Archive for August, 2009

Quote, unquote – Proxy EXcess

August 26, 2009

Discussion of the Securities and Exchange Commission‘s proposed new “proxy access” rule, aimed at giving activist shareholders an easier shot at electing members or slates to boards of directors, can get pretty arcane.

So I was glad to see, in today’s Wall Street Journal, a good primer on 14a-11 and a succinct and quotable quote that, to me, sums up the proposed change. Says lawyer John Finley of the New York firm Simpson Thacher & Bartlett:

It’s the biggest change relating to corporate governance ever proposed by the SEC. Period. It gives activists the ultimate vehicle to express dissatisfaction with a board, the ability to replace board members at the company’s expense.

Business lobbying against the change is ramping up toward the post-Labor Day push. That, of course, is when politicians return to Washington and harvest season begins for the crop of governmental mischief planted earlier in the year.

Maybe we could rename this particular proposal “Proxy Excess.”


IR as a mystery thriller

August 22, 2009

Investor relations as a profession doesn’t often make Page 1, but today’s Wall Street Journal casts IR in a starring role in Deutsche Bank‘s covert maneuvering against a dissident shareholder and courtroom enemy.

“Banker, Gadfly, Lawyer, Spy” is a mystery thriller worthy of a John Grisham novel. For IROs, the story is just that: a good yarn to read on a late-summer weekend. Entertainment, unfortunately at the expense of errant corporate staffers.

The story has everything: a private investigator with two code-named teams, rich and powerful enemies in German corporate suites and a Mediterranean isle, a young lawyer suspected of posing in a job interview to gather intel at a plaintiff’s law firm, even an elusive Brazilian seductress. Too bad it’s not fiction.

Deutsche Bank’s head of investor relations was let go when the corporate snooping and surveillance became a scandal, and there are ongoing investigations – not to mention that litigious shareholder, a target of the bank’s “Magnum PI” efforts.

By the way, Deutsche Bank issued a press release July 22 with its own somewhat dry version of what it has found looking into the company’s snooping activities. The bank said the “incidents originated from mandates initiated to achieve legitimate goals, but, during the course of these mandates, the external service providers retained by the Bank engaged in questionable activities.”

IR people should read today’s WSJ piece, simply because IR doesn’t usually make headline news. You might even be prepared to tell co-workers, “No, we don’t generally spy on shareholders (or anyone else).” There is no practical guidance in this story for doing the actual job of IR – other than an implied warning.

It’s a cautionary tale that says don’t get caught up in a corporate “battle” that later will be viewed as corporate wrongdoing (see last month’s posts, Someone should’ve said no and On the ethics front …). The messy consequences are sad. After all, no one wants to wind up on Page 1 of the Wall Street Journal this way.

Social media, reputation & IR

August 17, 2009

There’s a gap in many corporations – and among investor relations people – between recognizing the growing influence of social media (on one hand) and hesitating (on the other) to engage proactively to support company reputations.

In a guest post today on the “Full Disclosure” Big Fat Finance blog, Sharon Allen, Chairman of Deloitte LLP, talks about the firm’s recent “Ethics & Workplace” survey of 500 executives and 2,000 employees. Bosses and workers take different tacks:

  • Although 60% of executives believe companies have a right to know what employees are saying about themselves and their employers, the majority of workers say posts on networking sites are none of management’s business.
  • While most employees recognize that online posts affect their companies’ reputations, a third say they don’t consider bosses or customers’ possible reactions before posting on social networking platforms. 41% of employees say they wouldn’t change their online behavior “even if there were a clear corporate policy about social networking use.”
  • In any case, only 17% of the companies “have programs in place to monitor and mitigate the possible reputational risks related to social network use.”

Allen comments:

As we’ve seen all too often recently, offensive Internet postings and viral videos can race across networks at the speed of light. Left in their wake are damaged brands and shattered reputations …

Establishing policies — or assuring that existing core policies extend to include employee behavior on social networking sites — is crucial to helping everyone understand what constitutes acceptable behavior, especially when our survey results indicate that so few companies have addressed the issue.

Because of the reputational risks, boards of directors should be addressing social media, the Deloitte exec suggests. She says companies should establish policies on use of social networking – and integrate new media into their cultures.

Allen doesn’t address potential risks in investor relations – such as employees leaking financial information on Facebook or tweeting about business trends (whether optimistically or negatively) on Twitter. These risks are good reason for IROs to help management incorporate social media into disclosure policies, implement monitoring of chatter, and develop a strategy for active engagement to support corporate reputation, in addition to individual brand marketing online.

The rising value of trust

August 11, 2009

As the pace of change accelerates – economically, culturally, personally – people are being overwhelmed with too much information to fully process, authors Tom Hayes and Michael Malone opine in a Wall Street Journal commentary on August 10, 2009. And that overload, they say, places a premium on the value of trusted sources:

Without the luxury of time, trust will be the new currency of our times, whether in news sources, economic systems, political figures, even spiritual leaders. As change accelerates, it will remain one true constant.

We should add investment information to the spheres of life where we’re in need of trust. In a time when credibility in the markets has been bruised, we might ponder the question, How can investor relations professionals enhance the quality of disclosure and news flow to create and sustain trust in our companies?

Earnings giggle

August 10, 2009

For a bit of comic relief check out “Mad Lib Earnings,” an all-too-true parody of earnings releases and the obligatory wire service stories that cover them. It’s Stanley Bing’s column on the last page of the August 17, 2009, Fortune magazine.

Bing’s fill-in-the-blanks earnings release makes our job easy. There’s a boilerplate quote from the CEO complete with an overwrought metaphor:

“These are tough times,” said Bob Boberts, chief executive officer of Big Fat Company. “Tough times call for tender chickens, and ours are the juiciest in what is, right now, a lean and stringy sector.”

We can choose between reporting a decline or “sad little incline” in second-quarter revenue. There’s a nod to cost cutting in “the elimination of nondairy creamer in offices nationwide.” Some optimistic-without-saying-much words from the COO.

And a wire service story, appearing five seconds after the release, offers jewels like:

“Results, schmesults,” said a quote monkey from an investment bank who’s always available to validate assumptions. “We’re going to downgrade them anyhow …”

I think we  know that sell side analyst who always take the reporters’ calls. And as a former newspaperman, I can enjoy the satire on journalism’s craft – we used to call quickie news stories with instant analysis “three phone calls and a cloud of dust.”

So there you have it. Investor relations and the financial news media continue getting the word out, for better or worse. We need a chuckle now and then.

Transparency in troubled times

August 7, 2009

Devoting more time to investors and communicating data to support what you’re saying are among the take-home messages McKinsey & Company consultants heard when they interviewed CEOs of 14 major companies recently for a report on Leadership Lessons for Hard Times.

Jay Fishman, Chairman and CEO of Travelers, weighs in on both the commitment and the content for investor relations in a challenging time:

If I’ve learned anything in the last 18 months, it’s that transparency in troubled times really matters. …

If asked to describe this or that exposure, the advice from many IR departments is to use some formulation that basically says don’t worry. I’ve tried to resist that. Now is not the time to tell people not to worry. If you’re in the financial services industry, you ought to be able to quantify. I try to be specific, and weve gained credibility as a result.

“Not the time to tell people not to worry” – I like that. Instead, give investors the data that leads you to your outlook. And let them decide whether to worry.

What’s a good price?

August 5, 2009

Clunkers_in_JunkyardClunkers are in the news as part of the government’s weird but popular “Cash for Clunkers” stimulus program. Regardless of its policy merits, I’m pleased not to be in the market for a car right now, buying or selling. For me, anyway, the process is unpleasant – especially getting to the right price, including trade-ins and so forth. Plus clunkers, for now. The price always seems debatable.

Mergers and acquisitions seem a bit like that. As an investor relations person, I’m not part of the negotiating process for corporate deals. Folks who do negotiate the deals earn the big bucks – but that’s OK. My job is to communicate a deal once it’s done. I’ve enjoyed strategizing and helping communicate dozens of deals over the years, so I thought I might share a few ideas on M&A communication.

First, one more thought about clunkers: Buyers and sellers have different points of view in negotiating (and then communicating) a transaction. The pattern is so much a part of human nature that deal making spawned an ancient proverb: “‘It’s no good, it’s no good!’ says the buyer; then off he goes and boasts about his purchase.” The seller, also, has one story in negotiations – “You’re looking at an absolute gem!” – and later brags what a great price he got for the old heap.

Please don’t think me cynical. It’s just that, in communicating an M&A transaction, talking about price is one of the biggest challenges. Is it high, is it low? A windfall for the sellers, a bargain for the buyers? What comparisons can add perspective?

That single number – “How much per share?” – is the most important fact of the whole deal to shareholders of a company that is selling. It’s important, too, for shareholders of the buyer. Other questions about the deal, at least among financial audiences, often seek to shed light on whether it’s is a good price.

So how do we describe the price being offered or paid in an M&A transaction?

  • Realize that communicating a deal is a collaborative effort. Rules often are dictated by the delicate relationship between buyer and seller – and by their lawyers. Both sides have to be able to explain why this is a good deal for them. The lawyers provide cautious language and disclaimers to keep everyone on the right side of securities regulations. How about putting all the parties around a table to hash out key messages for communication? Or connecting the two communication staffs to cooperate on an announcement?
  • When a deal is almost ready to announce, the investment banker is a key resource for communicators who are crafting messages. Regardless of how you feel about i-bankers the rest of the time, they know how to sell a deal – and its price. A financial adviser’s fairness opinion typically is at the heart of formal communications to shareholders. Look for key messages and words in the presentations used to sell the deal to your board, and go from there.
  • Comparisons offer perspective – though picking the right ones can be tricky. The first place everyone looks is the “premium” – what percentage is the offer above the last price at which the target company’s stock traded? But that’s not the only comparison. A stock’s 52-week high is the most common benchmark used in negotiating public-company deals, according to a Harvard B-school study of 7,500 deals cited in the July-August 2009 CFO. If the offer is above the 52-week high, fine; if not, boards are afraid shareholders will balk. Providing the 52-week range is easy and factual.
  • Be prepared to discuss valuation measures. Whether or not you use them in a press release or formal presentation, metrics like multiples of EBITDA or book value (picking the right metrics is industry-specific) help tell the story to well-informed investors who already have a sense of what multiples are fair.
  • On the buying company’s side, consider how the price interacts with hoped-for the synergies, cost savings and strategic quantum-leaps that your CEO will want to discuss. And at least ask the question, “What kind of return do we expect to earn on this investment?” Shareholders like to hear that an acquisition is earnings-neutral, or accretive this year or next. But the bigger question is what’s the ROI or ROE we’re getting for shareholders’ money?
  • Talk about timing. Any deal being negotiated now has a lot to do with the stage of the business cycle – prices are depressed, sellers may be more willing because cash (or credit) is running out, and an expected recovery may figure into the buyer’s rationale for expecting an economic return. This context is relevant for shareholders on both sides.

All of which brings me to the TV game show “The Price Is Right.” You know, the 1950s-style program where contestants try to guess the true value of some consumer item. It’s been around so long Bob Barker had to retire, but the show goes on. Its durability, I think, comes from the fact that people enjoy debating prices and values of things. And that’s certainly true in the market for stocks of public companies – watch the argument triggered by just about any M&A deal.

In preparing to announce a sale or acquisition, therefore, investor relations people need to take price into consideration as a message. It’s a key question in any transaction. And I believe we should try to answer investors’ questions, even before they’re asked, as proactively and completely as possible.

Those are my ideas. I welcome your M&A insights – just click “Leave a comment.”

CFOs: The future looks hazy

August 1, 2009

The good news is chief financial officers at the world’s top companies are a tad more optimistic than last quarter about when recovery will kick in and start benefitting their businesses, according to the Duke University/CFOGlobal Business Outlook Survey” reported in the magazine’s July-August 2009 issue.

CFO Survey July-Aug 09

Duke/CFO survey 2009

The bad news is – well, let’s skip over the CFOs’ plans to continue cutting workforces and capital spending. Underlying the bad news are two findings:

  • Most CFOs do not expect the US economy to begin recovery at least until 2010. The breakdown: 43% see an upturn starting in 2009, 50% in 2010 and 7% in 2011 or later. No wonder companies are still cutting costs.
  • The No. 1 concern for CFOs within their own companies remains the ability (or lack of ability) to forecast results. That makes business planning difficult, not to mention forward-looking discussions with investors.

CFO devotes a separate article (“Imperfect Futures“) to troubles companies are having with forecasting. When it comes to predicting the direction of sales or earnings, many more companies are invoking the “u” word – uncertainty. Says CFO:

Forecasting, never an activity companies felt particularly confident about, has now become nearly impossible. Processes that once results in mildly imperfect visions of the future now produce wildly imperfect ones.

The magazine cites some creative approaches, including collaborative efforts to identify new risks companies face in the marketplace, internal forecasting of which suppliers will survive or fail due to the recession, and prediction markets to draw out managers’ true feelings about the results they can deliver going forward.

For investor relations, the hazy economic future and its implications most likely will feed a continued trend away from companies providing specific earnings guidance. It’s even more important, then, for IROs to understand and communicate qualitative information on the key drivers – internal or external – of sales, costs and earnings.