Archive for May, 2012

What a week, eh?

May 25, 2012

The week leading up to our long weekend in the U.S. gave investor relations people plenty of reasons to pause and consider what our profession is about:

Facebook faced issues with its IPO – including a brouhaha over the analysts for Morgan Stanley and three other underwriters lowering their estimates in the middle of FB’s road show. Some commentators call for SEC regulations to require investment banks running IPOs to disclose their analysts’ opinions broadly, not just to their favorite institutional investors. Something about a level playing field.

Reuters says Facebook told the analysts they’d better bring down their revenue and earnings forecasts, a wink-and-nod sort of investor relations not regarded as acceptable in recent years. Something about Regulation FD.

People care because the IPO lost its sizzle on the very first day, then dropped further. FB shares closed this week 16% below the IPO price. The Financial Times has a good narrative. Poor Wall Street. Poor Mark Zuckerberg. Poor speculators.

The hounds of the plaintiffs’ bar are in full chase, of course, barking loudly and threatening in all directions. The SEC and Congress are investigating. As a high-impact disclosure issue, this will be one to watch.

JPMorgan Chase continued to convulse over its trading loss of $2 billion, or is it $3 billion, or … whatever the amount, reputational damage exceeds the financial loss.

From an IR perspective, at least two aspects of JPM’s debacle are interesting:

  • The disclosure (or lack of disclosure) of the risks JPMorgan and its “London whale” were taking – and the losses they incurred. IR people should take a close look and consider how we would treat similar setbacks in our companies.
  • Corporate governance concerns came to a boil over doubts about the JPM board’s risk-policy committee and whether it had the right stuff to actually oversee risk for what is, basically, a huge global risk-taking machine.

Washington stalwarts, once again, are calling for new laws and regulations to codify the good sense that the old laws and regulations haven’t quite brought about. And we’ll be treated to the spectacle soon of Jamie Dimon going before Congressional panels to be used as a prop for politicians’ campaign videos. Oh, well.

General Motors filed an amendment to its proxy statement today noting that it “recently learned” of a related party transaction last year that it hadn’t disclosed.

GM says CFO Dan Ammann’s wife is a partner and COO of an advertising agency that got about $600,000 from a GM subsidiary in 2011 – and he didn’t know about it, so it wasn’t in the proxy. The deal was reported in AdWeek last fall, according to the Detroit Free Press, but apparently the $600K eluded the proxy writers. Oops.

Executive compensation remains a lightning-rod issue, especially in an election year. Plenty of misinformation is floating around, including this misleading headline from Associated Press: “Typical CEO made $9.6 million last year, AP study finds.”

You have to read way down into the story to find that AP’s sample included only S&P 500 companies, the largest cap companies in the U.S. market. Actually, AP had data from only 322 that had filed proxy statements through April 30. The other 7,000-plus publicly listed companies in the United States? Not part of the study.

None of my clients’ CEOs has $9.6 million in compensation. How about your boss or clients? But the AP headline paints with a very broad brush: “Typical CEOs …”

The AP headline might have said: “Large-cap CEOs made $9.6 million …” As it is, politicians trading on Joe Sixpack’s envy will just run with the anti-CEO broadside.

And companies will deal with the widespread assumption that CEOs and other execs are paid too much. Investor relations pros need to focus on providing the real numbers and explaining – in plain English, not legalese – why pay is what it is.

What do you think?

© 2012 Johnson Strategic Communications Inc.

Congratulations, FB, and good luck

May 17, 2012

Facebook pulled it off.

The New York Times “DealBook” site, May 17, 2012

A nice summary by NYT “DealBook” writers Evelyn Rusli and Peter Eavis. Facebook did pull off the IPO of the year, pricing at $38 a share for a total sale of $16 billion. The market initially valued the company at $104 billion.

Congratulations, FB!

There is a sense of relief, after the IPO with more media hype than any in recent memory, in seeing it priced and starting to trade. Following a few more days of craziness, no doubt, investors can settle down and begin looking at Facebook as they would view any other public company.

Here are a few bits of information for the curious investor relations pro:

Being public will impose a new sort of discipline on Facebook the company. Thinking about disclosure vs. trial balloons and leaks. Telling investors the basics like revenue and earnings. Meeting quarterly expectations or taking a beating. Perhaps a future day when hedge funds and analysts call for a new CEO.

I’m not going to second-guess the valuation, roughly 100 times trailing 12-month earnings. Or $115 for each of those ballyhooed 900 million users. Enough market gurus already are opining on FB, and people were willing to pay the $38.

Rather, I’m looking forward to watching the biggest social network as it grows and matures in the coming months and years. The “DealBook” writers comment:

The question is whether the company’s management will make it work.

Facebook, in many ways, is like a mining company sitting on valuable deposits that are hard to dig up and refine. At a market value of $104 billion, investors believe Facebook is sitting on gold. But the share price could tumble at any sign that Facebook’s management can’t unearth it.

© 2012 Johnson Strategic Communications Inc.

The public markets’ competitor

May 11, 2012

Q: Do you ever wish you were publicly traded?

A: Oh God, no. I have the greatest job in the world, because I work for a guy who runs the company for the next 20 years, not the next 90 days. It’s tough being a public company, and I wouldn’t wish that on anyone.

 –  Steve Feilmeier, executive VP & CFO
Koch Industries, Inc.

As investor relations people, we rub elbows mostly with publicly traded companies. We think about how to get our message out to the capital markets in competition with other public companies, especially our peers within narrow industry sectors.

But a whole other class of competitors exists in a parallel universe – competitors for capital and, in our businesses, for customers. Maybe we ought to pay attention.

What started me thinking was Steve Feilmeier, CFO of Koch Industries, who spoke this morning to the Kansas City chapter of Association for Corporate Growth. Known to outsiders mostly for media attention in political controversies, on the business side Koch is a $125 billion company with 67,000 employees – the No. 2 privately held business in America. No. 1 in profitability, Feilmeier hastens to add.

Right at the start, Feilmeier says being privately held is a competitive advantage:

We benefit from not having to report earnings every 90 days. All of our decisions are based on, How is this going to work out in the next 10 years?

And it’s working out just fine for Koch (sounds like “coke”). The firm is doubling revenue every five or six years with a dozen operating companies in agriculture, energy and manufacturing. Although Koch doesn’t report publicly, Feilmeier makes it clear those businesses are delivering even better growth in EBITDA (slides here).

An example of Koch’s presence: AngelSoft, its toilet tissue brand, is the No. 1 SKU in Walmart stores. No. 1. Feilmeier says 60 truckloads a day leave Koch’s Georgia-Pacific subsidiary loaded just with AngelSoft four-packs bound for Walmarts.

The ongoing shift in institutional investor preferences among asset classes is the other thing that got me thinking. I keep hearing about pension funds, endowments and real people putting more money into alternative investments – capital that isn’t flowing to publicly held companies represented by IR pros.

Consider these stats: In 2001 U.S. pension funds held 65% of assets in equities, but that dropped to 44% by 2011, according to the Towers Watson Global Pension Assets Study 2012. in those 10 years, the “Other” category in asset allocation – real estate, private equity and hedge funds – quintupled from 5% to 25%. Apply those changes to $16 trillion in U.S. pension assets and you’re talking real money.

Without getting in over my head further on macro views of the capital markets, my point is that public companies ought to think strategically about their investors. Institutions and individuals don’t have to invest in any particular public company. They might even flee the stock market, with some of their funds, for “alternatives.”

And this brings me back to Koch. Feilmeier’s description of why Koch keeps growing at the top line – and especially the bottom line – holds lessons that public companies and IR people might take to heart. A few interesting ideas:

  • Do investors see management-by-quarterly-numbers, or something like Koch’s “patient & disciplined” creation of wealth? How do we discuss performance?
  • Can we demonstrate how our incentive pay turns managers into entrepreneurs, who get paid when they deliver (and not when they don’t)?
  • Do we have real accountability? Koch doesn’t believe in subsidizing any of its businesses, so operating execs are responsible for balance sheets and P&Ls.
  • How do we make decisions? Koch demands rigorous comparison of every capital project with alternatives – will this investment deliver the best return?

Koch, of course, is a giant company. There are well-managed and poorly managed firms of every size in both the public and private arenas. But the principles Feilmeier discussed are common private-equity approaches to driving performance.

Private vs. public is a common debate among CEOs and finance folks. Some private companies long for public status – and a fortunate few make it through the IPO process to get listed. On the other hand some micro-cap and even mid-cap public companies wish they were private, to escape the hassles of quarterly reporting.

Whether public or private, maybe we need to get back to basics of running companies by rigorous disciplines of wealth creation. And public companies need to communicate how those disciplines create real shareholder value.

What do you think?

© 2012 Johnson Strategic Communications Inc.