If investor relations is, at least in part, a form of public relations for stockholders, how does one of the world’s biggest advertising companies do it? Not least when the firm concerned is a holding company which itself has almost zero brand recognition outside the industry, except among the contented cognoscenti of Wall Street who have been acute enough to invest in it.
The answer is that Gene Beard of the New York-based Interpublic Group of Companies (IPG) does it with one hand tied behind his back. Or so it seems, since he is also the financial mastermind behind IPG’s extraordinary global growth.
As CFO and vice chairman of the $4 bn-market cap advertising giant (with 1995 billings of $16 bn-plus), Beard estimates that he devotes at least one fifth of his time to investor relations. Perhaps surprisingly, that appears to be sufficient to satisfy a stable group of investors of such seniority that if they were employees, some of them would by now have picked up their gold watches for long and loyal service to the company.
A solo pioneer in IR, Beard stressed its importance as soon as he arrived at Interpublic back in 1980, fresh from Mobil Oil. At that point, the company had about 4.5 mn shares outstanding and a market capitalisation of $100 mn. ‘About 25 institutions owned our stock,’ recalls Beard. ‘The company had little or no rapport with Wall Street. We had an outside company doing IR and an IR officer on staff. Now we do our own investor relations, our acquisitions, tax and so on – all in house.’
For Beard, IPG offered his first experience of IR, and he took to it like – well, like someone who loves the stock market. Today one third of his own personal worth is tied up in the company; the rest is invested elsewhere. That may give him a useful investor’s eye, lending a certain acuity to his investor relations prowess.
On his arrival at IPG, Beard says, ‘I told the board that we should take more active control of investor relations in the future, that we should make a commitment to maintaining shareholder value, and that we should ensure that there were never any surprises for Wall Street.’
As befits someone whose Alma Mater, Duquesne University, named a Center for Leadership and Ethics in Business after him (yes, it really is called the Eugene P Beard Center for Leadership and Ethics in Business), Beard has firm principles. ‘I told the board, whatever we say we are going to do, we have to do. If we can’t, then we have a moral obligation to tell them.’
The company’s corporate and financial profile may have changed enormously over the 16 years since Beard joined it, but its rapid growth has not altered those original IR principles established by Beard and the board back in 1980. ‘They still stand,’ he declares firmly.
Nevertheless, IPG’s launch into IR was a radical move for a small company whose employees and directors owned almost half the shares, with around 55 per cent in the hands of institutions. One institutional investor, Warren Buffett, owned almost a quarter of the company.
Shortly after Beard took on the IR responsibility, in the early 1980s, IPG embarked on its first major acquisition. That acquisition – which was to launch the company’s exponential growth – involved a stock split and payment of dividends. That posed a major obstacle, since Buffett was firmly opposed to both stock splits and dividend payments, as a matter of principle.
‘So the board delegated me to speak to him in the spring of 1983 and I went for lunch with him,’ recounts Beard. ‘He was very gracious and agreed that if it was in the best interests of the company to do that and to broaden the shareholder base, then he would go along with it.’
That early purchase set in train the series of multiple IPG acquisitions that ensued. ‘From 4.5 mn shares we now have 80 mn, and we have compound growth rates of 22 per cent. Other than Buffett {Berkshire Hathaway}, Philip Morris and a few others like that, I don’t know any other company that’s had such a record,’ boasts Beard, confident that any IR policy based on such solid returns stands a good chance of success.
As vice chairman for finance and operations, Beard is in a strong position to ensure that an investor friendly policy is carried out. So, for example, in pursuit of enhancing shareholder value, the company announced in 1987 that it would buy back one million shares a year. ‘This year and last year we bought back two million shares,’ reports Beard. ‘Overall, we’ve bought back a total of twelve million at an average cost of around $20: they now trade at $43.’
Buying companies with shares that are cheap but excite great expectations has helped finance the steady exponential growth of the group. ‘We have been able to manage shareholder value so well that most of these people hang on to their holdings,’ says Beard.
That, he suggests, has been helped by IPG’s delivery on its promises. ‘Dividend growth of 10 per cent a year. That’s what we have told analysts. And that we are going to pay out 30-35 per cent of our earnings. Our earnings growth at 15 per cent has been right on target.’ IPG has also given the Street certain undertakings on anticipated growth: ‘We’ve told Wall Street that we want to enlarge our client base, on which we plan a 5 per cent growth, add new business of 3 per cent, and make up the balance through acquisitions. This year we have achieved 26 per cent new business – or $125 mn.’
‘We do not make acquisitions that will dilute shareholder value,’ says Beard. But he retains enough humility to add a reassuring note of realism to his justifiable pride: ‘In 200 acquisitions, of course, not all of them have been as successful as we hoped, but the great majority have met their EPS targets.’
While the growth curve has been smooth, it has recently needed a little stroking to keep investors happy. As Beard puts it: ‘This year our most visible client, Coca-Cola, took the creative account for Coke Classic to Creative Artists Associates in California.’
The technical details of that were lost in some press reports, which treated it as Interpublic losing ‘the’ Coke account rather than ‘a’ Coke account. But perceptions are paramount in investor relations so Beard increased by a half the time he normally spends reassuring and informing institutions. ‘We spent more time talking to institutions about the Coca-Cola account than anything else,’ he says. ‘We had to remind them that Coke is still our third biggest account. We had the accounts in Europe, Latin America, the Diet Coke and Sprite business, and we are rebuilding our presence.’
However, good IR goes beyond damage control. ‘When you have problems like that you have to talk to the institutions, not just about how you’re fixing them, but also how you are using the experience,’ notes Beard. In this case the problem provided IPG with a useful ‘wake-up call.’ It showed that ‘we weren’t responding as well as we should,’ concedes Beard. ‘From a managerial point of view, it was an excellent wake-up call. The loss of even part of the business of one of our major and most visible clients, after 50 years, is something that needs attention.’
The importance of individual client accounts is just a symptom of the many ways in which IR for a service company differs from IR for a manufacturer.
An industrial group deals with stocks that at least have the perception of solidity and of tangible value underlying them; buying some of its shares amounts to buying a piece of a recognisable commodity, involving factories, equipment and real estate. That can hardly be said of a ‘people business’ like IPG – especially one spread across so many subsidiaries, continents and countries.
Beard agrees that this was an issue in the early days, with investors sometimes being disparaging. ‘They asked ‘Why should we invest in IPG – your assets go up and down in the elevators every day?’ he recalls. Beard’s response was – and is, ‘What’s the difference? These people deliver a product.’
In this context, Beard offers a few facts and figures about IPG today to prove his point: ‘We have 4,000 clients and 18,000 staff in 100 countries in 400 offices, organised in three major systems, like franchises with brand names. We are committed to our clients, our shareholders and our employees, which is why, every day, our assets return to those elevators.’
There’s something refreshing about hearing employees regarded as assets rather than raw material for downsizing sacrifices to placate hungry Wall Streeters. And Beard is certainly enthusiastic about IPG’s walking, talking assets. ‘We have perhaps 250 top people who are as good as any in the world,’ he claims. ‘Their compensation is tied to their performance. Our top people rarely leave: about half a dozen have in 16 years.’
As for the product, Beard’s angle is that by buying into Interpublic you get not just advertising shares but a portfolio of some of the bluest chip corporations around – since they are the clients. ‘Twelve companies out of the Dow 30 are our clients,’ he explains. ‘So investors get a pure play and a diversified play at the same time in our stock.’
That may sound like stretching a point but Beard’s conviction and commitment are evident and doubtless effective in his IR efforts.
In some companies the lack of a dedicated IR professional could be deemed to suggest a downplaying of the importance of the function but with IPG it’s more a case of Beard being so dedicated to IR that he wants to do it all himself. ‘A lot of firms have investor relations people,’ he says. ‘But when major investors call in they want the top line for IR. They want to talk to the CFO or the CEO. No-one else talks for Interpublic except me, as vice chairman.’
Beard reports that IR firms often call in to offer their services. He’s generally unimpressed, however. ‘I interview them, but after listening to them, and after 15 years of experience, I don’t really need their help.’
On reflection, he concedes that there could be certain areas where an agency might be able to offer help: ‘I suppose an IR firm would be useful in setting up meetings and drafting press releases, but it would be just one more group for me to manage. And our IR is grounded on the basic fact that 20 years ago our shares were $4 and they are now near $43. And that we have never surprised Wall Street. We tell them what our plans, earnings, buy-backs, acquisitions are, and if there are any changes, we call them.’
Of course, the fairly concentrated investor base, and the reassurance of consistent growth, help make IPG’s investor relations effort more manageable than it might otherwise be. ‘I meet with the 15 largest institutions at least twice a year. Most of them have been with us a minimum of seven years and some of them as long as 15 years,’ Beard explains. ‘That stability protects you. There’s little volatility. There will be 40 or 50 analysts and institutions at our conferences, but mostly they’ll just want to be reassured that it’s business as normal.’
And despite the global scope of the company’s holdings, Beard does not have to worry about overseas listings. ‘We used to be listed in London and Toronto, but now we’re just in New York,’ he says, breathing a sigh of relief about the fact that the company resisted pressure to list in Tokyo.
That does not mean that there is not overseas interest, he hastens to add. ‘About five per cent of our stock is held overseas, and we have some very good UK shareholders. Most of them have offices in New York and can buy stock here just as easily.’
Many of those UK investors originally came onto the company’s register when they accepted IPG shares in return for the acquisition of the Lowe Group at the end of 1990. ‘About 70 per cent held on to the stock,’ explains Beard.
Lowe is just one of IPG’s hundreds of advertising agency and other media and communications subsidiaries. For such a major international company in this sector, with so wide a spread of businesses, the absence of an investor relations company in the group portfolio seems anomalous. Why should it be so? ‘They’re usually very small,’ answers Beard, scanning the horizon for a larger one that may be about to loom into view. ‘But we have a study group looking at new areas of investment in the service sector, like search companies – and investor relations firms.’
What the Analysts Say
Jim Dougherty of Dean Witter Reynolds points out that, ‘{Gene Beard is}number two in the hierarchy there, and he does the IR, which shows that he deems it very important. He treats the analyst community as an important constituency.’
Does Dougherty believe a CFO alone can handle IR in enough depth? ‘Beard does well. And he doesn’t have that many shareholders and analysts to deal with. They are often long-term as well, so he doesn’t have to do a lot of pick and shovel work on basic information.’
For Dougherty, the biggest element in his success is trust. ‘People have a lot of trust because of Interpublic’s commitment to shareholder value and information. The company is a steady dramatic performer, so it’s not as if he has a lot of emergencies to reassure people about.’
David Leibowitz of Burnham Securities breezily describes Inter-ublic as, ‘New and dear to my heart.’ He adds: ‘The fact is that they live up to their reputation as a fine ad shop in getting their message across, and that includes details of their international progress.’
On Gene Beard’s combination of the lofty CFO position with the IR function, Leibowitz is equally blas, ‘He’s been handling the investor relations for a long time. The fact that he has been promoted shouldn’t make him drop it unless he wants to.’
Leibowitz goes on: ‘Beard’s availability has been the key ingredient in maintaining lines of communication and keeping them on an even keel. He has always been accessible to analysts and institutional holders. In my book he has very high marks for his handling of investor relations.’
Alan Skrainka of Edward Jones in St Louis also describes Beard as doing ‘a great job’.
‘Beard has been here to St Louis several times and made programmes that we broadcast to our 3,000 broking offices,’ reports Skrainka.
Edward Jones deals exclusively with retail investors and, as Skrainka points out, that means that the firm generally depends a lot on name recognition, which Interpublic clearly does not have. ‘Interpublic has been quite a challenge. Our customers like a company they are familiar with. So Gene tells them the story. He shows the ads made by IPG group companies for products like Compaq computers and Burger King. It gets the message across that it’s like investing in a portfolio, and it’s been successful. We’ve moved from zero to a pretty significant position.’
