Last week’s post about the essential life skills of the investor relations professional put me in mind of roadshows, another of the great travails of anyone who has to speak with investors on a regular basis, be it sell side analysts or investor relations officers. (Believe it or not, the sell side is actually going to get some sympathy here, so read on.) The public in general, and my children in particular, tend to think of a career on Wall Street as being glamorous and exciting, but when it comes to the process of transferring information to investors, the reality is far grittier. To paraphrase Bob Dylan, I’ve often felt as if “I’m stuck in New York with the road show blues again”.
Consider the following as it relates to investor roadshows:
1. A schedule only a marathon runner could love. Your typical roadshow day may involve a breakfast meeting, 3 – 4 morning meetings, a luncheon meeting and 3 meetings in the afternoon. This is followed either by dinner (possibly a meeting) or a sprint for the airport to get to the next city. Drag yourself into your hotel room by 10:00PM. Get up the next morning and do it again. Repeat as necessary.
2. Mind numbing repetition. All road shows revolve around either a powerpoint presentation, a pitch book or a set of talking points. This means that after the first two, or at most, three meetings you’ve got your routine down and there’s not a lot going on to hold your interest as you speak. Presentations go into autopilot mode after that. I’ve done presentations where I get to the end and I honestly don’t remember much about the middle part of the presentation. Fortunately, no one was giving me a funny look at the end, so I must have stuck to the prepared remarks.
3. Answering the same questions multiple times. I talked about this in the last post, but it bears repeating: 95% – 98% of all questions asked by investors are the same, whether you are at Fidelity or a small specialty research shop. During road shows, I have, on more than one occasion, found myself beginning to answer a question only to stop and ask the investor, “Have I said this before?” That’s because, less than an hour earlier, I actually was giving exactly the same answer, only to a different investor.
4. Incredible boredom. Take all of the above and add to it the fact that you’re escorting senior management around to visit investors. That means that you don’t get to talk, because investors are there to hear the big kahuna, not some investor relations officer. So you sit there and you listen to the same presentation and the same questions over and over. If you’re lucky, you might get to answer one or two questions on topics that senior management doesn’t like to handle, such as pension accounting. They don’t make coffee strong enough for this process.
So, is there a better way? Unfortunately, probably not. In spite of the advances of technology, investors still want to have the personal touch; they want to look you in the eye and judge the integrity and veracity of what you are saying. Teleconferencing and conference calls just don’t accomplish the same thing. Institutional investors are committing millions of dollars with each investment decision and their duty to their clients demands that they meet personally with management. They just shouldn’t expect the meeting to be particularly original.
Monday, September 24, 2007
Tuesday, September 18, 2007
Essential Life Skills for the Investor Relations Professional
My last blog post on principle based disclosure for investors was somewhat on the serious side, so in the interest of balance, I’ve decided to write a lighter piece this time about the things an investor relations professional needs to master to be successful. Forget knowledge of securities laws or finance or marketing, these are the essential skills that will set you apart as a true professional.
1. The ability to talk with your mouth full without embarrassing yourself. Many investor relations meetings take place during meals and investors will pepper you with questions throughout the meal. If you can’t answer questions with your mouth full, you will either never get to eat or your investors won’t get their questions answered. Neither is a happy prospect, so you need to learn how to talk with your mouth full. As I say to my children, “This should only be done by trained professionals”. I’m told that the proper training for this is to fill up your mouth with marbles and practice talking. Then you start removing the marbles as you learn to speak clearly with them in your mouth. Finally, when you’ve lost all your marbles, you are ready to become an investor relations officer.
2. You must have a high capacity for repetition. Every securities analyst prides themselves on their analytic work and their unique approach to figuring out your company. Many won’t attend meetings with other analysts because they don’t want to reveal the questions they ask management. The dirty little secret to all of this is that between 95% - 98% of all the questions asked are exactly the same, no matter who’s asking the question. This means that investor relations professionals hear the same questions over and over and over. There have been times in my career when I’ve said to myself, “If I have to explain that project one more time, I’m going to throw up”. (Fortunately, I’ve never followed through on the threat.) A true professional needs to answer the questions with the same enthusiasm on the twentieth time as the first time. This is where your carefully cultivated veneer of being really, really interested in the meeting will carry you through, even though you’re bored out of your skull.
3. You must be able to sit placidly by while others take credit for your work. Let’s face it, senior management doesn’t have time to coin catchy phrases or do interesting analysis. That’s your job - they’re too busy going to meetings. But when it comes time to look good in front of investors, all those careful, clever talking points prepared by you will be used by management and you have to sit there and let them take the credit. The first dozen or so times this happens it’s no big deal, but after that it starts to feel like a stone in your shoe. Get used to it.
4. You must be willing to let others make multiple edits to your deathless prose. When you write something, everyone will want to make sure you conform to their agendas. Accountants are fussy about certain phrases, lawyers want you to stay within the strict confines of the regulatory requirements, the business divisions want to make sure they get equal billing and there are always hidden agendas to deal with. It’s a wonder that a simple declaratory sentence ever gets written, much less an entire page of intelligent prose. One of the skills you need to mastered is learning to watch without flinching as your well written press releases get disassembled for reasons that are not entirely clear to you. The professional must then pick up the pieces and reassemble them into a reasonably coherent whole. The polite phrase for this is “when someone hands you lemons, make lemonade.”
That’s enough for today. I’d love to hear from others as to their views on essential life skills for investor relations officers. Alternatively, I could write about essential life skills for investment analysts, but that would assume they had a life.
1. The ability to talk with your mouth full without embarrassing yourself. Many investor relations meetings take place during meals and investors will pepper you with questions throughout the meal. If you can’t answer questions with your mouth full, you will either never get to eat or your investors won’t get their questions answered. Neither is a happy prospect, so you need to learn how to talk with your mouth full. As I say to my children, “This should only be done by trained professionals”. I’m told that the proper training for this is to fill up your mouth with marbles and practice talking. Then you start removing the marbles as you learn to speak clearly with them in your mouth. Finally, when you’ve lost all your marbles, you are ready to become an investor relations officer.
2. You must have a high capacity for repetition. Every securities analyst prides themselves on their analytic work and their unique approach to figuring out your company. Many won’t attend meetings with other analysts because they don’t want to reveal the questions they ask management. The dirty little secret to all of this is that between 95% - 98% of all the questions asked are exactly the same, no matter who’s asking the question. This means that investor relations professionals hear the same questions over and over and over. There have been times in my career when I’ve said to myself, “If I have to explain that project one more time, I’m going to throw up”. (Fortunately, I’ve never followed through on the threat.) A true professional needs to answer the questions with the same enthusiasm on the twentieth time as the first time. This is where your carefully cultivated veneer of being really, really interested in the meeting will carry you through, even though you’re bored out of your skull.
3. You must be able to sit placidly by while others take credit for your work. Let’s face it, senior management doesn’t have time to coin catchy phrases or do interesting analysis. That’s your job - they’re too busy going to meetings. But when it comes time to look good in front of investors, all those careful, clever talking points prepared by you will be used by management and you have to sit there and let them take the credit. The first dozen or so times this happens it’s no big deal, but after that it starts to feel like a stone in your shoe. Get used to it.
4. You must be willing to let others make multiple edits to your deathless prose. When you write something, everyone will want to make sure you conform to their agendas. Accountants are fussy about certain phrases, lawyers want you to stay within the strict confines of the regulatory requirements, the business divisions want to make sure they get equal billing and there are always hidden agendas to deal with. It’s a wonder that a simple declaratory sentence ever gets written, much less an entire page of intelligent prose. One of the skills you need to mastered is learning to watch without flinching as your well written press releases get disassembled for reasons that are not entirely clear to you. The professional must then pick up the pieces and reassemble them into a reasonably coherent whole. The polite phrase for this is “when someone hands you lemons, make lemonade.”
That’s enough for today. I’d love to hear from others as to their views on essential life skills for investor relations officers. Alternatively, I could write about essential life skills for investment analysts, but that would assume they had a life.
Wednesday, September 5, 2007
Principle Based Disclosure for Investors
I’ve been thinking lately about the relationship between shareholders and company managements. The owners of a company are the shareholders. In a large publicly held company these shareholders are widely disbursed and do not have the capacity to manage the business. Company managers, on the other hand, are on the spot, relatively few in number and charged with running the company for the benefit of shareholders, although they own only a very small fraction of the company. In business school they refer to this as agency theory – management will act as agents for the benefit of the shareholders by running the company for them.
All of this is fine in theory, but unfortunately things seem to get muddled in practice. In reality, management tends to think of the corporation as “Mine” and shareholders who don’t like it can sell their shares and look for investments elsewhere. How else can you explain the outsized pay packages you see among America’s corporations today? Do you really think that multimillion-dollar compensation schemes unrelated to corporate performance are in the best interest of the owners? Or would it be more realistic to say that such pay packages are for the benefit of management?
Now, at about this point you may be asking, “What has this got to do with investor relations?” Well, I think there is a connection between the way management thinks and acts towards its owners and how they disclose information to their investors. If company managements think of the company as their own, they tend to view disclosure as simply a bothersome regulatory requirement. Management divulges exactly what the laws and regulations require, and not a single iota more. Given the standards of materiality outlined in current case law, this can leave an awful lot to the imagination.
On the other hand, what would be the outcome if management were to think of those pesky shareholders as owners? Perhaps they would be more forthcoming with information above and beyond the requirements of the regulations. A willingness to report on and continuously disclose information (either good or bad) about operations and initiatives would help the owners understand their investment with more clarity.
Here’s a quick example: Companies track their sales in a variety of ways, by customer type, geographically and by product type to name a few. Yet there is often a strong reluctance to share any of that information with shareholders. You hear a variety of excuses – proprietary information, don’t want competitors to know, if we discuss it the SEC will make us always disclose it, etc., but the fact of the matter is that companies don’t disclose such information because they’re not required to by regulation. Yet the managers sure want to know, so why wouldn’t the owners also want to know? You can bet that if the company were owned by private equity, the information would be available to the owners.
The point here is that disclosure of information should be principle based, not simply governed by regulation. The principle should be “The company will endeavor to continuously present all significant information to shareholders to enable them to make informed decisions regarding ownership of the securities of the company.” There are two concepts of note embedded in the principle: continuous and significant. Continuous should mean something more timely than quarterly, perhaps monthly. Every company I have known has a series of key metrics they track frequently, if not daily. Frequent updates of such information would be of great value to shareholders. Secondly. I would make the definition of “significant” considerably lower than materiality is today. There are many things going on at companies today which don’t by themselves rise to the level of materiality, but which have the potential to greatly affect the future profitability of the company. Shareholders should know about both the successes and the failures so they can make informed decisions.
The accounting rules and the regulatory scheme in place today are too complex and allow companies to hide behind the complexity. We need the emergence of some very simple principles to guide the disclosure of information. Just as in the old Federal Express commercials, those principles need to be simple enough so that even the CEO can understand them.
All of this is fine in theory, but unfortunately things seem to get muddled in practice. In reality, management tends to think of the corporation as “Mine” and shareholders who don’t like it can sell their shares and look for investments elsewhere. How else can you explain the outsized pay packages you see among America’s corporations today? Do you really think that multimillion-dollar compensation schemes unrelated to corporate performance are in the best interest of the owners? Or would it be more realistic to say that such pay packages are for the benefit of management?
Now, at about this point you may be asking, “What has this got to do with investor relations?” Well, I think there is a connection between the way management thinks and acts towards its owners and how they disclose information to their investors. If company managements think of the company as their own, they tend to view disclosure as simply a bothersome regulatory requirement. Management divulges exactly what the laws and regulations require, and not a single iota more. Given the standards of materiality outlined in current case law, this can leave an awful lot to the imagination.
On the other hand, what would be the outcome if management were to think of those pesky shareholders as owners? Perhaps they would be more forthcoming with information above and beyond the requirements of the regulations. A willingness to report on and continuously disclose information (either good or bad) about operations and initiatives would help the owners understand their investment with more clarity.
Here’s a quick example: Companies track their sales in a variety of ways, by customer type, geographically and by product type to name a few. Yet there is often a strong reluctance to share any of that information with shareholders. You hear a variety of excuses – proprietary information, don’t want competitors to know, if we discuss it the SEC will make us always disclose it, etc., but the fact of the matter is that companies don’t disclose such information because they’re not required to by regulation. Yet the managers sure want to know, so why wouldn’t the owners also want to know? You can bet that if the company were owned by private equity, the information would be available to the owners.
The point here is that disclosure of information should be principle based, not simply governed by regulation. The principle should be “The company will endeavor to continuously present all significant information to shareholders to enable them to make informed decisions regarding ownership of the securities of the company.” There are two concepts of note embedded in the principle: continuous and significant. Continuous should mean something more timely than quarterly, perhaps monthly. Every company I have known has a series of key metrics they track frequently, if not daily. Frequent updates of such information would be of great value to shareholders. Secondly. I would make the definition of “significant” considerably lower than materiality is today. There are many things going on at companies today which don’t by themselves rise to the level of materiality, but which have the potential to greatly affect the future profitability of the company. Shareholders should know about both the successes and the failures so they can make informed decisions.
The accounting rules and the regulatory scheme in place today are too complex and allow companies to hide behind the complexity. We need the emergence of some very simple principles to guide the disclosure of information. Just as in the old Federal Express commercials, those principles need to be simple enough so that even the CEO can understand them.
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