THE BEST
Green is green
From the best to even better, this year General Electric was all about ‘virtue’. In May GE launched ‘ecomagination’, a project to invest $1.5 bn a year in green initiatives. ‘Ecomagination makes good sense for us, our customers and the environment. It’s good for investors, too,’ adds Russell Wilkerson, GE’s head of financial communications.
A hugely popular TV commercial showing an elephant frolicking in a rain forest to the tune of Singing in the rain brought ecomagination – and other green initiatives – to massive public attention. Also in May, GE produced its first corporate citizenship report, ‘Our actions’, prepared according to Global Reporting Initiative (GRI) guidelines.
In launching ecomagination, GE held a meeting with more than 100 investors including top sell-side analysts, and monthly investor e-mails now include citizenship updates. GE also has regular roundtable meetings with the Social Investment Research Analyst Network (Siran) and is currently organizing two ‘multi-stakeholder engagement sessions’ in the US and Europe, according to Sheri West, director of socially responsible investor communications at GE.
Vanity Fair meets IR
We singled out Las Vegas-based Ameristar Casinos’ annual report as one of the best examples of IR in 2005 for a very simple reason: it’s an incredibly readable piece of corporate literature. This is a rare find in the world of annual reports – a report you feel compelled to read.
With its Vanity Fair-style cover, the report is laid out like a magazine with a table of contents, a masthead, high-glamour photography and in-depth articles. It even has a ‘Letters to the editor’ page featuring glowing reports from the company’s customers. It also includes unpaid advertising from big brand names like Adidas and Sky Vodka.
Beyond the gloss, Ameristar still manages to include all its numbers and tell its story in a clear, concise manner. ‘Ameristar’s primary goal for the annual report was to make it engaging and readable while capturing the essence of the Ameristar brand,’ the company’s chief marketing officer Paul Eagleton told IR magazine in July. ‘It reflects our numbers and highlights our successes. But the report’s unique features also demonstrate that Ameristar is an entertainment company at heart, with interactive elements including a pull-out blueprint poster, recipe cards and a music CD.’
So what did shareholders say? According to Eagleton, ‘one [investor] called to say he had just finished reading the report while listening to the CD, and said it was one of the most fantastic reports he had ever received.’
Caught in the headlights
Doing IR for Providian Financial this past year must have felt like being a deer caught in the headlights. We think IR throughout the company’s merger with Washington Mutual deserves a nod because it was such a high-profile merger full of twists and turns – all of them catalogued by a media hungry for big-deal stories where investors might be wronged.
The fun began when one of the company’s largest shareholders, Putnam Investments, with around 7.5 percent of shares outstanding, publicly opposed Washington Mutual’s bid at the beginning of August. ‘When Putnam put out that press release it moved everything up a notch,’ Providian’s IRO Jack Carsky told IR magazine in September. ‘I can’t think of a case where Putnam has ever done that before.’
Influential proxy firms were divided over Washington Mutual’s offer, with Institutional Shareholder Services (ISS) and Proxy Governance in favor of the bid, and Glass Lewis & Co and Egan-Jones Ratings opposing it.
The final media maelstrom centered on a column by popular New York Times columnist Gretchen Morgenson that criticized ISS and suggested shareholders were giving up their right to an independent assessment of the deal by voting in favor of Washington Mutual’s bid. The column provoked a defamation suit from ISS.
In the end, the deal was wholeheartedly approved on August 31 with 83 percent of total voting shares in favor.
Restructuring success
When a $2 bn company with visible performance problems turns its story around, the financial community can’t help but sit up and take notice. That is precisely what happened with Texas-based energy company TXU.
John Wilder, director and CEO of TXU, implemented a five-year improvement program to restructure the company and push it to peak performance. The investment community was clearly convinced: Wilder was voted this year’s winner of the award for best IR by a chairman or CEO at the IR Magazine US Awards. As an investment professional said in the perception study behind the awards, ‘John Wilder had the vision to take TXU apart, sell off the pieces and recreate the business model.’
One element of the restructuring was to provide investors with a plan showing where the company was going and how it would get there. Wilder put in extra time making sure top shareholders knew what was going on. He also revived the IR program by revamping quarterly releases and enlisting the help of a former buy-side analyst who helped redesign TXU’s entire IR output from an investor’s point of view.
Wilder puts a premium on TXU’s confidence level. ‘One of the first things I worked on with the IR team was not being bashful about setting goals,’ he told IR magazine in June. ‘Probably the biggest change we made was one of using much more transparency and information, newly packaged.’
Wal-Mart’s glasnost
If GE went from best to even better in 2005, Wal-Mart went from pretty horrible to a little less than horrible. The retailer is still seen as the epitome of corporate arrogance, but in two areas – IR and sustainability – the company made big improvements this year.
Glasnost is what the New York Times called the retail chain’s new attitude toward Wall Street in a May article, describing how CEO Lee Scott is opening up to analysts and institutional investors in a way never dreamed of by Sam Walton.
In April Wal-Mart held its first-ever corporate open house for journalists. Then, in October, Scott announced sustainability initiatives, though – perhaps coincidentally – this was just before a damaging healthcare memo went public and an anti-Wal-Mart movie opened.
Nonetheless, it is progress, although investors and social and environmental groups have yet to be convinced. ‘There’s no question there has been more communication about the company’s goals and programs,’ says David Schilling, director of global corporate accountability at the Interfaith Center on Corporate Responsibility (ICCR). ‘But is it just a flurry of activity, or are there real bridges being built by an insular company to embrace a more global culture? We’ll be watching to see whether Wal-Mart’s social and environmental targets are met.’
Clearly, Wal-Mart still has a long way to go. When IR magazine called the IR department for comment, we were redirected to the press department by a recorded message: ‘All our associates are currently occupied…’
THE WORST
Slow on the uptake
Five profit warnings following a highly speculative acquisition culminating in an overdue change in leadership – none of this rates highly in terms of IR performance. This is why UK grocery retailer Wm Morrison lands in the doghouse this year.
The company lagged on two fronts in 2005: it was unable to provide guidance on when the integration of Safeway, which it acquired in March 2004, would begin paying off, and it delayed any changes at the top even though management’s strategy was clearly failing.
In May the company announced it wouldn’t give guidance on 2005’s profits until October when it reaffirmed previous profit guidance toward the lower end of £50 mn-£150 mn ($87 mn-$261 mn). In the interim, it called on accounting firm KPMG to sort out its forecasting and then told investors it wouldn’t be able to predict an end to the Safeway integration until March 2006.
Throughout the saga, Ken Morrison, the company chairman, was heavily criticized for not introducing fresh blood to the boardroom and management. In June the company relented and appointed three new non-executive directors to the board. It also replaced its finance director Martin Ackroyd with Richard Pennycook and announced the departure in October of CEO Bob Stott, whose successor had yet to be named as IR magazine went to press.
Critical process
The practice of blacklisting sell-side analysts who produce unfavorable company coverage used to be one of the corporate world’s dirty little secrets. In 2005 it burst into the open with San Jose, California-based semiconductor company Altera as the ugly poster child. The company left Wells Fargo technology securities analyst Tad LaFountain out in the cold after he issued a negative report because of Altera’s share buyback scheme. LaFountain explained that as shares are typically repurchased at a higher cost he felt a share buyback was not an appropriate way for Altera to spend shareholders’ money.
In March Altera’s CFO Nathan Sarkisian and vice president of IR Scott Wylie told LaFountain they could no longer ‘facilitate’ his research, and the company’s executives stopped taking LaFountain’s calls and allowing him to ask questions during conference calls.
Sarkisian later issued a formal apology to LaFountain. ‘In retrospect, our decision to disengage was in error, and I apologize to Mr LaFountain, our investors and the investment community,’ Sarkisian said, though Altera stuck to its guns on the share repurchase program.
Bitter taste of poor governance
Becoming the target of shareholder activists is not necessarily the sign of bad IR, but it sure puts IR to the test. Farmer Brothers is a California coffee company being put to that test – and failing.
A shareholder forum organized by investment banker Gary Lutin has been pushing for change at Farmer Brothers since 2002 and recently engaged JH Chapman Group, a Chicago investment bank, to seek the sale of the company because the founding family runs it like a private business without regard for minority shareholders.
The Investor Responsibility Research Center (IRRC) says Farmer Brothers is at the bad end of governance changes. This year it proposed to eliminate cumulative voting but also proposed adopting a classified board. And it reincorporated in management-friendly Delaware.
Responding to Lutin’s suggestion that trustees might be sued if family trusts voted against a sale of the company, spokesperson James Lucas told the Daily Breeze: ‘With respect to his speculation about the trusts, Lutin is all wet.’
Limited access
Most everyone read about opposition to Deutsche Börse’s failed bid for the London Stock Exchange (LSE), which ended with the resignation of CEO Werner Seifert and a boardroom shake-up. What sticks out as poor IR is the limited access the company reportedly provided to institutional investors opposing the deal.
Prior to the withdrawal of the bid, institutional opponents to Deutsche’s offer repeatedly demanded consultation, and turned up the heat after a tense conference call during which investors and analysts hostile to the bid were barred from asking questions. Some analysts said this proved senior Deutsche management was acting contrary to investors’ wishes.
Deutsche’s spokesperson Frank Hartmann told IR magazine: ‘All analysts were invited to attend but – as in the past – only those actually present were allowed to ask questions.’ But as investors continue to push for higher disclosure standards, demand for access and information is unlikely to let up in 2006, so IR should consider best practices – before regulators impose higher standards.
