Make It Memorable

One thing I have learned from teaching over the past six years is that if you want your audience to not only learn, but also remember what they learn, you have to make it memorable.  There are many ways to do this – you can speak with passion, you can use humor, you can have catchy phrases and acronyms, you can even (heaven forbid) have a catchy PowerPoint presentation – but what you are saying and doing has to catch and hold the audience’s attention. In a way, it is education as theater, and it is particularly effective in an adult education setting where the distractions of emails and messages from the office are a constant challenge.

Last week I attended the NIRI Southwest regional conference in Ft. Worth and it reinforced my opinion that the Southwest regional conference is a better overall learning experience than the NIRI national conference. I have a variety of reasons for saying this, but for today I want to focus on the educational aspect of the Southwest regional conference. The national conference seems to be locked into a format that is heavily dependent upon panel discussions featuring panelists that are long on narrow technical expertise and short on speaking skills. This was true a year ago when I attended in Seattle and a quick review of the 2013 National conference agenda reveals that the vast majority of the sessions continue to be panel discussions. The result of many panel discussions viewed in quick succession is the verbal equivalent of Chinese water torture – many words delivered in a monotone, leading to eventual brain damage. 

The Southwest regional conference, in the years when it has been organized by the Houston chapter, has broken from this mold. In 2010 and 2012 the conference featured a case study that forced attendees to work together and make decisions. They went beyond that and introduced several new formats to the conference this year. (Full and fair disclosure: I was on the conference planning committee, but due to my move back to Chicago, cannot claim much credit for the work of the planning committee.) In addition to the usual speakers and panel discussions, the conference introduced an interactive case study based on a real life example (featuring yours truly), a point - counterpoint style debate featuring practitioners discussing current hot topics in IR, an IR version of the dating game where IR officers try to convince an analyst to cover their company’s stock, and my favorite, three short (20 minute) TED style talks where people addressed issues near and dear to their hearts with passion and conviction. The result was a mix of information delivered in memorable fashion that consistently engaged the audience.

When you are in investor relations, a key element to what you do is communication. I can only hope that the National Investor Relations Institute takes note of how the Southwest regional conference is expanding the communication boundaries in order to help people remember what they learn at conferences and become better practitioners of investor relations. After all, isn’t what these conferences are all about?

Thoughts on the 2012 NIRI National Conference

It is a well-known axiom among educators that different people learn in different ways. That’s why when you put together a program, you include a variety of different types of learning mechanisms. Alas, this is not a lesson that has been learned by the National Investor Relations Institute.

Last month I journeyed to Seattle to attend the NIRI Annual Conference. I had not attended the annual conference in several years and was hoping to get updated on the latest developments in the profession. What I was treated to was two and one half days of unremitting panel discussions. Not only that, but most of the panel discussions featured speakers that were subject matter experts in fields other than investor relations, so that we were hearing from them about specialized topics as they might relate to IR. The amount of coordination and preparation by and among the panelists appeared to be patchy at best. There may have been good information in there, but after the first couple of panel discussions I had gone numb.

Contrast this with TED Talks (http://www.ted.com/). If you’ve ever seen a speaker at TED, you know a.) They are passionate about their subject, and b.) They are committed to giving the talk of their lives in 18 minutes or less. The result is consistently fascinating information delivered in a riveting fashion. Why can’t NIRI, an organization of professional communicators, come up with a way to be as interesting? For communicators, a conference full of panel discussions is the equivalent of going to a decorators’ convention and seeing everything painted white.

So here’s a modest suggestion for the NIRI national conference: Put out a call to members of the profession for presentations, no more than 15 minutes in length, about something they do that is unique, different or best in class related to IR. The best presentations would then be featured at the NIRI National conference in front of their peers. Talk about a chance to shine and be recognized as one of the best in your profession. At the same time best practices would be shared in an entertaining format.

But it’s not just about sitting passively and listening to people talk. People learn by doing as well. Interactive learning through case studies is a great way for people to work with concepts in real life situations. The Houston NIRI chapter has successfully used case studies at the last two Southwest regional conferences they’ve organized and even received awards from NIRI for them. So when the Houston chapter offered to put on a case study at this year’s national conference, you would have thought that NIRI would feature it as a great change of pace and a different way to impart information. Instead, NIRI put the case study as an optional workshop after the main conference had ended. I was participating in the case study and even I was ready to go home by the time the case study started. As a result of the scheduling, only 30 people out of the 1,300 that attended the conference stayed around for the case study. Talk about the waste of a learning opportunity.

I have been making presentations for more than 30 years and have taught in business school for 5 years, and one thing I’ve learned is that people will remember things if you make it interesting and memorable. I hope that NIRI learns the same lesson before the next annual conference. 

Read This Book - Winning Investors Over

To a large degree, investor relations exists in an academic research vacuum. It is hard to find good data on many of the issues IR practitioners spend their time on: guidance versus no guidance, how much information should be disclosed, how to be effective on conference calls, and the overall effectiveness of investor relations programs. Further, if you do go looking for the data, as I have done for my class at Rice, it’s buried in obscure academic journals and couched in dense academic verbiage. (If you are looking for a summary of some of the findings, you can find them on my July 7, 2008 and March 13, 2008 posts.) As a result, much of what investor relations people do is based upon common industry practices, hard learned experience and word of mouth, filtered through the particular corporate environment in which they operate. Hard data on whether or not these practices are effective is simply hard to find and so people go with their gut reaction and what they are comfortable with.

To a certain extent I think this is because effective investor relations covers a number of different disciplines, including finance, communication, marketing and law. Add to that effectiveness mix the need to be an expert on your company’s operations and industry and a comprehensive understanding of how the capital markets work, and you can start to understand why getting good comparisons on the difference between successful IR programs and run of the mill efforts is so difficult.

Recently however, I have run across a book that pulls together the research in the area of disclosure and investor relations activities and puts it into clear understandable language. (I’ve actually been reading the book for a while now, but I’m having trouble getting through it because I keep stopping to make notes to use in my investor relations class.) That book is “Winning Investors Over” by Baruch Lev, a professor at the Stern School of Business at NYU. It covers most of the issues that bedevil IR practitioners, discusses what the research data shows, and makes recommendations on courses of action. For example: Not sure what to do about guidance? Not only does this book show you what the research says, it also helps you put the decision process into a framework that helps you work through the issue. And he does this with issue after issue.

If you are an investor relations practitioner and you want your company’s investor relations and disclosure practices to be informed by the data, not just what everyone else does, you need to read this book. It is so far beyond what I have seen in other books about investor relations as to be in a class by itself. 

Crisis Communication

Last week I had the pleasure of attending the National Investor Relations Institute (NIRI) Southwest Regional Conference in San Antonio. I’m on record as having said this before, but I like to repeat it: I believe that the Southwest Regional Conference is a better learning experience for investor relations professionals than the National Conference. I say this because the Southwest Regional Conference is shorter – a day and one-half as opposed to two and one-half days and thus more focused and, with a smaller number of people in attendance, you actually feel as if you have a chance to get around and talk to everybody.

This year, under the leadership of Lee Ahlstrom and Scott Winters of the Houston NIRI chapter, the Conference once again took an interesting departure from the usual lineup of talking heads you normally get at these conferences. The first morning saw everyone engaged in a case study examining a crisis communication situation. The case required everyone to participate, as each table of eight assumed the role of the investor relations/corporate communications professional. They soon found themselves barraged with information in the form of management meetings, memorandums, twitter feeds, media inquiries and videos of the plant explosion in question. In the middle of trying to parse through the data, they found themselves being interviewed by a reporter and asked questions by a sell side analyst. While all of this was going on they found themselves having to recommend media and disclosure strategies to management.

Everyone I talked to said that the exercise was one of the best simulations they had seen on crisis communications. While that’s nice to hear, when I do case studies in my class, I always like to wind up with some key takeaways from the experience, so for the benefit of both the people who were at the conference and those that may wish to learn a little something about crisis communications, so here are the points to remember from the exercise:

1. 1. To quote Dwight Eisenhower, “In preparing for battle I have always found that plans are useless, but planning is indispensable.” In other words, the crisis you wind up with rarely looks like the one you planned for, but the exercise of planning for a crisis causes you to think through the process. This planning process is what helps you to deal with the crisis you do get.

2. 2. There is always somebody important you can’t reach when the crisis breaks. This may seem surprising in this age of interconnectedness, but people go on vacation to remote areas, cell phone coverage tends to break down under the stress of a crisis and there is always someone who is just out of pocket for some random reason or another. Having a clear chain of command as to who acts in the absence of others is important.

3. 3. The need for speed. People have to meet on short notice. Large amounts of data have to be absorbed quickly. Investors want answers right away and if you don’t respond to the press they will come up with their own version of events. There is no time for multiple editing rounds of your press release.

4. 4. You almost never have all the facts you need when you need them. In a crisis information is often garbled, late and sometimes just wrong. This means that the best messages you can send to your audiences are based on simple factual statements.

5. 5. Differing people have different agendas. The corporate counsel may not want to disclose anything at all. Business managers may not want certain facts to come out so that customers, suppliers and creditors don’t get upset. The reporters want to sell newspapers and get good video footage. Analysts care about how the event will affect the company’s stock and what collateral damage there may be to other companies. Good crisis communications has to deal with all of this.

In the end, there is no set formula for how to deal with a crisis, as each situation brings its own unique set of facts. Practice and planning can help however, which is why this year’s NIRI Southwest Conference was so well received.

Before I finish, I have to relate an interesting story from the conference. This year I decided to participate in the golf outing at the conference. I was out on the golf range practicing before the event (I need a lot of practice) when the person on the next practice tee looked at me and asked, “Are you the blogging professor?” I guess there are worse things you can be known as – it even has a sort of ring to it –“The blogging professor.” Maybe I’ll have it put on my business cards.

Motive Doesn’t Matter

The insider trading trial of the century has started in Manhattan featuring Raj Rajaratnam, his Galleon hedge fund and a diverse set of characters ranging from a former Goldman Sachs director to consultants and naturally, other hedge fund managers. The trial is providing plenty of grist for the mill, but I wanted to focus on one interesting article that appeared the other day in the Wall Street Journal entitled “Motive for Stock Leak Can Be Respect, Love”. The story looks at the motivations for some of the people that leaked inside information to hedge fund manager Raj Rajaratnam and others involved with the Galleon hedge fund. It turns out that not all of them did it for the money.

Mind you, the ultimate recipient of the information appears to have been in it for the money, profiting handsomely from the information given to him by his network of informants. And filthy lucre also appears to have been a part of one of the initial witnesses at the trial who testified to being paid $2 million. (As an aside, it’s kind of hard to argue that you don’t know you were doing something wrong when you’re being paid in an offshore account in your housekeeper’s name.)

However, others appear not to have been motivated by money or to even have profited by their leaks. In the case of one Intel executive, friendship appears to be the motivating factor. In the case of an IBM executive, a desire to impress a woman with whom he had become intimate was the reason cited by the executive in explaining himself the judge in his case.

But here’s the thing that any prosecutor worth his salt will tell you when you start to trot out non-monetary motivations: IT DOESN’T MATTER. Knowingly passing along inside information is a crime and it makes not a whit of difference if you made millions as a result of the information or you did it for the love of mankind. There might be some distinction made by the judge between the two when you get sentenced, but make no mistake, if someone has acted on inside information that you knowingly passed along, the government has the obligation to track you down, take you to trial and convict you.

So here’s the point, from an investor relations and compliance viewpoint: A good IR Disclosure Policy and program will drive home the point that it is the disclosure of non-public information that can get you in trouble, not being paid for it. Most people can easily understand that if someone offers to pay them for confidential information, it is probably illegal. Harder for them to understand is that if they pass along the information because they wanted to impress their friend, or were out in a social situation and wanted to appear important, or they had a long standing friendship with the person they gave the information to, they can just as easily get into trouble.

So find a way to get people with access to inside information to understand that they don’t have to profit from passing along inside information in order to break the law. And just to drive the point home, remind them that whatever friend they pass the information to will not be serving jail time for them when everything unravels.

Yowzer! Step Right Up and Hear the Professor!

I’m happy to report that I will be speaking on February 15^th at the Houston NIRI chapter on the topic of “IR Insights from Academia: Does Any of That Fancy Theory Apply in a Real World Context?” This will be the second time I’ve given this talk, having successfully addressed the Dallas NIRI chapter last November (at least they said it was successful). For those interested in attending, details can be found on the NIRI Houston web site, http://www.niri-houston.org/Luncheon--1.html?ModKey=mk$clsc&LayoutID=7&EventID=95

I find the topic fascinating because it gives me a chance to talk about the intersection of theory and practice. Since leaving the corporate practice of IR and developing my investor relations class at Rice University, I’ve had the opportunity to step back from the day-to-day pressures of IR and really think about what it is IR practitioners do and how all of that fits into things that are taught in business school.

When you think about the discipline of investor relations, it incorporates aspects of marketing, communications, finance, law and the capital markets. Further, the audiences it affects go far beyond just investors to encompass employees, customers, suppliers, creditors, bond holders and governmental entities to name a few. When you throw into the mix that there are some schools of academic theory that hold that active investing and investor relations activities add no value, there’s quite a bit that can be discussed.

Just by way of a teaser for some of the topics I cover in the talk, here’s some of the theory versus real world that I cover:

Finance – most valuation models are constructed using discounted cash flow techniques and how they work has a significant impact on your company’s stock price. Beyond the modeling technique however, there lies a significant takeaway to think about.

Marketing – a lot of investor relations literature talks about targeting investors, but that is only one-third of the three crucial steps to marketing.

Communications – there is a lot of really bad IR communications out there, much of it in the form of PowerPoint slides. I look at examples from some of the biggest corporations in the U. S. (This section is the most fun.)

Law – lawyers are taught to think in a particular way, and regulatory lawyers have a unique take on that. As someone who practiced law for ten years, I attempt to bridge the communications gap between lawyers and IR practitioners.

If you are in the Houston area, I hope you can join me. If you are not in the Houston area, but are interested in having me come to a local NIRI chapter, please give me a call. I’m somewhat of an evangelist on bringing more academic rigor to investor relations, so there is no charge for the talk other than travel expenses.

And Now for Something Completely Different

In the early part of the twenty-first century we all seem to lead time stressed lives. The press of business competes with the demands of ever increasing amounts of information that need to be absorbed. There never seems to enough time in the day to read everything that seems as if it might be important. So the question becomes, “How does one stay current with business thinking, or better yet, get ideas from some of the latest research?” Fortunately, technology has provided a solution.

Most people that work today spend significant time in commuting and this provides anywhere from thirty minutes to two hours a day when time is available to listen to podcasts. For those people who are not familiar with podcasts, they are electronic files that you can download to your computer, iphone and ipod and listen to anywhere, be it in the car or working out. There are an amazing variety of podcasts available, but here is a sampling of some of the better ones that that I have found that deal with business issues. Almost everything I list here is available through ITunes, and in the style of the ITunes store, I will sort them into Basics, Next Steps and Deep Cuts.

The Basics

HBR Ideacasts: Put together by the editors of the Harvard Business Review, I find this series particularly well done, with interesting topics that make me stop and think.

Freakonomics Radio: Produced by the authors of the Freakonomics books, these podcasts put an interesting spin on the dismal science.

Knowledge@Wharton Interviews: I’ve listened to relatively fewer of these as they have not been as well done as the HBR series, but there are occasional interesting interviews.

Wall Street Journal Editors Picks: Didn’t have time to read that interesting article in the Journal you saw at breakfast? You can usually get it here as the WSJ editors interview the authors of the article.

Next Steps

TED Talks: While not strictly speaking business podcasts, these speakers are engaging enough and knowledgeable enough on their subjects to get you thinking about things in a different light. Everyone engaged in business should occasionally be subject to new perspectives and these podcasts will give them to you.

BBC World Weekly with Gideon Rachman: A good way to get a non-U.S. perspective on the news events of the week, which often involve the world of business.

Stanford University Business Management: There are currently only 12 podcasts available in this series, but the ones available are quite good. (Stanford University also has a series on Business Leaders and Entrepreneurs which I have just begun listening to, which looks to be as good, but I haven’t heard enough to officially place it on the list.)

Deep Cuts

Yale Business & Management: Many of the podcasts in this series focus on very narrow topics, so you really have to hunt for what you think may be relevant to your situation, but when you find it, the speakers are quite good.

The Economist: Find the magazine too dense to read? Try the podcast.

The Bowery Boys History of New York: If you are going to deal with Wall Street, you need to understand New York and this delightful series gives you New York City history in bite-sized chunks.

And just to prove that it’s not all about business, here are some of my other favorites from my ipod.

A Prairie Home Companion’s News from Lake Wobegon: Comic genius (in a Midwestern sort of way) from Garrison Keillor.

The History of Rome: Want to know if the sex, sand and sandals in the HBO series are accurate? Listen to this podcast and catch up on your classical history.

Car Talk: Who doesn’t love Click and Clack, the Tappet brothers?

BBC In Our Time with Melvyn Bragg: Features erudite scholars being forced to speak in plain English about a variety of (sometimes) obscure topics.

Oxford Biographies: Catch up on your British history by hearing about people you’ve been told were important, but you don’t know why.

NPR Columns – Driveway Moments: Features the best human-interest stories from National Public Radio’s programming.

While everyone will have different tastes in what they want to listen to, the main point is that you don’t have to listen to that classical rock song for the 200^th time, you can actually put your brain to use and learn something useful.

Talking to Investors Before They Vote Their Proxy

I recently had the pleasure of being interviewed for a podcast by Broc Romanek who writes the blog The Corporate Counsel (www.thecorporatecounsel.net/blog). Broc’s blog is one of the best around for digging into the technical requirements surrounding dealing with the SEC. Sometimes the stuff is way too technical for me (and I used to practice securities law), but other times the information is really useful. Just to take and example, with Washington buried under two successive snowstorms that have shut down federal government offices, you might wonder how that affects your SEC filings that may be due or that you might wish to file. Broc knows and you can find out on his blog.

Broc’s interview was on one of my favorite topics, trying to place a value on investor relations. For those of you who want a quick overview (the whole podcast is only 8 ½ minutes long) on what the research says about the value of IR, you can find it here: http://www.thecorporatecounsel.net/nonMember/InsideTrack/2010/02_10_Palizza.htm

If you want fuller treatments about the research, see my blog post of July 7, 2008. Broc was even kind enough to put in a plug for my upcoming seminar, “Fundamentals of Investor Relations”, February 24^th at The Houstonian Hotel, Club and Spa in Houston.

For more information go to http://www.palizzapartners.com/Palizza_Partners/Seminars.html

During the interview, something that Broc said struck me as interesting and I thought it was worthy of commentary. Specifically, Broc mentioned that with all of the changes to proxy rules, disclosures and the way issues are voted, there needs to be more communication between IR and the legal team. I think that Broc is right. Too often, specific, mandated disclosures such as proxy compensation discussions get compartmentalized. Lawyers read the rules, write disclosures to conform to the rules and present them in draft form to IR and management. Anybody that’s not a lawyer hates to read this stuff – it’s technical, dry and reads like a lawyer wrote it. So there are usually minimal revisions and the dense, dusty verbiage gets plunked down into the proxy statement. It’s the great irony of this type of disclosure – the more you have of it, the less likely it is to get read.

Now if you think about this process, there is a crucial link missing. Nobody talks to the investors who actually vote the shares. This is somewhat akin to politicians running for office without doing any polling. So when corporate proxy votes come in and there are large withholds on certain issues, companies have only themselves to blame. Actually, that’s not quite true, because portfolio managers in general hate spending time on corporate governance issues. It distracts from what they see as their main mission – making money on stocks.

Here’s a couple of suggestions to bridge this gap: First, well in advance of proxy season, investor relations officers, together with their securities law counsel, should schedule a number of calls to key investors to discuss current disclosure issues in areas such as compensation and governance. The calls should be designed as a dialogue to discover how investors view the topics and not as advocacy. Remember, you can’t solicit votes without a proxy statement. What investors want to hear can then be incorporated into your disclosures. Similarly, when you’re out on non-deal road shows, ask to spend five minutes at the end of a visit discussing the firm’s views on disclosure issues, whether they be compensation, governance or social responsibility. In the larger firms this will mean that they will have to bring in someone at the end of the meeting, as there is usually a separate person that deals with proxy voting, but it is well worth the effort as it gives upper management an opportunity to hear investors’ concerns and thinking.

This is not a cure-all, as sometimes investors want to hear things that management doesn’t want to disclose or they want governance structures that management is unwilling to implement, but at least you’ll know prior to the vote being cast.

The SEC and Climate Change – What Are These Guys Thinking?

First, a brief reminder that my seminar “Fundamentals of Investor Relations” will be held February 24^th in Houston. The seminar blends real world experience with some of the tools we teach in business school such as valuation, decision tree analysis and efficient markets as they interact with the finance, capital markets, legal and communications issues of investor relations. If you’re interested, go to my website, www.palizzapartners.com and click on the seminars tab.

The Securities and Exchange Commission faces a daunting array of issues that need attention - we’re just recovering from the most severe financial crisis our country has faced since the Great Depression which severely tested the structure of our capital markets, credit rating agencies face a crisis of confidence based upon their performance in rating complex mortgage backed bonds and the inherent conflict of interest they face in being paid by the issuers of the bonds they rate, the proper regulation of derivative instruments needs to be addressed, and their enforcement division wasn’t able to identify the billions of dollars being stolen by Bernie Madoff in spite of receiving complaints against him on at least two occasions. So what pressing issue does the SEC choose to tackle first? CLIMATE CHANGE! In the words of Commissioner Kathleen Casey (a Republican who voted against adoption of the release) “our consideration of this release today sends a curious signal to the investment community about what we view as the most pressing issues facing the Commission”.

The interpretive release, which the SEC commissioners adopted in a 3 – 2 party line vote (guess which party voted in favor of the climate change release) and which as of this writing still hasn’t seen the light of day (how’s that for timely disclosure of a material event?) purports not to change disclosure requirements. The last time I checked the definition of materiality as set out by the Supreme Court in Basic v. Levinson, it was “Information is material if there is a substantial likelihood that a reasonable investor would consider it important in making an investment decision”. In over thirty years of working in the field of investor relations I have never had an investor who owns, or is interested in owning shares, ask a climate change question. Could I have been dealing with unreasonable investors all these years? I have had questions from advocacy groups, but they are not investors, which is a crucial difference as far as disclosure requirements go.

Previous SEC interpretive releases have focused on areas such as analysis of long and short-term liquidity and capital resources, segment analysis, the effects of federal financial assistance on the operations of financial institutions, and the disclosure of preliminary merger negotiations. It seems to me that these are proper areas for the Commission to be concerned with; they are concrete, defined in scope and fairly immediate. Now we have a release, which according to the speeches of the SEC commissioners, requires companies to consider the reputational damage and its effect on their financial condition caused by their greenhouse gas emissions and requires them to disclose if their operations may be at material risk from the physical effects of climate change. So here are a couple of questions: How do you measure reputational risk in a meaningful and defined way? How do you know if your operations are at risk from climate change as opposed to normal weather shifts? Last time I checked hurricanes didn’t come with tags that say, “climate change related”. This is just bad regulation, requiring companies to engage in speculation about future events. In most other instances the SEC discourages speculation and requires you to make disclaimers about how the events may not come to pass, but this is an issue that is on the political agenda for the party with the majority of Commissioners on the SEC and so speculation is okay.

And just to remind you, the SEC also put out an interpretive release requiring companies to discuss Y2K issues, and we all know how material they turned out to be.

Efficient Markets and Investor Relations

There is still time to sign up for my seminar "Fundamentals of Investor Relations" on February 24th in Houston. Just go to my website, www.palizzapartners.com and click on the seminars tab for more details.

One of the things you learn about in finance class during the first year of business school is the efficient market hypothesis. In its simplest form, the efficient market hypothesis states that security prices fully reflect all available information. The implications of this seemingly simple statement are profound, because if current stock prices reflect all relevant information, then prices will change only when new information arrives. New information, by its definition, cannot be predicted ahead of time, and therefore stock prices cannot be predicted ahead of time and will be random.

The efficient market hypothesis gave rise to an entirely new investment vehicle, the index fund, as numerous studies were done showing that active investing could not beat the market over the long term, after taking into account transaction costs and overhead.

There are actually three versions of the hypothesis: The strong form, which posits that ALL information, both public and private, is embedded in a security’s price; the Semi-strong form, which holds that all publicly available information is reflected in the stock price; and finally the Weak form, which says that a stock’s price reflects all information that is contained in the past prices of the stock. Of the three forms, financial economists are pretty much in agreement that the Strong form, that security prices embed all information about a stock, both public and private, overstates the case. If it were true, insider trading would not reap abnormal profits, which it clearly does. Most settle on the Semi-strong form of market efficiency as their preferred thesis. Since Eugene Fama initially wrote about efficient markets in 1969 literally hundreds of event studies have been done showing that markets rapidly react to widely available information.

So, you may ask, what has all of this got to do with investor relations? The key here is that investor relations has a fair amount of discretion over what information becomes widely available. Forget for a moment what you have to disclose because of regulations and quarterly filings and think instead about other things that make up your company.

Just to take one example, say you have a terrific management team. If you don’t get them in front of investors so that they can judge how great they are, that information is not widely available and the market will never know about it. If investors don’t know how good the entire management team is, they can’t build that into their expectations of future profits and therefore it will not be reflected it in your stock price.

Another example is corporate culture. Nothing in the regulations or disclosure requirements will ever force you to talk about your company’s corporate culture. Yet that very same culture may be a big reason behind your company’s performance and its future prospects. Wal-Mart comes to mind as a company that puts its culture in front of investors by letting them attend Saturday meetings in Bentonville and welcoming them to the extravaganza they have each year at their annual shareholders’ meeting.

What you choose to disclose is entirely up to you and (here’s the rub) your management. Every company is good at something – brand management, technical expertise, distribution or operations, to name a few. Disclosing data of this nature with investors can help them more efficiently value your stock. The key is that the information has to be widely available. That doesn’t mean that you have to disclose it in your filings or put out a press release. Not all information rises to the level of materiality. But it does mean that you have to have a consistent effort to disclose those pieces of information, both in good times and in bad, to all your investors.

Do that and you will have done your part in making the markets more efficient.

Learning from European IR Websites

First, a brief announcement: registration is now open for my seminar, “Fundamentals of Investor Relations” to be held February 24^th at The Houstonian Hotel. If you are interested in attending, simply go to my web site www.palizzapartners.com, click on the Seminars tab and follow the instructions at the bottom of the page to register. We are offering a high quality educational experience at a compelling price.

And now for something completely different (apologies to Monty Python): Like most modern day office workers, I spend a lot of time in front of my computer getting information off the web. When I do research on companies, I usually start at a general financial information site (my personal favorite is Google Finance, but there are plenty of others out there) to get a quick overview before moving to the company’s investor relations site. What I find when I get there is that many of the investor sites for U.S. companies tend to be very cookie cutter in their approach. In short, the sites are not very interesting or innovative. My impression is that the sites have been assembled from a menu of standard options, sort of the way you can order off a Chinese menu.

I find this somewhat depressing, given the decline in print media as a means of delivering a company’s story and the inherent flexibility that the web provides. As I thought further about it, my conclusions were that there are probably two factors at work here. First, most companies choose to outsource the process of building and maintaining the investor web site portion of their company’s site. I can’t say I blame them for this, as A. doing this well is beyond the capabilities of most smaller companies and B. if you’ve ever worked in a large corporation that maintains the web site internally, you know that investor relations is well down the priority list of most programmers.

Second, the market for providing outsourcing of investor relations sites is essentially a duopoly in the U.S., with all the implications that has on pricing and innovation. Least you think I’m just talking through my hat, over the past couple of years I have spent a fair amount of time looking at European investor relations web sites, and in a number of respects, they do it better. For example, as you can see in the screenshot below, the Italian energy company ENI has a killer main IR page that allows you to customize how you want the information to look through the use of movable widgets.

Or how about a graphics generator for your key data? The screenshot below comparing net income to free cash flow is a graph I generated on the website of EADS, the European defense contractor. The entire process took me six clicks of my computer mouse – no cutting and pasting, and no downloading financials and parsing through the entries and fussing with excel charting functions.

Finally, we live in an increasingly mobile society, but U.S. investor sites seem to think that everyone is sitting at their desk. Below is a screenshot of the Stay in Touch page for Aviva, the U.K. insurance company that gives investors a number of ways to receive their information.

The point of all of this is that here in the U.S. we tend to get a bit insular. We have the largest and most robust capital markets in the world, so naturally we think everything we do connected to those markets is the best as well. However, there seems to be some very innovative things being done for investors in Europe. We could improve our web sites by broadening our horizons a bit.

A Pricing Guide to Executive Education in Investor Relations

Competition is a wonderful thing. Competing offerings generally result in better offerings, more choices and lower prices for the customer. Conversely, when an organization has a monopoly or near monopoly on a product, prices go up and there is no way to know if you are getting the best the market has to offer. If you don’t believe me, just think about what American cars were like before they started to get serious competition from Japanese and German cars.

Until recently, people who wanted to go to educational offerings about investor relations have had very limited choices at very high price points. That’s why I’ve developed my seminar, “Fundamentals of Investor Relations”.

Talk is cheap (unless, evidently, you want to hear it about investor relations), so I thought I would set out how my new seminar compares to what’s currently being offered and let the readers decide.

Fundamentals of Investor Relations

Cost: $475

Duration: one day

Location: Houston, Texas

Instructor: John Palizza (me), lecturer at Rice University Jones Graduate School of Business, developer and teacher of the only MBA level investor relations course taught anywhere.

NIRI Introduction to Investor Relations

Cost: $1,195 for members, $1,495 for non-members

Duration: two and one-half days

Location: Boston, Massachusetts and Santa Monica, California

Instructors: Volunteer consultants, IR practitioners and NIRI staff

University of Michigan — Theory and Practice of Investor Relations

Cost: $7,200 for members, $8,100 for non-members

Duration: five and one-half days

Location: Ann Arbor, Michigan

Instructors: University of Michigan finance professors and Jeffrey Morgan, NIRI president.

Online Certification Program in Investor Relations, offered with the University of California, Irvine

Cost: Six required courses and one elective course at $660 per course for members, $860 for non-members, plus one elective course at $575, textbook cost of $100 per course and $125 candidacy fee. Total cost: $5,360 for members

Instructors: various volunteer practitioners

Certificate Program in Investor Relations at NYU School of Continuing and Professional Studies

Cost: five courses at $775 each, total cost $3,875

Instructors: various volunteer practitioners

If you’re wondering why I can offer this seminar at a price point much lower than anyone else, the answer is that I am much more interested in elevating the educational level available for the discipline of investor relations than I am in making a lot of money. Don’t get me wrong, I’m as driven by the profit motive as any good capitalist, but frankly, I think current offerings are overpriced, inconvenient and take way too much of people’s time. I know what the costs are to put on a seminar and I don’t see it justifying the pricing I see. I think the seminars are being priced for what the traffic will bear, not to the marginal cost of the product.

So here’s my promise: Attend “Fundamentals of Investor Relations” and you will be given the basic knowledge about investor relations you need to have a solid grounding in the legal, marketing, finance and stock valuation aspect of the discipline. I also promise you that we will not waste your time. And we won’t force you into a vendor’s showcase for “networking time”. All we’ll do is have a dialog about the essential knowledge you need to know to do your job well. When all is said and done, I believe you will get a better product – one that is used in a MBA curriculum - at a lower price than anyone else is offering.

This is my first time offering the seminar and it’s being offered in Houston. If we have success, we’ll bring it to other cities, so that it’s convenient to the customers.

If you’re interested, or know someone who might be interested, you can find more information about our upcoming seminar on February 24, 2010 under the Seminars tab on my website http://www.palizzapartners.com or you can email me at john@palizzapartners.com or call me at 281-727-6775. I love to talk about this subject.

More Essential Life Skills for the Investor Relations Professional

First, a brief commercial: I am happy to announce my seminar, "Fundamentals of Investor Relations" will be given in Houston on February 24, 2010. The workshop was developed from my MBA course at Rice University and is designed to be a comprehensive one day overview of the essentials of investor relations. At a cost of $475.00, it represents a great value. For more information, visit the Seminars tab at my website at www.palizzapartners.com.

In the early days of this blog (September, 2007), I wrote a humorous piece entitled “Essential Life Skills for the Investor Relations Professional”. Much to my surprise, the essay has proven to be one of the more popular posts I’ve written. I suspect that people do a web search looking for relevant advice about how to actually practice investor relations and wind up getting my advice about learning to talk with their mouths full, sound enthusiastic when they’re answering the same question for the thirtieth time and other odd bits of advice, but nevertheless, from the data, it appears that people actually read the post when they get there. Therefore, in an attempt to inject a little more humor into what tends to be a humorless profession, I introduce part 2 to my essential life skills series.

Today’s piece of advice is to learn to think of the analysts that cover your company as your children. This may sound like an odd analogy, but in my experience, their behavior often mirrors that of my children when they were growing up. Consider the following behavior traits:

They all want to be first in line. Think about the fight to ask the first question on your conference calls. Think about how quickly they want to get notes out on First Call.

They all want your attention immediately. When an analyst calls, they are interested in getting the answers to the questions they have NOW, not according to your schedule. This certainly sounds like my children.

They all want you to love them best. The job of an analyst is to assemble pieces of information into an investment thesis, and they all want better information flow (their version of love) than anyone else.

Because they’ve been to school, they think they have all the answers. In the case of my children, it was grammar school, while in the case of analysts, it’s business school, but other than that, it’s pretty much the same. Actual practical experience doesn’t seem to count for much.

When it comes to finding out information, they prefer to be told rather than dig the facts out of a book. My children would always opt to try and have me give them the answers instead of looking it up in a textbook. All you have to do here is substitute Report on Form 10-K for textbook and you can see my point.

I could go on, but by now I think you understand the analogy. The question then becomes what parenting skills come into play as essential life skills for investor relations professionals?

First, just as you must love all your children equally, you must also love all the analysts that cover your company equally. There is no room for playing favorites. Many people will find this piece of advice difficult to follow, because, just as with your children, every analyst has a different personality, some of which are nicer than others. Nevertheless, you must act like an adult here and be fair and consistent, even if the analyst has a sell rating on your company.

A corollary to this is that, just as you teach your children to respect others, you must also respect all analysts. Company investor relations officers often lose sight of the fact that analysts are pulled in many different directions by portfolio managers, hedge funds, research directors and the need to continually generate investment ideas. Compounding this you have a divergence of viewpoints – to most IR officers there is little difference between the company and its stock, whereas to an analyst this is a crucial difference. Because of this, a lack of respect for the work being done by the analyst can arise. An essential skill of an IR professional is to respect the work an analyst does regardless of their conclusions.

Finally, actions speak louder than words. It doesn’t matter how much philosophy you may preach to your children, if you don’t walk the talk, they will see right through you. The same is true of analysts. You have to be honest and straightforward in how you respond to their questions. If in discussing a topic, you fail to cover some essential points simply because the question asked wasn’t specific enough, your credibility will eventually suffer.

Although I could continue in this vein for an extended period, I have to stop now. My children are home for the holidays and I have to go break up a fight about who gets to use the car tonight…

IR and Activist Investors

Last week I had the pleasure of attending the National Investor Relations Institute (NIRI) Southwest Regional Conference in San Antonio. I’m on record as having said this before, but I think it bears repeating: I believe that the Southwest Regional Conference is a better learning experience for investor relations professionals than the National Conference. I say this because the Southwest Regional Conference is shorter – a day and one-half as opposed to two and one-half days and thus more focused and, with a smaller number of people in attendance, you actually feel as if you have a chance to get around and talk to everybody.

This year, under the leadership of Lee Ahlstrom, President of the Houston NIRI chapter, the Conference took an interesting departure from the usual lineup of speakers. The first morning saw everyone engaged in a case study examining the actions of an activist investor confronting a company with operational and governance issues. The case required everyone to participate, assuming the role of members of the Board of Directors, while members of management, the activist investor, and an institutional investor presented their side of the situation. The case drove home the incredibly fast pace of events in these types of situations, as members of the Board found themselves with large amounts of data, conflicting agendas and not much time to make a decision.

As someone who uses case studies to teach investor relations, I was very interested to see how things would turn out. After all, the audience was mostly corporate IR practitioners, who would normally be expected to side with management. I had worked on the case with Lee and a number of other professionals in the field and thought that the case was even-handed, presenting issues on both sides of the situation, but with case studies you never know quite how the participants will react. To my surprise, the overwhelming number of participants voted in favor of negotiating with the activist shareholder, recognizing the difficult realities of activist investor situations.

I would be the first to admit that a single case study result does not a trend make. But Directors face enormous pressure to do something in these situations beyond the Nancy Reagan defense (“Just say no”). Add to that the additional pressure Board members face when you consider Director’s liability and potential lawsuits, and you start to understand the leverage activist investors have.

As investor relations professionals we are often the early warning system for these troubles. If you are consistently getting questions about underperforming units or assets, you should let your management know. Hedge funds often talk to one another about investment ideas and when the same question keeps popping up it can serve as a warning sign. Similarly, if your corporate governance scores are low or your compensation practices out of line with your peers, you should be tactfully suggesting that the Board address these issues. Better that the Board act on its own than be forced to by an activist investor.

Finally, set up a program to talk to your major institutional investors to discuss items other than the latest quarterly results. Solicit input on governance issues, compensation and equity plans, with senior management present. You can do this either as a separate call or ask that you spend 5 – 10 minutes on the topics during your next non-deal roadshow. Those are the institutional votes you will need next time there is a potential proxy fight and you would be well served to have a history of listening to your investors on these issues rather than waiting until you are under the gun.