Archive for March, 2011

Afterthoughts on Buffett & IR

March 15, 2011

National Investor Relations Institute President and CEO Jeff Morgan follows up on Warren Buffett’s public comments about communicating with investors (see “Buffett takes a poke at IR”) today in NIRI’s IR Weekly e-newsletter.

The Berkshire Hathaway CEO, you may recall, told CNBC in a recent interview that as an investor he doesn’t need to be “schmoozed.” And he’s sympathetic with CEOs who don’t like meeting with analysts or investors. Buffett does his annual letter to shareholders (which I’ve often noted is enlightening and entertaining), and he and Charlie Munger answer questions for hours at their annual meeting.

Beyond that? Contrary to what IR people advise, as Buffett describes it, “I don’t think it’s important to schmooze investors.” In his 2010 shareholder letter, he boasts that top managers enjoy working for Berkshire in part because they’re “not subjected to … Wall Street harassment” – that is, meeting with investors or analysts.

Morgan provides an update from an executive in the Berkshire family – one who works with IR people - elaborating on Buffett’s philosophy. From the IR Weekly:

While his comments may have surprised you, Mr. Buffett considers the IR function to be very important, indicates Cathy Baron Tamraz, Chairman and CEO of Business Wire (a Berkshire Hathaway company), so much so that Buffett is Berkshire Hathaway’s primary IR contact. Cathy told me that Mr. Buffett’s core principles are that all investors (no matter the size) be treated the same, and they should all have the same access to information and the C-Suite. Mr. Buffett is in the unique position to do this largely through his candid and thorough annual report and the time he spends on Q&A at his annual meeting.

OK … I’m cool with the egalitarian ideal. In theory at least, the retail owner of 100 shares (or maybe one share, in Berkshire’s case) is as important as an institutional holder of 100,000. But Buffett tells CNBC the annual meeting and report are really his answer to IR. “I spend no time, for example, with any specific analyst,” he says.

That still seems odd to me. Or perhaps exceptional is the word. If your CEO is a legend in the investing world, then your company is exceptional – and Buffett’s IR approach may work fine. But I don’t think most companies have the cachet of Berkshire Hathaway. And so most of us, in my opinion, ought to talk to investors or analysts when they call, go out to tell our story, and maybe even “schmooze.”

I really have no quibble with Buffett (not that the opinion of a flea would matter to a giant, anyway). My concern is that CEOs and CFOs of companies across America should not take Buffett’s dismissal of standard practice in investor relations as the standard for all companies. Small and medium cap firms, especially, will hurt themselves if they shun contacts with investors.

Speaking of philosophy, consider this comment by Benjamin Graham, the father of value investing, to whom Buffett gives much credit for his own investing acumen. Graham and David Dodd wrote in their seminal work Security Analysis (1934):

Published information may often be supplemented to an important extent by private inquiry of or by interview with the management. There is no reason why stockholders should not ask for information on specific points, and in many cases part at least of the data asked for will be furnished. It must never be forgotten that a stockholder is an owner of the business and an employer of its officers. He is entitled not only to ask legitimate questions but also to have them answered, unless there is some persuasive reason to the contrary.

I know disclosure has changed since Graham – we have all these laws like the ’33 and ’34 Acts, Sarbanes Oxley and Reg FD – but I still like his reminder of who the owners are. And if it means employing an IRO or two to talk to investors, so be it.

What’s your opinion? Interesting comments on the prior post – feel free to weigh in.

© 2011 Johnson Strategic Communications Inc.

IPO in the midst of Japan’s earthquake

March 11, 2011

Our prayers go out for the Japanese people after the massive quake and tsunami.

From the Wall Street Journal page live-blogging the quake comes one small vignette that may amaze investor relations colleagues: Calbee, a snack food maker that is 20% owned by PepsiCo, had its IPO today on the Tokyo Stock Exchange.

The WSJ blog reports:

Calbee’s shares did well, outperforming the market. But for [Akira] Matsumoto [chairman and CEO of Calbee], the day got a lot more memorable after the exchange closed. That’s because he went ahead with a news conference, in front of about 50 reporters, after the closing bell—even as aftershocks following the big earthquake, just 15 minutes or so, continued to rattle the exchange. The conference was held in the bourse building, which shook badly in part because of its quake-absorbing structure.

Even as bourse staff warned colleagues, “Please wear a helmet!” or “Keep your head under the table!,” the press conference kept going. Mr. Matsumoto soldiered right on, stopping briefly only when warnings over the P.A. system temporarily drowned him out.

And he stayed on-message. “I feel very grateful for the price (rise),” he said, after discussing corporate strategy rather than earthquakes.

Wow is all I can say. Congratulations to Calbee for getting the IPO done. But more importantly, we offer our heartfelt sympathy and best wishes to all who are grieving or struggling with the aftermath of this catastrophic natural event.

Buffett takes a poke at IR

March 9, 2011

Some folks in the investor relations community are bothered – even angered – by Warren Buffett’s recent verbal jabs at IR people and the profession as a whole.

March 15 Update: a few additional thoughts here.

Maybe I’m thick-skinned. I don’t think we need to feel threatened by what the CEO of Berkshire Hathaway says about IR. Nor should we see the Oracle of Omaha as some sort of, well, oracle. He’s one CEO. We must look closely at our companies and CEOs, challenge conventional thinking, and decide what makes sense in IR.

In a wide-ranging CNBC “Squawk Box” interview on March 2, Buffett is asked by Carl Quintanilla about a comment in his 2010 annual shareholder letter that “At Berkshire, managers can focus on running their businesses: They are not subjected to meetings at headquarters nor financing worries nor Wall Street harassment.”

And Buffett replies at some length to CNBC:

Well … I would say that in talking to managers of publicly traded companies, I find — I would say that the great majority of them do not particularly enjoy the interaction with Wall Street. I mean, they do not like the quarterly conference calls and everything. That’s not to say they shouldn’t do it, but I’m just saying that is a part of their job that if they didn’t have it, they would be happier in life. They do not like spending, you know, 15 or 20 percent of the time —

I spend no time, for example, with any specific analyst. We spend all the weekend of the annual meeting, you know, we’re there to answer questions for hours and hours and hours, and I try to answer all questions that I think are important than I can think of in the annual report. But I have never sat down — I never sit down with a big investor. They write and say, you know, `We own $500 million worth of stock, you have to sit down with us.’ And I say, listen, I’m not going to sit down with you … as far as I’m concerned, one share of me owned by some … woman in my neighborhood is just as important as yours.

… But most managements kowtow to large investors. In fact, they call me — some of the things we own, they call me and they want to come from thousands of miles away to talk to me. And I say listen, if I need to talk to you, I shouldn’t own your stock. I mean, I don’t — I don’t need to be schmoozed, you know? I mean — and the investor relations guys hate that because their job is dependent on, you know, making the boss feel it’s very important to go around and stroke these big investors. But I’m not looking for that. And I would say that most managements don’t enjoy it, and … they do spend a significant part of time when I would rather have them out there figuring out ways to cut costs or sell more goods or whatever it may be. And our managers do not have to spend any time on that sort of thing.

Quintanilla asks if spending time with investors is “a function of being public, or having investor relations to deal with.” Buffett:

It’s a function of succumbing to what investor relations people and Wall Street generally tells you is important. I don’t think it’s important to schmooze investors. I think in the end you get a class of investors — what you want is people that understand you and your business and what you’re about.

… And the idea of trying to cultivate new people all the time, you know, there’s only so many seats in the church. And at Berkshire, in terms of the A stock, we have a million, 600 and some thousand seats. The only way a guy gets a seat is for somebody else to leave. I’d rather keep the person that’s there than to try and induce somebody else … go out a thousand miles on a trip and tell them, you know, things are wonderful and sort of dodge around the problems of the business. I’d much rather … keep the person that’s there already, have people that know and understand Berkshire, and not look for a revolving door constituency.

I won’t burden you with lengthy reactions, but I do have a few thoughts:

  • Data support the value of effective IR. For example, surveys of buy side investors say good IR boosts a company’s valuation up to 10%, while bad IR hurts as much as 25%. Increased sell side analyst coverage lowers the cost of capital. And issuing news more often benefits liquidity for shareholders.
  • It seems arrogant for Buffett, in his annual report, to describe management meetings with investors as “Wall Street harassment.” I’m uncomfortable with the way he views the basic activity of communicating directly with shareowners.
  • Buffett dismisses IR as “schmoozing,” telling investors “things are wonderful” and dodging difficult issues. More often, I see investor meetings as management being willing to face tough questions. And I’ve talked with many investors who say watching the CEO or CFO answer and getting a sense of confidence (or doubt) is a key discipline in making investment decisions.
  • Road shows can wear on a CEO. I know I’ve sat in limos after long days of meetings and heard CEOs complain that they could be back running the business, doing what they value and enjoy. Part of the strategy for an IRO is to structure productive meetings, even enjoyable activities, for our executives – and to spread the time commitment around if possible.

Of course, Buffett is so widely revered – as an investor and CEO, mostly the former – that he’s earned the right to do it his way. I would argue he really does practice IR: There he is on CNBC, his witty shareholder letters are a brand of their own, he speaks out regularly to support his holdings’ interests, his annual meetings are a capitalist Woodstock. Berkshire Hathaway is part public company, part mutual fund and part personality cult.

I admire Buffett in many ways, including his IR messaging, but we are not him.

Most of us work for companies operating in a more earthly realm. We need to tell our stories if we want investors to know us at all – or understand us. We need investors to see our top managers and have confidence in their ability. And we need to build relationships – with current shareholders, those who might invest in the future, and even the sell-side analysts who advise their own sets of clients.

What’s your feeling about Buffett and IR?

© 2011 Johnson Strategic Communications Inc.


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