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?