment, speculation and risk-management, which one just snapped? Anyone? Anyone?

To refresh, we at ModernIR say most buying and selling in the markets comes from those three sources. There are real, rational investors deploying capital and taking profits, and portfolio managers adjusting their asset balances and associated hedges to manage risk. Around those, speculators engage in various trading tactics. We believe at least 95% of volume for a given issue ties to one of these threads. Sometimes human traders drive it and other times computers do. The machines dominate today.

So something dramatic happens to your stock. “Who’s doing this?” Is it real investors, who after all are the target of almost all IR activity – and the people CEOs and CFOs like to think about? Is it a subset of managers putting on a particular hedge, which may move your stock because of industry, index membership or some kind of arcane characteristics? Or are you being swept up in a speculative play?

Not easy questions to answer, at least without support from outside sources. But Quast walks through a scenario for narrowing the causes of a big move in your stock, mostly by elimination, and offers good examples of factors to consider. And he says something important about the role of the IR function:

If your stock suffers declines and your bosses and Board members are pacing outside your office, educate them. Explain that investment drives price but a third of the time, with speculators chasing rainbows and portfolio managers modulating risk, behind the balance.

Here’s the clincher: that means two-thirds of the time, it’s somebody else’s fault. … If you have the power to show execs that selling decisions aren’t about you but are due to portfolio risks, well, that’s valuable. And when you use it to set internal expectations and measure external outreach, it is power indeed.

So IR can be more than cultivating relationships, answering phones, going on road shows – not to minimize these core activities. IR can be the place where people come for knowledge of the markets and understanding of your company’s stock.

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Reputation ‘now more than ever’

June 24, 2009 by Dick Johnson

The financial and economic crisis has seriously eroded the trust people feel for business generally and specific corporations – and companies need a concerted, sophisticated effort to repair the damage – three McKinsey & Co. consultants write in “Rebuilding Corporate Reputations” in the firm’s June 2009 newsletter.

Today is an especially tough environment for corporate reputations, the consultants say. The onslaught of online participatory media, scrutiny from nongovernmental organizations, and waning trust for advertising make it harder to be believed. And all this comes at the same time that policy makers are eager to make an example of corporate executives and impose new laws and regulations on their industries.

Old-line PR tactics will no longer work in this environment, the authors say:

Now more than ever, it will be action—not spin—that builds strong reputations. Organizations need to enhance their listening skills so that they are sufficiently aware of emerging issues; to reinvigorate their understanding of, and relationships with, critical stakeholders; and to go beyond traditional PR by activating a network of supporters who can influence key constituencies.

A company fighting for its reputation must marshal a coordinated cross-functional response including investor relations, communications, marketing, legal and regulatory, and corporate social responsibility, the consultants write (OK, OK, they mention IR last). And reputation management must begin at the top:

… it’s the CEO who must lead a company’s overall reputation strategy, ideally with the support of a board committee focused on it. This may seem like a lot of firepower, but in today’s climate, with reputational issues threatening both shareholders and a company’s ability to achieve broader goals, that degree of high-level attention and integration is essential.

Investor relations professionals should be big-picture people, and the intersection of reputation, industry standing in the public policy arena and shareholder value is ample reason for IR to join in the effort to understand and build reputations.

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I’ll drink to that

June 20, 2009 by Dick Johnson

IMG_0917 (2)Ya gotta love that Harvard Business Review! And Thomas H. Lee, MD, a prof at Harvard Medical School who writes the magazine’s Health & Well-Being column among other accomplishments. In the June issue, the good doctor tells us what we want to hear in “Good News for Coffee Addicts”:

What’s the engine that drives American business? Innovation? Perspiration? Capital? Try coffee. From the shop floor to the boardroom, java – and I don’t mean the software – fuels workers and shapes office culture. What’s more, a steaming cup of joe may be as good for your health as it is for the bottom line.

Despite some early knocks from medical studies in the Fifties and Sixties that didn’t realize the health effects they were seeing came from smoking, which used to go hand-in-hand with coffee drinking, Dr. Lee says recent science is trending strongly in favor of coffee. Doesn’t cause cancer – may help prevent some kinds. Not bad for your heart – may help prevent heart attack or stroke. Other conditions like diabetes, gallstones … well, the stuff is practically a magic elixir. 

Full disclosure: You may have guessed I am one of those coffee addicts, and Dr. Lee sounds happily caffeine-buzzed. So it’s self-justifying. But I’m not on the Maxwell House payroll, and he didn’t cite any sinister funding from Big Coffee either.

To be even more balanced in my scientific reporting, Dr. Lee keeps mentioning “a cup or two” – he’s not measuring intake in pots a day. He warns against too much caffeine making you shaky, raising blood pressure and dehydrating you. And adding sugar, cream, whipped cream, caramel, chocolate …? Don’t go there. Probably the best health aspect of coffee is that it starts with zero calories.

So, as investor relations people who often are powered by a cup of coffee (or tea or something in a can), maybe we don’t need to feel guilty anymore. Thanks, HBR.

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M&A clichés don’t ring true

June 15, 2009 by Dick Johnson

Examples abound of acquisitions that ultimately fail to benefit shareholders, and the wipeout in market values since 2007 has provided lots of new case studies. Exposure of deals-gone-bad serves as a cautionary tale for people who write merger announcements: Too often, standard M&A clichés don’t ring true.

One case in point – the 2006 acquisition of apparel retailer J. Jill by Talbots – is Michelle Leder’s subject in “On M&A Math,” published June 9 at Footnoted.org, a blog dedicated to digging up and highlighting glitches in company disclosures. Talbot’s bought J. Jill for $517 million three years ago. Last week, Talbots said it was selling J. Jill to a private equity group for just $75 million, about 85% less.

Leder writes:

Whenever a deal is announced — and a bunch of them have been lately — there’s the inevitable press release that talks about synergies and how the deal is going to enhance shareholder value. Indeed, that’s pretty much a mandatory sentence. But things don’t always turn out as planned when it comes to M&A, or, quite frankly a lot of other things …

In the February 2006 release on the retailers linking up, the Talbots CEO used several M&A bromides: 

Working together, we expect to capture the significant growth potential of the J. Jill brand and enhance shareholder value. We believe our proven expertise in managing a complex multi-channel operation will enable us to maximize the cost synergies of our similar business models, particularly in back-office functions.

In the June 2009 exit announcement, a different Talbots CEO declares:

This is a significant strategic step forward for Talbots as it enables us to focus our time, resources and attention exclusively on rejuvenating our core Talbots brand and return to profitable growth.

Synergy. Shareholder value. Growth potential. Expertise in managing complex operations. It’s too bad when these things come to naught. Of course, the financial crisis and recession have overcome many companies that didn’t merge, too.

But it seems to me that investor relations professionals should learn something from witnessing the wreckage of various mergers in recent years. We should anchor our statements about M&A transactions in specifics, not the traditional broad-brush claims of reaping synergies and enhancing shareholder value.

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IR Café: one year & counting

June 12, 2009 by Dick Johnson

iStock_8241130_CupcakeToday marks one year since I began writing IR Café. The blog is a way to contribute to the conversation in the investor relations profession, exchange ideas with colleagues, clarify my own thoughts, and reach out to IR people I might not otherwise meet.

How very gratifying! Among the results:

  • Experimenting with social media – and the interrelationships among blogs, search engines, Twitter, websites and so on – is an exciting learning experience.
  • Just over 9,000 visitors have looked at IR Café to date. It’s averaging 30 a day in 2009. Not big numbers by web standards – but a lot more people than I normally see in a day or a year.
  • I’ve spoken or traded emails with IR people across the US and Europe – as well as Brazil, India, Israel and Russia. And I’ve met some in person, a warm affirmation that “the network” actually consists of real people.
  • While I’m still a newbie, I am having some fun.

Thanks to each of you for reading, commenting or reaching out to get in touch.

And now I’m going to sip on a mug of coffee and think about what’s next. Please send me your thoughts or suggestions for IR Café.

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More scary Washington stuff

June 10, 2009 by Dick Johnson

Harvey Pitt, who was chairman of the Securities and Exchange Commission early in the Bush Administration, said Tuesday on a panel at the National Investor Relations Institute 2009 Annual Conference in South Florida:

Sarbanes Oxley was just the tip of the iceberg. We are federalizing the law of corporations. Companies that don’t get that are going to be left behind.

Pitt, now CEO of Kalorama Partners (a Washington-based consulting firm on business and government issues), said Congress and the SEC under the Obama Administration are dramatically changing the regulatory landscape for companies.

For example, shareholder proxy rights and board of director relationships to companies have traditionally been governed by state corporation laws but Congress now is likely to pass new laws on both, Pitt said. The “emotional and moral outrage” on extravagant compensation by companies getting federal aid also will lead to legislation – and it won’t be limited to bailout beneficiaries – he said.

Unfortunately, Congress when it legislates tends to wait for a thalidomide case – and we clearly qualify for that now [with the financial crisis] – and then tends to over-legislate.

Pitt’s advice: Public companies and boards should proactively address executive pay policy to bar large packages when companies are failing, “shareholder democracy” issues such as access to make proxy proposals, and other governance matters.

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DC to IR: “Here we come”

June 8, 2009 by Dick Johnson

NIRI09 advocacy panelPublic companies will face tougher laws and increasing regulatory scrutiny from Washington in the coming year, warns Jeff Morgan, president and CEO of the National Investor Relations Institute (NIRI).

In a panel on advocacy at the NIRI 2009 Annual Conference today, Morgan said the Securities and Exchange Commission (SEC) is pursuing three priorities for 2009:

  1. Enforcement of existing rules such as Regulation FD
  2. Investor protection & corporate governance
  3. Transparency of financial markets & products

“The landscape is changing and will continue to change … It’s a whole new world,” Morgan said. With the change agenda of the Obama Administration influencing all areas of regulation, companies should evaluate their IR practices with care – and join in advocating for balanced, sensible policies - he said.

From the SEC, Morgan said, we can expect to see enforcement cases in the next year centered on Regulation FD issues of selective vs. broad disclosure.

“We’ve been in an environment where we’ve never seen a lot of Reg FD cases come against companies,” Morgan said. The rapid growth of social media poses a challenge to traditional controls on corporate disclosures, he noted. “If we start to see [Reg FD enforcement actions], I think it’s going to cause all of us in a corporate environment to be asking how do we manage that better.”

Change is coming in the proxy area, too. Both the SEC “proxy access” proposal and elimination of broker voting for passive shares are likely to give more power to activist shareholders and pose challenges for companies, he said.  

Morgan said the SEC also is looking at requiring enhanced disclosures on board of directors’ leadership approach, board nominations, compensation philosophy and practices, and perhaps nonfinancial factors such as climate-change impacts.

Transparency has been a theme for President Obama from the start. As the idea takes shape in legislation and new regulations, it may benefit IR people looking for more insight into hedge funds and less-regulated areas of the investment markets, but it will mean more demands on public companies, too, Morgan said.

“Corporate transparency is big on Congress’s agenda,” the NIRI president said.

So DC is saying to IR, “Here we come!” And I would add, “Watch out!”

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The website: your front door

June 8, 2009 by Dick Johnson

As investor relations professionals, we need an audience-centered approach to communicating with investors. And the audience, more than ever, is online. So we need to think strategically about our company websites and their IR sections.

Do they deliver what investors need and want? Do they accomplish what we want?

Think of a corporate website as a place that people experience. When an investor comes to your home page, it’s like a prospect stepping onto the front porch of a house you’re trying to sell. The investor looks in the front door, takes it all in, and prepares to go in and walk around. Other sections of the site are the rooms.

An investor has three kinds of experiences when he or she visits your website:

  • Finds information - which, of course, is why he’s there.
  • Forms impressions - your company brand comes across in many ways.
  • Interacts in some way - which may be your one chance to engage.

We should evaluate our websites in terms of these experiences for our audience – what they’re looking for and what drives value in their minds.

Over the years, I’ve worked on corporate websites to benchmark best practices for what IR content should be there, and I’ve done a good deal of writing for the web.

In a panel discussion today at the National Investor Relations Institute (NIRI) 2009 Annual Conference, I’m sharing some ideas on websites in a workshop called “Trends in Media and Technology.”

The strategic IR focus for a website looks at whether we are delivering the right information for investors in easy-to-find, usable forms, creating the right impressions of a company committed to creating value for shareholders; and inviting investors to interact with the company in convenient and helpful ways.

The IR purposes of the website must integrate with other goals – marketing, recruiting and retention, public affairs – because all of these audiences overlap. A corporate website must integrate with offline sources of information – the print reports, SEC filings, product promotion, media releases and so on that all of these audiences also see.

Tactically, we can do a great deal to maximize the value of our websites to investors. My own “audit” checklist for IR websites has about 40 potential features or content items.

But checking off information items isn’t the main point. The experience of the investor when he or she comes to this place – your front door – is the main point.

Some resources to guide IR people in maximizing our websites:

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