Posts Tagged ‘Wall Street’

How IR adds value for investors

March 6, 2014

NIRI KC 3-6-2014 Hancock & BurnsAt the NIRI Kansas City chapter’s “IR and Governance Bootcamp” today, Debbie Hancock, vice president of investor relations for Hasbro, Inc. did a great job – with an assist from Bruce Burns, director of investor relations for Westar Energy – marching us through “a day in the life” of an IRO, skill sets we need and the role of IR both internally and out in the capital markets.

That’s a lot of ground to cover – really, the whole job of IR. I’ll share one thought of many that struck me, from Hancock’s comments on a slide headlined “How IROs Add Value to Investors.” Note that she focused on adding value to investors. On her list: representing the company honestly, being prepared with answers for questions, informed and responsive, conveying understanding of the numbers.

The Hasbro IRO  listed one value-add that especially stood out to me:

Put the story together for investors. I think this is super-important…. What are the big takeaways from all this information? Put that together for them, put that story together.

Providing perspective, thinking like someone on the investor side and meeting the needs of an asset manager or analyst trying to make an investment decision, is probably the greatest value we can add in IR.

© 2014 Johnson Strategic Communications Inc.


Steady as she goes, IROs

August 16, 2011

A quote of the day for investor relations professionals, from National Investor Relations Institute President and CEO Jeff Morgan in his “IR Weekly” email and blog post under the heading “Market Mayhem”:

Market volatility reached new extremes last week as we experienced global market moves of positive to negative 5% from one day to the next. Most believe it is very unlikely these market moves were driven by fundamental analysis of companies, but instead by panic, margin calls and computerized trading. For IROs, these are the most challenging market conditions as they lack logic and rational explanation. Time and other actions outside our influence and control will bring markets back into check, as we continue to tell our story to investors.

I agree, although market mayhem may be more rational than we can see at the moment. However much we dislike “panic,” if the market performs horribly going forward, fear will seem logical in retrospect. Time will tell whether investors should “Hang on and weather the storm” or “Batten down the hatches and go to cash.”

Certainly for IR professionals, whose individual companies may be doing fine even as the market goes crazy, it’s sound advice to hold the wheel … steady as she goes.

© 2011 Johnson Strategic Communications Inc.

Jamie Dimon: Cheer up, America!

August 10, 2011

While the markets are going crazy, Jamie Dimon, chairman and CEO of JPMorgan Chase & Co., is out visiting bank customers and employees on a bus tour in California – and giving an interview today with CNBC. His core message: Cheer up, America! That’s not bad advice for investor relations folks, either.

Dimon doesn’t mince words about shortcomings in European finances, US policy making, even the state of banking. But he comes back to a bedrock optimism:

Confidence is like a secret sauce. … Here’s what I would say to the American public in total. When you go to sleep at night think about the following before you get depressed and you see the market down 500 points: This nation is still the greatest nation on the planet. It was the first democracy on the planet. We have the best military on the planet, and God bless our veterans all around the world, those who have served and those who are serving today. We have the best universities on the planet and the best businesses. Those things that I just said – best military, best rule of law, most innovation, the hardest working ethic of all – those things are going to be here for decades. They’re not going away. The strength in the system is going to blow your socks off when it gets out of this malaise we’re in. Those things are there.

It’s good to see an executive smiling. Regardless of what you think of Dimon or big banks, he’s expressing the spirit that drives American business. It’s worth watching both pieces on CNBC. Just to feel better on another day of, as they say, volatility.

By the way, in 2008 I shared 10 ideas on doing IR in a bear market. These apply today, too, for investor relations practitioners surveying the Wall Street carnage. I’d welcome your comments or ideas on helping our companies rise above the malaise.

© 2011 Johnson Strategic Communications Inc.

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.

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.

Hotties of investor relations

July 23, 2010

OK, this is not my usual earnest, well-reasoned post. Just so you’re forewarned: Here’s a bit of summer fluff. And this may be in bad taste, or even sexist.

Sex appeal isn’t an aspect of investor relations I ever considered, well, an aspect of investor relations. I’ve always thought of IR professionals as a cross between accountants and sales people – perhaps smooth talking but not all that sexy. I’ve met a few attractive IROs, but most of us are “interesting,” with nice personalities.

So imagine my shock – shock! – when I was scanning Dealbreaker, the gossipy tabloid-style Wall Street blog, and saw a headline that begins “Here Are Some Current IR Girls …” (I told you this could get sexist.)

What could I do? I had to click through, and it turns out New York Magazine has been all over this story – identifying the “hotties” of investor relations with a focus on the world of hedge funds. The young women, mostly shown in party pics, are in fact doing IR or business development or sales for asset management firms.

Now, for the other side of the story, it turns out New York also published a feature on male hotties of Wall Street – though the men pictured in expensive Tribeca apartments seem to include many whose titles indicate they actually manage assets, rather than just trying to catch the eye of people with bazillions to invest.

Well, there it is: Sex appeal and investor relations. Who would have guessed it?

(Please don’t cancel your subscription. This is as racy as IR Café will get.)

Hope you’re taking time out to have a little fun this summer!

© 2010 Johnson Strategic Communications Inc.

Sell side: regionals on the rise

July 9, 2010

Institutional investors are relying a bit more for equity research on mid-sized firms, regional brokers and industry-sector specialists as the bulge-bracket investment banks continue to reel from the effects of the financial crisis, Greenwich Associates reports in its 2010 U.S. Equity Analysts Study. Investor relations people reaching out to analysts might consider the changing sell side mix in targeting sell side firms.

In its survey of 1,007 buy side professionals, Greenwich tabulated “research votes” based on the sources of equity research used, weighted by commission dollars paid out by the institutional investors. So this is more than a popularity contest – it’s a look at who the buy side is paying for equity research.

To be sure, large investment banks still speak with the loudest voice, winning 64.1% of the buy side “research votes” in early 2010. But that’s down from 73.1% in 2008. Regional and more specialized i-banks gained share, from 23.9% two years ago to 32.4%. Independent research firms also gained, from 2.7% to 3.4%, but they remain a drop in the overall research bucket.

Integrity Research Associates notes that the financial crisis has contributed to an exodus of analysts from Wall Street, as some research stars have left troubled big brokerage houses to join regional or boutique firms or set up their own shops.

Greenwich says the bulge-bracket firms saw a pronounced drop in their share of research dollars in 2008, when giants like Lehman Brothers and Bear Stearns disappeared. But the shift continues into 2010.

What shape Wall Street research will take in the future is an open question, but the big i-banks may regain share of voice (and commissions) as the financial crisis continues to ease. “I think the worst is over from the bulge-bracket perspective,” Greenwich MD Jay Bennett tells Pensions & Investments.

IROs tend to seek out analyst coverage where they can get it. Large cap companies or hot stocks almost fight an excess of sell side interest, while small cap IROs work hard to cultivate regional brokers, industry boutiques and independent researchers.

But watching the changing landscape of the sell side – and particularly the shifts in institutional investors’ use of that research – may help IROs allocate their time.

© 2010 Johnson Strategic Communications Inc.

Sell in May & go away?

May 28, 2010

Among old Wall Street sayings, “Sell in May and go away” holds special attraction. A strategy for a worry-free summer, a way to reduce risk amid seasonal doldrums, a vacation from busyness.

Ahhhhhh …

For investor relations, alas, “go away” doesn’t completely apply. There is, of course, second-quarter reporting. A few meetings. Always the potential crisis. Maybe a slow August. But while some investors disappear, many are still cranking away at their models, trades or questions.

So settle in, makes plans to enjoy some time away, and prepare for what could be an interesting summer. And right now, have a great holiday weekend!

Inside the Google IPO

May 4, 2010

Eric Schmidt, chairman and CEO of Google, tells a good story in the May 2010 issue of Harvard Business Review – taking us behind the curtain of the initial public offering for the cyber-giant that is everywhere in our lives.

Investor relations practitioners will enjoy this tale (“How I Did It: Google’s CEO on the Enduring Lessons of a Quirky IPO” – available free on the HBR site).

Schmidt dwells on the Google culture that was determined to be different. This IPO was different … from the decision to do a modified Dutch auction offering … to an unusual letter from the founders in the registration statement (“An Owner’s Manual” for Google’s Shareholders) … to the Playboy interview during the quiet period, which Google added to its S-1 to cure the selective disclosure issue … and – especially – those values Google holds dear (“Don’t be evil” and the like). See the registration statement here. You don’t have to buy it all to appreciate the story.

Somehow it worked out, despite a so-so market in Summer 2004. Schmidt recalls:

We flew overnight to New York to watch our shares start trading on the Nasdaq on Thursday, August 19. We showed up in the morning, bleary-eyed. That day the Wall Street Journal had run a front-page piece with the headline “How Miscalculation and Hubris Hobbled Celebrated Google IPO,” and CNBC commentators were talking us down all morning. I remember thinking as we headed down to the Nasdaq trading floor, We’re screwed.

Just before the trading started, there was a countdown on the floor: 5-4-3-2-1. We watched the first trade, but it wasn’t at $85 [the agreed pricing with the investment bankers]—it was at $100, an 18% increase over our IPO price. … The volume was huge.

All day long the stock price never went down. It closed at $100.30.

We were now public. Thrilled and exhausted, we flew home to California.

The investor communications effort back in ’04 was unconventional, and Wall Street naysayers said GOOG wasn’t going to make it out of the IPO starting blocks.

But Google raised $1.67 billion on that August day, selling a minority of its shares and establishing a market capitalization of $23 billion. Today, the market value is $161 billion. It’s been a pretty good ride for the Googlers, wouldn’t you say?

© 2010 Johnson Strategic Communications Inc.

Analyze this … IR & indie research

December 3, 2009

Equity analysts have been shipping out from sell side firms on Wall Street and establishing their own independent analysis shops – in droves – according to “Research Renegades” in the November 2009 Bloomberg Markets magazine.

The ongoing transformation of the sell side – through the financial crisis, the bear market and assorted tribulations still taking shape in Washington – is a big change that calls for investor relations professionals to flex with the times.

If we are to connect with our companies’ audiences in the investment markets, we must pay close attention to boutiques and independent analysis firms, as well as the old-line brokerage houses that have traditionally provided research coverage.

Bloomberg writer Edward Robinson quantifies the shift:

The number of independent research firms in the U.S. has soared to 2,667 from 1,012 in 2006, according to Integrity Research Associates LLC., a New York-based consulting firm.

The article notes that traditional investment banks (mostly) aren’t going away. Their underwriting and ability to allocate securities offerings undergird relationships with institutional clients. The buy side sends 70% of commission dollars to giant firms, and only 3% to the independents, according to Bloomberg.

“There is a symbiotic relationship between the bulge-bracket bank and the typical institutional investor, and I can’t see that being displaced,” [Jay Bennett, a consultant with Greenwich Associates] says.

Yet many sell side analysts are departing, starting up their own shops or joining small firms. The article focuses on analysts leaving to avoid conflicts of interest at investment banks, but the broader Wall Street meltdown and dearth of offerings in the past couple of years must also be contributing to the exodus. Economics trump philosophical purity in most job moves on Wall Street (or elsewhere).

Point is, we must follow the analysts, learning about their world as they study ours. Our contacts must extend to the independent firms – without giving up on the big guys. And most IROs probably should focus a lion’s share of attention directly on the buy side. (See earlier post on declining sell side coverage.)

What’s your experience with independents? Any ideas to share with IR colleagues?