IBM won this magazine’s Most Improved Investor Relations award this year, garnished with an honourable mention for best crisis management. Taken together, that implies that Hervey Parke III, Big Blue’s director of investor relations, has lived through some interesting times, as the old Chinese curse wished on enemies. And Parke is happy to confirm this.
The very size and longevity of a company that was first listed on the New York Stock Exchange in 1914 make it seem more like a corporate institution than an investment, so the first hint of major problems in 1993 caused a seismic shock in investor confidence, and stock prices looked set to drop down the chasm it opened.
However, ‘The job’s always more interesting when the stock goes down,’ says Parke. ‘I was here when it went down to $40 and I’m still here when it’s gone up to three digits. But the decline is more stimulating: that’s when it tests our metal and our relationships with the analysts.’
Some people in business sound as if they think that irony is what they used to make in Pittsburgh, but Parke has a dry sense of humour that renders his sincere enthusiasm for his job all the more telling.
In the event, the Big Blue Blip now seems to be in the past. The new management has turned the company around, leaving longer-term IR problems – or challenges as the euphemists would have it.
Parke says that anecdotal evidence suggests that the concept of investor relations is itself a fairly recent innovation for IBM. ‘My predecessors had taken a lot of steps to open up the company. In fact, some people on the Street say that at one time IBM’s IR was the responsibility of an assistant treasurer who turned up with a three minute egg timer. He sat there not answering questions and when the sand ran out, so did he.’
Under CEO Louis Gerstner, IBM now has its IR inside as well. Senior management have to own stock in proportion to their earnings, and Parke reports, ‘We do everything we can to expose all the unit general managers to the investor community so they can see what the community thinks of them. It was slow to begin with, but now there is a thirst for information.’
However, if some grow into information, others have it thrust upon them. While IBM has a brand name with almost unrivalled recognition, there is a question mark about the product that name is associated with. Parke complains that analysts often try to slice up what is essentially a unified company and look at the profitability of each sector. ‘But our whole is greater than the parts,’ he insists.
Parke finds that investors are uncertain about whether IBM is a technology or a large cap stock. ‘If investors want to make a technology play then they’ll want to invest in us, although we have the characteristics of a large cap.’
The high recognition of IBM’s logo is not always accompanied by realisation of what’s hiding between those blue lines. As Parke says, ‘In Wall Street terms we can come within up to nine different technology sectors, which are often covered by different analysts. So the analysts we deal with specialise in PCs, hardware, software, storage and peripherals, mainframes, and so on.’ In fact, he says, ‘Our focus is on being a ‘solutions’ company, helping our customers to do a better job, dealing with their customers, helping them create value.’
Like Caesar with Gaul, Parke divides up the investment community into three parts according to their different outlooks: ‘In my experience, the sell-side analysts will cover six or so companies well and appreciate their complexity. The buy-side analysts will cover 50 or so stocks, less well. And the portfolio managers will be more influenced by popular perceptions, by things they read and see about them, by what brand of PC they have at home or on the desk.’
They take a PC at the office or home and extrapolate from it. ‘Most people’s experience is on the home side but most of our business is on the corporate side or the service sector, which is up 30 per cent in the last year. For example, everyone thinks of the Internet in terms of themselves as users, but most people would soon find that the early profit opportunities are on the commercial side.’
If the complexities of IBM are sometimes difficult to convey to the professional investment community, it’s probably just as well that the IR department mostly leaves the business of dealing with retail investors to the Stockholder Relations department, ‘although we do provide some support,’ notes Parke. ‘I don’t get involved with the annual report either, since we are still a small department for a corporation this size. They’ll call us when the phones light up,’ he says, adding ruefully: ‘And that only happens when the stock is falling. No one calls to congratulate us when it’s going up.’
Parke’s last major problem, ‘that we are a company in transition,’ is one that seems to be settling itself. ‘The worst of that is now past, because of the success of our cost reduction and revenue growth plans,’ he reports with the justifiable satisfaction of an IR officer whose employer’s stock has risen some 270 per cent in three years.
IBM’s institutional holding, at 55-60 per cent, is not as large as that of many comparable companies. Parke attributes that to Big Blue’s long time as an American business icon on the NYSE. There are no large family holdings. Employees and officers of IBM account for less than 10 per cent of outstanding shares, so most of the holders are individuals not affiliated with the company – people who feel that no rainbow portfolio is complete without IBM’s shade of blue.
The company is listed on several US and around six European exchanges as well as in Tokyo. But ‘probably 85-90 per cent is held here in the US, even though over 60 per cent of our business is outside the US,’ according to Parke. As a result, ‘Mostly, I meet with European investors here and through New York. I’ve made a trip to Japan but haven’t been to Europe on investor relations for three years.’
In fact, the company does not really go in for roadshows, even in the US: ‘I try to tie them in with the business trips the CEO is making.’ Parke says. ‘One of the problems is that when you leave the office, the calls keep coming in and they’re waiting for you when you come back. That’s the value of the third staff member that allows us to meet the analysts face to face. And that’s the best part of the job,’ claims Parke. ‘The investment community is a very stimulating group of people, personable, and occasionally very witty – but only occasionally.’
Some IR people see individual and overseas shareholders as a hedge against the vagaries of Wall Street but Parke says he hasn’t really noticed such an effect. ‘Perhaps because we have so many shares outstanding, our volatility is comparable with the tech sector,’ he suggests. And since the stockholder mix always seemed to work perfectly well in the past, there never seemed to be any need to consider targeting – until recently. ‘After all, we were a widely recognised brand. We didn’t have to push ourselves. People know us.’
But then IBM had to demonstrate that it could achieve the necessary $7-8 bn cost reduction. ‘And after 1993 the other factor for the investment community was revenue growth,’ recalls Parke. ‘Could we grow on a continuing basis? But even so people didn’t need IBM to be stuck in their face.’
Today IBM’s much enhanced IR department reports to the treasurer and has just grown by one. Parke now has two associates and a secretary, which allows them to specialise more. ‘As well as answering the analysts’ questions, I’ve asked my associates to develop expertise in particular fields, so that the investors’ view of us is sharpened up. Keiko Shimada has responsibilities for the service sector, and Jill Hart will focus on the software business.’
Like so many IR professionals, none of the members of IBM’s team left college with an IR career anywhere on their horizon. Parke himself, who has spent 29 years with IBM, first came into investor relations in 1990. ‘We’ve come up through marketing or finance in the company,’ he explains. ‘I started as a service engineer. I knew more about my customer’s business than about IBM, but I wanted to use my MBA and moved to finance.’ After a variety of jobs he worked with the then treasurer who was looking for someone for the IR department. ‘At first I saw it as just a different field of finance, but then I found that it really provides a great perspective on the business,’ says Parke.
Luckily, that gave him several years of apprenticeship by way of unwitting preparation for the day the sky fell in on Big Blue in July 1993. ‘It wasn’t just the stock fall. It also saw the arrival of the company’s first outside CEO, Lou Gerstner, followed by other executives. The team came with a lot of fresh ideas to apply to a company that they had a lot to learn about.’
This was ‘a jolt to the system,’ for IBM’s enclosed world, ‘but it was also what Wall Street felt was needed,’ says Parke. In response, ‘our IR strategy was two-pronged – to be as candid as possible about the company to the analyst community, and to introduce the executives to the investors.’
Indirectly, Gerstner was responsible for the complexities that now tax the IR team’s communication skills. ‘One of the first things he said was ‘no break-ups’,’ notes Parke. ‘Interestingly he was not from a technology background. He came from RJR Nabisco and American Express. So he was impatient with our speed of reaction. He was very much brand and customer oriented – and we apply this in IR terms as well.’
Parke talks about IR being a two way process but, in his case, this is more than the standard professional platitude. ‘We really have had a lot of help from the sell and buy-side about what we need to do better. I’m sure some of the messages we hope to deliver are a reflection of that. It wasn’t just ‘tell all, spill your guts.’ It was more, ‘this is how the Street views you, and this is what you can do about it.’
It was not always a sugar-coated pill that analysts offered up to IBM’s IROs. Parke says wryly, ‘When we’ve sat down at face to face meetings with them, it sometimes reminds me of college hazing where, after being hit, you’re supposed to say, “Thank you sir, please may I have another?”’
Today analysts can hardly complain about IBM’s new IR attitude, as evidenced by Parke’s enthusiasm for the Internet. Many IR people think that the task of maintaining an Internet Web site, and updating the information promptly, is too daunting for the typically small and tightly staffed units that IR departments are.
But, as befits the company that gave the world the PC, IBM is a great believer in the Internet (http://www.ibm.com). Parke suspects that, ‘Some people fear that they’ll get a deluge of requests for information.’ But he believes that the effect on IR has yet to be appreciated. ‘You have to shift your thinking,’ he counsels. ‘Many analysts have an eye on the Internet. We find they want access to our quarterly earnings releases -immediately. They call to complain if they are not posted right away.’
In fact, he thinks electronic communication is the only way to keep in touch with the fast-breaking developments, especially in the technology sector. ‘We don’t put out fact books because with product cycles of five or six months they’re out of date as soon as they are published.’
But it’s not that Parke thinks all this is easy. On the contrary, ‘This job can be very taxing because the business is so big,’ he says. ‘I’ve talked to people who’ve left the company to work for smaller ones, and they agree that it’s much simpler working for them.’ However, that is not to Parke’s taste and he has no intention of moving. Indeed, in someone with a less developed sense of irony his enthusiasm might smack of piety: ‘You know, with IBM, there’s always so much more that you can learn about the company and there’s always more that you can do for your constituency.’ What the Analysts Say
It’s easy to conduct IR for a company that’s thriving, and it’s easy to confuse a turnaround in stock prices with a turnaround in investor relations. However, in IBM’s case the analysts we spoke to distinguished clearly between these two, as evidenced by their comments.
Stephen Smith, PaineWebber: Perhaps the finest accolade came from Stephen Smith. He’s a renowned Cassandra on IBM but has to admit: ‘I’m very impressed with the way they deal with me. I’m one of the sceptics – and they still talk to me. We have a relationship of respect. They don’t like everything I say, but they’re extremely professional.’
Smith adds, ‘Some companies don’t want anything to do with you if they don’t like what you say, as if your views on their stock reflected on them personally.’ More specifically, while unimpressed with the company, he is impressed with its IR department. ‘They’ve begun to hold a lot more sessions with their managers,’ which he says ‘helps them convey the complexities of the company.’ His conclusion is ‘They’re always on top of the issues.’
Thomas Rooney, Donaldson Lufkin & Jenrette: Thomas Rooney agrees with Smith, saying: ‘There’s no question that there’s been a definite improvement in IBM’s information flow over the last two or three years. Historically, they gave little or information, and when they did it was usually wrong.’
Rooney dates the big change back to the appointment of Jerome York as CFO, noting that ‘Hervey came up under him – and does a great job.’ Indeed, he complains, ‘Last year, they probably overdid it a little with things like conference calls, so this year they seem to have backed off. But they do do a good job of keeping the information flowing.’
Bill Milton, Brown Brothers Harriman: Bill Milton is less conscious of a turnaround in IBM’s IR. As a sell-side analyst specialising in computers, he says: ‘They’ve always been good. They’ve always been near the top for IR.’ And he adds, ‘Hervey’s good, as was his predecessor Jim Clippard.’ On further cross-examination, however, Milton admits that IBM’s IR has improved since the 1980s. ‘And that was an improvement on the 70s,’ he laughs.
Summing up on the basis of his 20 years experience as an analyst, Milton says, ‘You ask for someone to return your calls, to inform you with reasonable candour – I realise that they can’t tell us everything – and to help build your earnings model. And Hervey does all that.’
Stephen Dube, Wasserstein Perella: Stephen Dube comments that sometimes ‘people blame IR for a company’s own problems.’ By contrast, he suggests that IBM’s IR improvement is separate from the revival of its stock price. Dube is especially impressed with the meetings Parke arranges with the CFO: ‘It’s much better than the quarterly conference call that allows one question per analyst. It allows follow-ups and much more of a dialogue.’ He has also noticed much more frequent interim calls for events like product announcements.
Dube, who covers an atypically diverse range of companies, accepts that it would be difficult to convey the full scope of IBM’s wide-ranging operations to his more tightly focused colleagues. But, he says, ‘Hervey’s very responsive and gets over the nuances of such a big operation. It makes much more of a live-wire connection.’
John Jones, Salomon Brothers: Jones comments on the ‘fine balance’ IBM manages to strike between ‘controlling analysts and supplying them with information. They do a fine job at it.’
A large computer system specialist himself, Jones is impressedwith Hervey Parke’s prowess as a resource manager in dealing withthe specialties of the investor community. ‘He uses the resources ofthe company to good IR effect by putting analysts in touch with theright unit managers.’ And Jones’s summary? ‘Very effective.’
