Archive for January, 2009

“Investor Relations” the song

January 31, 2009

sisterhood-albumThis is too weird not to share: Searching for a book on Amazon I ran across an MP3 for a song called “Investor Relations.” Well, I had to plunk down my 89 cents and latch onto this professionally relevant tune. Turns out “Investor Relations” is 10 years old. Somehow I missed it back in ’99. Here’s the album cover.

The band is the Sisterhood of Convoluted Thinkers. OK, they’re not on my regular playlist … a bit too loud-and-indie for a mellow-oldies guy.

Strangely enough, the Sisterhood’s singer on this track is male. His whiny nasal voice sounds like something from Dylan in the Sixties – appropriately, since “Investor Relations” is sort of a protest song.

Listen to a clip … Or a sample of the lyrics will give you the flavor:

I’ll make a bet that we all own something
That disagrees with our politics …

So you’re buying stock in a corporation
That’s cutting off your nose.
Don’t you dare look shocked
When they come to take it 
And they say that’s how it goes.
And now, I can’t breathe.

The words are eccentric but evoke darkness and doom in all things corporate. Taking swipes at Nike, Wal-Mart and other companies, the song could offer a provocative lead-in to a discussion on socially responsible investing. Or just comic relief. “Now, I can’t breathe … la-la-la-la-la” is a recurring refrain. (The “la-la-la-la-la” keeps it from getting too heavy.)

This musical oddity is not about to be adopted as an anthem for NIRI – though you have to wonder, why isn’t there more singing at NIRI meetings?

Communicate your relative strengths

January 29, 2009

A couple of Boston Consulting Group gurus urge companies to “Seize the Advantage in a Downturn” in the February 2009 issue of Harvard Business Review – and investor relations is part of their story.

After listing actions management can take to maximize cash and working capital, reduce costs, and drive revenue, authors David Rhodes and Daniel Stelter cite valuation as a competitive tool:

Your company’s share price, like that of most firms, will take a beating during a downturn. [Been there, done that – my comment.] While you may not be able to prevent it from dropping in absolute terms, you want it to remain strong compared with others in your industry.

Enhancing relative valuation, a familiar benchmark for IR people, calls for communicating your strengths vs. the peer group. Of course, messages to investors must follow concrete actions by management:

In a downturn, our data shows that markets typically reward a strong balance sheet with low debt levels and secured access to capital. Instead of being punished by activist investors and becoming a takeover target for hedge funds, a company sitting on a pile of cash is viewed positively by investors as a stable investment with lower perceived risk.

Stability that may seem sleepy and boring in good times is suddenly popular – but you need to talk about it, the BCG guys say:

For that to happen, you need to create a compelling investor communications strategy that highlights such drivers of relative valuation. This will also be important as you try to capitalize on the competitive opportunities that a recession offers, such as seeking attractive mergers and acquisitions.

The consultants also say raising dividends has proven more effective than share buybacks in driving valuation. But they note the potential conflict between richer dividends and maintaining a healthy cash hoard.

(Call or email me if Johnson Strategic can help you put together a compelling IR strategy or craft messages for these turbulent times.)

Mergers, the Death Star & IR

January 27, 2009

Not all mergers are marriages made in heaven, and the ongoing Bank of America-Merrill Lynch saga is providing plenty of support for the skepticism many investors hold toward M&A as a way to create value.

Today in The Wall Street Journal, Merrill ex-CEO John Thain responds to a whispering campaign blaming him for the souring of Bank of America’s ownership of Merrill (“Thain Fires Back at Bank of America”).

Thain was shown the door last week by Ken Lewis, B of A’s CEO. The parting came amid talk by sources around Bank of America that Thain surprised the new owner with Merrill’s $15 billion fourth-quarter loss – and rushed out bonuses to Merrill employees without telling B of A. Not so, Thain is now telling everyone.

But the tidbits are as revealing as the central facts …

  • Merrill Lynch employees apparently refer to Bank of America’s I-banking headquarters in midtown New York as the Death Star, the dark and dangerous fortress of the evil empire in “Star Wars.”
  • On the Bank of America equity trading floor, employees reportedly gave a standing ovation to news of the Merrill chief’s departure.
  • Some other top Merrill execs had already fled the company before Thain’s resignation, contributing to the feeling of – well, rats leaving the ship.
  • Bank of America employees, expecting their bonuses this week, reportedly are envious of Merrill people over what looks like a sweet deal – Merrill handed out its checks before the deal closed on Jan. 1.
  • Thain expresses contrition (some) over spending $1.2 million redecorating his office suite as America’s financial system was unraveling. He now says he’ll pay the firm back for the pricey curtains and fancy antiques. (BTW, Thain’s interior designer has a new gig: decorating the Obamas’ White House residence.)
  • Thain has hired PR man-to-the-stars Ken Sunshine – yes, “Mr. Sunshine” – to help spin the defense against the whispering campaign.

None of this points to the happy family image of a merger. Of course, this was a shotgun wedding negotiated at the worst moment of the financial crisis back in September. M&A under duress is bound to lead to more stress.

Forces much more powerful than investor relations, obviously, led to the B of A-Merrill Lynch acquisition. And that may always be the case. CEOs sign deals; IROs only communicate them.

But investor relations professionals should study the risks of M&A. Especially as consolidation becomes a common solution for hard times, we can counsel CEOs on the challenges they must overcome: Integrating two groups of people is the biggest issue. A clash of cultures must be addressed openly, not glossed over with handshake photo-ops. Mutual suspicion, “Us vs. Them,” and comparisons of compensation run rampant in mergers. You must deal with them proactively.

Investors know that integration – the people side of managing a newly combined business – is critical to success. So IROs should counsel management to think deeply and communicate around these issues in M&A.

Regulation Redux – a risk for 2009

January 26, 2009

As Congress and the new President grapple with the economic crisis, one outcome seems certain: re-regulation of US businesses.

Regulation Redux is at hand, and investor relations people need to think about how to discuss changing regulatory risks with shareholders. No doubt, upcoming 10-Ks should address the surge in regulatory activism. CEOs should be prepared to speak plainly about the evolving environment.

With the economic cycle causing pain on a massive scale – what folks in Washington call “market failure” – politicians are in full fix-it mode. At his inauguration, President Obama voiced confidence in steering government and skepticism about leaving business to its own devices:

The question we ask today is not whether our government is too big or too small, but whether it works … Nor is the question before us whether the market is a force for good or ill. Its power to generate wealth and expand freedom is unmatched, but this crisis has reminded us that without a watchful eye, the market can spin out of control …

I think it’s fair to say the opposite of out of control is under control. The administration and Congress are looking at many sectors to bring under control. Some examples:

  • Banking. Many of America’s banks have a new shareholder in Uncle Sam. And just as Carl Icahn may have a few ideas for management when he buys into your company, it’s a cinch that Barney Franks, Tim Geithner and others are going to start writing new rules for banks. Attacking executive pay and cutting dividends to a cent is just the start.
  • Autos. Different bailout, same basic deal. Accepting the big bucks means making adjustments to satisfy the folks who sign the checks. Today’s announcement that Obama’s EPA may encourage stricter limits on greenhouse gases from cars and trucks points the way. My guess is the auto bailout will usher in policies that perpetuate the US industry’s uneconomical cost structure and subsidize politically correct cars.
  • Healthcare. Reform, a popular campaign promise in ’08, will be very expensive if it means universal coverage. Amid many fiscal demands, the low-hanging fruit of healthcare reform in ’09 may be regulations aimed at cutting costs to consumers. We might expect, say, tougher federal negotiation on drug prices and genericization of biotech drugs. Or maybe new rules to assure “fairness” in health insurance.
  • Securities markets. Amid the rush for bailouts, giant investment banks have accepted a tighter regulatory regime by converting to commercial banks. Next on the agenda is an effort to fix what many see as the SEC’s failure to prevent the meltdown of 401(k)s, implosion of Wall Street and notorious frauds exposed by the bear market. Even the Republicans last year proposed a major expansion of regulatory powers, revamping the SEC and perhaps the CFTC and Federal Reserve. A couple of likely regulatory targets: derivatives and hedge funds.
  • Labor. The Employee Free Choice Act, endorsed by Obama, would change the rules for achieving union representation. If the law is enacted, labor will be able to organize workers by soliciting signatures on cards rather than submitting to secret-ballot elections. The likelihood poses a risk to companies in healthcare, manufacturing, retailing and other services.
  • Energy and environment. Companies that are heavy energy users or impact the environment are accustomed to disclosure of risks on those issues. Legislative and regulatory changes will be on the watch list.
  • Taxes. A weak economy puts tax increases on the back burner and tax cuts, even for business, front and center. But there is tension between a desire for stimulus and an impulse to take away business “breaks.” Risks remain, amid soaring deficits, that efforts to capture more revenue may come at the expense of investors or unpopular industries.

Obviously, I’m no expert in policy challenges for specific industries. But I do know IR people need to talk to our companies’ experts about Washington and what may be coming our way.

Feel free to offer your own comments on regulatory risks and how we should discuss them with investors. (Comments can be anonymous.)

© Copyright 2009 Johnson Strategic Communications Inc.

Is the CEO’s health fair game?

January 22, 2009

A report today that the Securities and Exchange Commission is investigating whether Apple Inc. disclosed ample information on the health of its CEO, Steve Jobs, leaves me feeling a little uneasy.

Is a chief executive’s health private? Public? A matter to be probed and exposed to unseemly scrutiny by investors and the press?

I guess we already know the reality: People will talk. As The Wall Street Journal noted in its Page 1 story today:

Questions about the health of the 53-year-old Mr. Jobs have hung over Apple for the past year since he began exhibiting noticeable weight loss, but the company and CEO have been reluctant to provide information and have said Mr. Jobs’s health is a private matter. Some investors and analysts have criticized the disclosures as inadequate, saying among other things that Mr. Jobs’s reference to a “hormone imbalance” was too general.

The news that Jobs would take a six-month leave for health reasons led to a 7% drop in after-hours trading, though AAPL bounced big-time today (did we mention sales and earnings were up?).

Certainly shareholders care. The CEO’s ability to continue managing has to be considered material – especially for a rock star whose personal brand is synonymous with the company’s success. One pundit said, “He is Apple.”

Reluctantly, I come down on the side of disclosing health problems that interrupt a CEO’s active engagement in managing. But the market doesn’t need medical details – only the facts of his involvement in the business.

Now, can we leave the man alone to get treatment and – we hope – conquer his health issues?

Lacking visibility in the corner office

January 21, 2009

What worries Chief Financial Officers most about their companies? Inability to forecast results is the No. 1 concern internally, according to the CFO Magazine/Duke University Global Business Outlook survey. Results are reported in the January 2009 issue of CFO (online here).

That lack of visibility, of course, makes life hard for investor relations: IR can offer less forward-looking information in the current malaise.

Externally, weak consumer demand and the credit crunch are causing CFOs to lose the most sleep. A majority of 1,275 finance officers polled aren’t even expecting recovery to start at least until the fourth quarter. Some 39% can’t see a recovery beginning until 2010 or later.

Albeit without much faith in their own forecasts, CFOs are predicting an average 8% drop in earnings in 2009.

In response, the finance execs expect to reduce work forces 5% on average this year. They plan to cut capital expenditures more than 10%, marketing and advertising 7%, and IT spending 4%. Specific plans along those lines might provide forward-looking tidbits that management is willing to share – even as the overall earnings outlook seems more elusive.

Characterizing the uncertainties – the lack of visibility – may be more valuable to investors than giving guidance that turns out to be wrong.

The Obama era begins

January 20, 2009

In President Barack Obama we have a new chief executive, a fresh cheerleader, a change agent, a commander-in-chief with different strategies and (as Bloomberg points out) a “banker-in-chief” for  an economy that has become much more interventionist.

Inauguration Day 2009 was, as previous ones have been, all pageantry and historical symbolism. But once again America achieved a peaceful transition of power to a new leader, with a different take on what the nation needs. I voted for the other guy – but wish our President well.

Observers note that Obama’s inaugural address seemed to lack that single memorable line (the only thing we have to fear is fear itselfask not what your country can do for you; ask what you can do for your country). You can read the text here, or hear talking heads discuss the speech here. Writing a speech for a million and a half people – and billions worldwide – must be horribly difficult. Inspiration is hard to manufacture. Investor presentations are way easy by comparison.

Obama seems to have eschewed poetry and passion to speak fairly bluntly about the gravity of our economic and geopolitical woes. I do think his ending is evocative – both sobering and encouraging:

So let us mark this day with remembrance, of who we are and how far we have traveled. In the year of America’s birth, in the coldest of months, a small band of patriots huddled by dying campfires on the shores of an icy river. The capital was abandoned. The enemy was advancing. The snow was stained with blood. At a moment when the outcome of our revolution was most in doubt, the father of our nation ordered these words be read to the people:

“Let it be told to the future world…that in the depth of winter, when nothing but hope and virtue could survive…that the city and the country, alarmed at one common danger, came forth to meet [it].”

America, in the face of our common dangers, in this winter of our hardship, let us remember these timeless words. With hope and virtue, let us brave once more the icy currents, and endure what storms may come. Let it be said by our children’s children that when we were tested we refused to let this journey end, that we did not turn back nor did we falter; and with eyes fixed on the horizon and God’s grace upon us, we carried forth that great gift of freedom and delivered it safely to future generations.

After the parades and the balls, the President’s work begins. Everyone hopes he succeeds, because we all need the benefits of that success.

Communicate – don’t hunker

January 16, 2009

Sage words from Fortune magazine in “How to Manage Your Business in a Recession” (January 19 issue):

The instinct of most executives is to hunker down in uncertain times, keeping quiet until they believe they have some answers. That’s the opposite of what’s needed. In a recession all of a company’s constituencies are nervous: Employees are worried that they’ll be fired, suppliers that they won’t be paid, customers that quality will decline or prices rise, investors that the stock will tank, communities that operations will close down. Your silence just makes them worry more.

Good managers respond by communicating even more than usual. They find that they needn’t have all the answers, but they do need to say what they’re thinking and be honest about conditions.

It may be preaching to the choir to say “get out and communicate” to investor relations folks, but it’s good advice for reticent CEOs and CFOs. To see the other nine tips for tough times, view the story.

Economic winter and IR

January 9, 2009

Amid the general chill and dreariness, January is also prime time for economic forecasts – an especially dismal science this year. Based on three crystal ball sessions this week, I’m thinking about the recession and our job as investor relations professionals.

Some bits from the economists’ briefings:

The president of the Federal Reserve Bank of Kansas City, Tom Hoenig, said Wednesday that 2009 will first bring more pain – and likely a beginning of recovery in the second half. (See text.)

But don’t expect short cuts or painless solutions, Hoenig added. We spent more than a decade getting entangled in excess leverage.

“The hard fact is that the sharp deterioration of banking and credit conditions, the deepening slump in consumer and business confidence, and the ongoing housing correction must work its way through the economy,” Hoenig said. “While we must do what we can to mitigate the effects of this deleveraging process, to attempt to avoid its effects entirely is to repeat past mistakes and may sow the seeds for the next crisis.”

The Virtual Chapter of NIRI (National Investor Relations Institute) on Thursday offered a panel of three economists (hear replay). Outlooks ranged from recovery in the second half of ’09 to a US version of the decade-long collapse in Japan following the 1980s asset bubble.

When an IR person asked what companies can do to stabilize stock values, Scott Brown of Raymond James Equity Research said management should show it’s taking the downturn seriously, cutting costs, and positioning for eventual recovery. But he added, “At some level I think you just have to realize that you’re at the mercy of the broader economy.”

More bullish was Brian Wesbury of First Trust Advisors, a frequent prognosticator on CNBC. He told the Association for Corporate Growth and Financial Executives International in Kansas City today that the Fed has made monetary policy so loose – and Congress is spending so much – that all this stimulus can’t help but produce recovery, at least near-term.

“We’re going to have a rip-roaring economy in the next 18 months. We’re going to ride a wave of money – to growth and much higher stock prices,” Wesbury said. The slide in key indicators has been decelerating, with an upturn now in the works, he said.

The danger lurks further out in Wesbury’s forecast: A surge of inflation on the heels of that 18-month boom. He believes the Fed has cut rates way too low, just as it did earlier this decade – which Wesbury cites as the No. 1 reason for the housing bubble that got us into this mess. Inflation will whipsaw us back into monetary tightening – and then what? Whether that next phase of the cycle is mild or ugly depends on how Obama-era policies play out, he said.

As an Econ major in college, one of my key learnings was that economists are ambidextrous – “On the one hand this, and on the other hand that.” To put it mildly, current macro forecasts reflect a high level of uncertainty.

My philosophy on IR strategy is to disclose management’s view of where we are in the economic cycle now. And talk plainly about actions the company is taking to survive the recession and preserve value through the trough – whether the down cycle goes deeper, lasts longer, or turns fairly quickly into recovery.

We can hope for sunnier times to shine in the second half – but we should also discuss how we would endure a longer economic “winter.”

Let’s stay forward-looking in ’09

January 6, 2009

One thing investor relations professionals (and finance executives) should work on during 2009 is our ability to look into the future, forecast likely or possible business outcomes, identify the risks … and communicate that forward-looking perspective.

My fear is that companies, stung by the financial calamities of 2008, will shrink from providing any forward-looking information. This is not helpful for investors – and could damage capital market relationships.

CFO Magazine encouraged finance chiefs to retool their forecasting abilities (see “Future Tense” story in December issue):

Forecasts of 2008 revenues and profits have missed the mark substantially at many organizations. That’s not remarkable, given that the speed and severity of the third-quarter collapse caught nearly everyone off guard. …

The credit crisis and the downturn in world economies may offer a useful lesson: forecasting can’t be just about number-crunching. Static spreadsheets filled with hundreds of line items that represent best guesses from operations just won’t cut it if a company hopes to produce forecasts that aid quicker, fact-based decisions under stress.

Nor, we might add, will forward-looking statements to investors cut it if they fail to examine and disclose assumptions about economic conditions, key drivers of the business, and risks to the expectations.

It’s understandable if a company wants to say, amid the current turmoil, we simply cannot predict earnings or what will happen in the economy. EPS ranges and CEO/CFO “comfort levels” seem retro, anyway.

But a company can provide valuable perspective by defining some scenarios for demand and other key business drivers. We can describe, at least directionally, what these assumptions mean to results going forward.

Most importantly, we can spell out management’s strategy and explain how it will maximize value for shareholders, even if difficult conditions persist.