Tom Filstrup has been in charge of Whirlpool Corporation’s investor relations for eight years, working mostly on his own until he was joined recently by assistant Dave Deranek. During those eight years, Whirlpool has spun out its operations as well as its IR efforts.
The Michigan-based company began as a domestic appliance manufacturer in every sense of the word, with the US representing its only major market. Now the $8 bn revenue corporation is competing and investing in most of the world’s major markets, including Asia, Latin America and Europe, reflecting its strategy of being a ‘genuinely global company’. A renowned brand name in the US but unknown in Europe until recently, Whirlpool is now challenging local European giants like Siemens and Electrolux on their home turf.Filstrup has had the kind of restless career that seems to equip someone for the job of investor relations officer, certainly with a company like Whirlpool whose IR strategy is rapidly transmuting to match its aggressive global expansion plans. He was in the audit department for three years before becoming the IR officer; and he had spent ten years on his own account in the restaurant business, following five years as an engineer, before first joining the company. ‘In fact, the audit area is a good place to get to know a company,’ Filstrup suggests, adding that his job has changed a lot since he took over. ‘When I first came, we were overwhelmingly a domestic company and didn’t really need an investor relations function on the same scale,’ he explains.
Today Filstrup mainly has responsibility for communicating with the analyst community, while Dave Deranek handles the shareholder analysis, amongst other things. ‘I report to our treasurer Bradley Bell, but he doesn’t get involved in communication directly, although he does come to meetings with analysts where he knows them.’
Filstrup also has responsibility for handling the company’s pension and 401 (K) investments, an odd combination at first sight. But he claims that this is a better job fit than it might appear on the surface: ‘It helps me understand how our investors feel,’ he points out.
The Whirlpool shareholder base is still heavily American and predominantly institutional, but Filstrup’s efforts have to some extent altered the mix. He estimates that the institutional/individual balance has shifted from 80/20 to 75/25, and that the percentage of foreign holdings has gone up considerably – from almost nothing (around 1 per cent) to some 7 per cent – in the last three or four years. As he says, ‘After all, we are now a global consumer products company, so this mix fits our profile better.’
There are other reasons for wanting to attract new retail and foreign shareholders to the company’s stock, namely to offset the disproportionate numbers of big domestic institutional holders. ‘Of course, you do want trading to occur, and big shareholders bring and want liquidity,’ notes Filstrup. ‘But some shareholders are so big that if they pull out, dumping your stock, the prices will tumble.’
Of course, that suits nobody. And it is the underlying reason for the company’s interest in building a higher level of individual and foreign investors in Whirlpool’s stock. ‘The more shareholders you have across the world, the better the valuation you will get for your stock,’ Filstrup avers, arguing that foreign investors are less likely to run with the lemmings in program trading or get swept along in other US market panics. The time delay gives them more leisure to look at the reality – instead of just reacting to the rumours and the freneticism of New York trading floors.
Individual investors may be less fickle than institutions but a major impediment to dealing with them, in investor relations terms, is their typically high per capita costs of service. Retail shareholders are expensive both to get to and to deal with. Whirlpool is helping overcome such problems with its Automatic Dividend Reinvestment Plan, or Drip, which provides for brokerage commission-free reinvestment of dividends and top-up investments.
The Whirlpool Drip began life as a somewhat inflexible mechanism which, understandably enough, was not too attractive to investors. For example, it was all or nothing for dividend reinvestment; top-ups could only be made on or near the end of the quarter; and there was a limit of $10,000. ‘We used to have to return cheques if someone tried to invest too soon before the quarter,’ Filstrup recalls.
However, the scheme was refined by the end of 1993 and made much more investor-friendly. It now has a $50,000 cap, accepts top-ups anytime, and allows for partial shares. It was also made more widely accessible when Whirlpool joined the National Association of Investors Corporation low cost plan, which allows members to take advantage of the scheme with an initial down payment of as little as $5.
The Drip is now flowing well. In the first quarter of 1993 the scheme had 70 contributions totalling a $28,000 stake. By the second quarter of 1995 that had expanded to 1,700 contributions, worth some $500,000; and there were more than 600 new NAIC participants.
Filstrup’s eventual goal is to get 30 per cent of the equity into retail investment hands. ‘That’s about all that we could reasonably expect,’ he estimates. ‘When I began with these five years ago, a lot of other investor relations people thought we were wasting time and money. You can get into expensive individual mailings, if you send them to the wrong places.’
But Filstrup has no doubt about why the effort is worthwhile. ‘Individual stockholders have a much longer view, so they are not going to add volatility. And they are much more management oriented,’ he says.
The benefits can extend to the commercial side of the business, too, Filstrup believes: ‘There’s a strong link with customer loyalty as well,’ he notes, which Whirlpool is planning to encourage by offering its shareholders 5 and 10 per cent discounts on its wares.
Filstrup attends NAIC investor education meetings. These always take place at weekends, but he doesn’t see it as time wasted. ‘In fact, they ask some very good questions,’ he says. ‘Better than some Wall Street analysts. And they come up with some very good angles and ideas that feed back to my work.’
The IR department’s efforts are also paying off with foreign investors, helping to produce a sevenfold increase over the last three or four years. ‘I have a very active mailing list with European analysts. We compete with Electrolux and companies like that now, whereas a few years ago no one there even knew us.’
Whirlpool has taken a roadshow tour around Europe in each of the last two years, with the CFO and CEO both present. ‘So far we haven’t spent a fortune doing this,’ says Filstrup. ‘You don’t need to invite 300 people to lunch. As long as you pinpoint the individuals who can buy US stock, you get value for money.’
This corporate cost consciousness has produced a familiar casualty at Whirlpool: like many other companies, it no longer mails out a quarterly report. ‘It doesn’t help anyone understand what’s happening to the company,’ asserts Filstrup, who stressses that he is willing to give any means of communication a try. His personal preference is conference calls, and he regularly blast-faxes 75 key analysts – ‘some sell-side but mostly buy-side’ – to notify them when he is arranging an earnings announcement conference.
The company also produces a video ‘every other year’, for the annual meeting, usually with special reference to a current issue. For example, Whirlpool just started operations in China, so the latest video production concentrated on explaining the opportunities this has made available.
As for the newer media crying out for IROs’ attention, Filstrup confesses to catching up on these rather belatedly. ‘We’re only just coming up to speed on the Internet,’ he says. Whirlpool does have a home page set up on the World Wide Web but Filstrup considers it essential to ensure that the company has just one Web location, and that a unified message is coming out of it, so that different departments and sections don’t confuse the overall picture by providing conflicting messages. He points out that this means that someone has to assume responsibility for maintaining the home page, to make sure that the information is up to date, coherent and consistent. Nevertheless, Filstrup is positive about the future of the Net as a means of communication: ‘Shareholders will find that it’s there, and they’ll find it’s useful,’ he says.
In 1995 Whirlpool began a targeting programme aimed both at existing and potential investors. ‘That has taken us into different parts of the country, to cities like Charlotte, or Columbus, Ohio, where we have picked up several regional brokers,’ reports Filstrup. ‘It also helps us run a more cost effective programme.’
For these domestic targeting efforts, Filstrup uses the Carson Group in New York with its sophisticated software for identifying and locating appropriate investors and keeping track of analysts.
The only other external advisers Filstrup uses are Tanner & Tanner, the London-based consultancy that specialises in working for US companies in Europe. The firm helps with Whirlpool’s European effort, specifically for identifying the right people to invite to meetings and to receive mailings. ‘Tanner & Tanner’s key role is to make sure that the 25 people we invite to a luncheon are the people who can buy our stock and are likely to,’ says Filstrup. ‘We save a lot more that way than we pay in consulting fees. You just have to look at the costs of lunches in Zurich or Geneva,’ he guffaws.
With record revenues, Whirlpool’s plans to spiral out from its US home base are proving successful so far and are running ahead of schedule. But sometimes it takes good IR to persuade investors of that, and sometimes investors are driven by factors beyond the control or influence of even the most hyperactive IR manager.
One of the worst recent problems Filstrup had to face was a big drop in Whirlpool’s share price in 1994. ‘It was driven by interest rates in the US, which started running against us. We are still US-based so that was reflected in our prices, regardless of the rest the world,’ explains Filstrup. But he adds, displaying the air of slight bewilderment common among those who follow the vagaries of the markets: ‘This year we had big earnings forecasts out there, but there have been crises in France, Latin America and other markets that turned bad. Yet our stock price has gone up 4 – 5 per cent while our earnings estimates went down 40 per cent. It shows that we have focused the street on the long term,’ he concludes.
Another conclusion Filstrup draws from his investor relations experience is that, ‘A lot of people see the IR function as one of external, outward communications, almost like marketing. But information flows should not just come out of the company to analysts and investors. A very important part of IR is to make sure that information comes back to the company and its management. Some IR people forget about that feedback.’
As befits someone who takes his profession seriously, Filstrup is a member of both Niri and the IR group of the Manufacturers’ Alliance for Productivity and Innovation (Mapi), which gathers about 60 IROs together twice a year. ‘There are no college courses in IR and it’s often a lonely, solo job,’ Flistrup laments, so the synergy to be gained from meeting and discussing it with others is invaluable.
