The Minnesota Mining & Manufacturing Company, better known as 3M, refutes all predictions of the paperless office by providing innumerable ways to stick paper loosely around computer monitors. In 3M’s Minnesota headquarters, Jon Greer, his three professional colleagues and one support staff member, stick firmly to all aspects of IR.
As well as coping with the analysts and portfolio managers, they produce the company’s annual report and stage-manage the annual meeting. Indeed, half their annual budget of around $1.5 mn goes on the report, for which the in-house team enlists outside help in the form of design skills from New York-based Arnold Saks.
Held in May, the annual meeting regularly attracts over 4,000 shareholders, eager to see the new products that 3M’s endlessly inventive staff pour into a waiting marketplace. The Post-It note epitomises their skill in developing indispensable products that no-one missed until 3M started dispensing them. To keep the consumers buying the goods, technical staff are encouraged to spend 15 per cent of their time on their own projects, which is one reason why the company has some 40,000 product lines from its $29 bn capitalisation.
No-one has yet worked out how to induce such routine innovation in the IR field, but Greer’s department tries to emulate the restlessness of the company’s operating divisions. Greer’s particular emphasis is on setting targets – and meeting them: ‘We set benchmarks and try to meet our goals, exercise our skills, without chasing the newest fad,’ Greer says.
Although 3M has its annual report and quarterly earnings up on the Internet, Greer points out that most analysts get the information they need from First Call. ‘That and the fax network are our main means of making information available quickly,’ he says. Far from the simple puffery of PR, 3M’s IR strategy explicitly exhorts the department to ‘Communicate bad news quickly and widely’; and to ‘avoid selective disclosure.’
So whether the news is good or bad, the IR team disseminates it regularly to some twelve sell-side and 35 buy-side analysts, in addition to fielding queries from managers and individual holders. According to company policy, 3M’s 100,000-plus shareholders are to be treated as customers – and in the consumer-led corporate ethos that means treating them well.
Greer, of course, is a Niri member and eager to learn from colleagues. But in at least one way he is an anomaly: whereas most IR officers seem to have drifted almost serendipitously into the job, it was Greer’s professional ambition when he joined 3M two decades ago to find his way to the investor relations area.
‘It’s something I wanted to get into,’ he says, explaining that he started work at the company in earnest expectation of an investor relations job. Fortunately, one came up for him in less than a year. Since then Greer has taken an MBA, to add to his original degree in journalism. His first job, before joining 3M, had been in public affairs in local government.
On paper the IR department at 3M is part of corporate marketing and public affairs, ‘which makes sense in that we’re responsible for the annual meeting and report, all involving a lot of communication.’ What makes more sense, however, is that, ‘in reality, we report to the senior VP for finance, Giulio Agostini, and he recognises the importance of IR, and of meeting the analysts. And I think he enjoys it.’ Greer estimates that at least 10 per cent of Agostini’s time is taken up with IR.
Like so many major companies, 3M gave up issuing quarterly reports last year in favour of just a mid-year report. But it still holds quarterly meetings with the analysts, making a moveable feast of these by holding them in a different US city each time. Supplemented by teleconferences which over 100 analysts participate in, and by one-on-ones with the senior corporate officers in town for the meeting, Greer feels that this gives good penetration. ‘We haven’t really tried videoconferencing,’ he says, noting that Agostini ‘likes to press the flesh.’
Every second year the company hosts a major meeting of analysts at its St Paul headquarters. Over 100 analysts assemble for a two-day session, at which 3M unveils its new products and introduces senior management and the heads of the three dozen or so operating divisions. The fact that the assembled analysts and managers attend in such quantities – and pay their own way – suggests that the meetings are well received.
Last year, 3M opened its 1-800 Shareholder Direct number, used mostly by individual shareholders, of course. They seem a fairly active lot, logging an average of 700 calls a month, but Greer’s jury is still out on whether it is worth the company’s while to join in schemes such as the NAII. Part of the corporate IR strategy is to ensure that all activities are prioritised to ensure effective use of the department’s time and money; and on the grounds of cost-effectiveness, the team seems to be veering away from this kind of involvement on the retail side.
Anyway, 3M is not short of stockholders; they are almost as numerous as the company’s products. Institutions hold around 62 per cent of the stock, individuals around 31 per cent. The rest is held by 401(k) and similar employee plans. About 8 per cent of 3M’s shares are held abroad and the company is listed on a number of major foreign exchanges – except London, for some forgotten historical reason.
Greer hazards a guess that it could be the expense, but that would be an even better reason for not listing in Tokyo. However, as he says: ‘The Japanese listing is less to do with IR; that wouldn’t make it worthwhile. It’s more to do with public relations for the company’s $1.4 bn business in the country.’
Greer says that the company is happy with the shareholder split as it currently stands, suggesting that targeting efforts are focused mostly on particular classes of institutional stockholders. ‘It has to be the institutions who drive the price, but we avoid those who go for high earnings at all costs,’ he says. ‘So we target institutions that want growth at a reasonable price, that look rather at a three year turnover. And we try to have a wide spread – so no institution has more than 5 per cent.’
3M uses Georgeson for targeting, ‘But you have to investigate the listings and adapt them for your own needs,’ Greer finds. One reason for this is that 3M defies easy categorisation. He compares its profile to J&J or ConAgra, but in many ways 3M is in a category all of its own. Greer admits the problem while claiming that the company’s multifarious enterprises ‘do have a definite synergy. In general, we coat one material with another.’
In other words, while a highly diversified manufacturer, it is far from being a heterogeneous conglomerate.
Categorising the company’s profile was not made much easier by last year’s decision to close down the video and audio tape division, motivated by low profit margins in a ferociously competitive business, or even this year’s spin-off of Imation, the data and visual imaging division.
Greer and his colleagues helped set up the roadshow for Imation and established contacts with the 100 largest 3M investors for the new company. One area of interest was to see what the indexers – who account for around 8-9 per cent of 3M’s stock – would do if Imation turned out to be off the edge of certain indices. ‘It will have some effect – but there’s more than enough interest from others to replace them,’ Greer guesses.
The impulse for the spin-off did not come from the IR department, nor from investors. ‘Our CFO and senior management are very aware of what the investment community wants,’ says Greer. And, as with the product line, they seem to have anticipated needs that the analysts did not know they had, since the move was well received. ‘The division was very popular among the analysts. They thought it was just the thing to do,’ reports Greer, who no longer has any responsibility for Imation’s IR. That role has been taken by Brad Allen, currently chairman of Niri and formerly IRO at Cray Research.
Spin-offs are currently in vogue with analysts and investors but 3M’s handling of the closure of its video and audio tape division suggests that the company is far from being a prisoner of Wall Street fashion. It could have been presented as a downsizing of the kind that has produced such rebounds in stock prices and executive remuneration. But it was not. And Greer points out that most of the employees concerned were resited and that the production capacity was rapidly adapted for other products.
In a similar vein, an interesting aspect of 3M’s IR is its attempt to determine and secure a realistic value for its stock. Of course this question is, in some ways, as imponderable as the length of the proverbial piece of string – and in the case of an Internet IPO, the length of a multi-dimensional piece of cosmic string.
In many ways, 3M is innovatively old fashioned in its approach, believing that the company has an intrinsic value based on its assets and earnings and that the stock price should reflect that value. Jon Greer’s department, for example, earnestly tries to establish rational benchmarks. It may seem naive to people who think that a company is worth what the market values it at – no more and no less. But while snake-oil futures are worthless no matter how much you pay for them, 3M’s very diversity and versatility make such bench-marking a much more sensible approach.
They begin by using what may be a neglected investor relations resource, even though many IR officials are recruited from their ranks: the company’s own pension fund managers. ‘We ask them to use their own methods to evaluate our shares – based on traditional earnings per share, share growth, a fair price earnings ratio and the other traditional benchmarks,’ Greer says. ‘And they put it at about $70, which is around where it’s trading,’ he reports.
However, 3m does not rely exclusively on such incestuous sources. The next component is to survey the analysts and managers. ‘We have had eight surveys going back to 1979 with input from over 350 so far.’ To date, they are pleased with the ratings.
That’s not too surprising. Despite the flimsiness of many of its products, 3M is an interesting blend of solidity and ferment and its investor relations strategy and approach seem to reflect its distinctive corporate culture. There is little doubt that it will be there, near the top of the Fortune 500, when brasher new arrivals have evaporated into the cyberspace that gave them birth. What the Analysts Say
Anon: One analyst anonymously commiserated with Jon Greer and his people for the constraints they face in carrying out IR at 3M. ‘They do a reasonably good job, but the IR people are constrained by the senior management on how much information they can release.’ But then, he mused, ‘they may not be altogether to blame for that. With their hodgepodge of product lines, they may not even have the information themselves. It must be difficult for them to divulge. Most analysts build a profile of a company – not the US economy, or even the world economy, which is what 3M tracks. Even its own divisions are arbitrary at best.’ For example, he adds, ‘Its health-related line includes bill-boards and traffic signs.’
Bob Curran, Merrill Lynch: On a more positive note, Curran praises the biennial big meetings as helpful in providing greater detail about the products. The attendance, he says, is high in terms of both quantity and quality. He regards the nomadic quarterly meetings as a ‘good PR move’ and very useful for the buy-side to get access to the management, while the quarterly statistical report provides a lot of good information for new investors.
Anon, 2: Other analysts are less pleased. One sell-sider grumped that while the company was on the road with its quarterly meetings, the IR staff and management were difficult to track down, and that overall, despite the acknowledged difficulties of product range, it should provide more detail and break out the various sectors.
Pete Enderlin, Smith Barney: Enderlin is less concerned about the breakdown. ‘They do a good job. It’d be nice to see more of a breakdown, but I’m not sure what good it would do. You’ve got to start with the macro-economics and do a top down analysis anyway to make sense of the company,’ he says, referring to the breadth and complexity of 3M’s product range.
Apart from that, he says, ‘We always get pretty good and very detailed information on where the company stands, which is up to date on sales and trends and the effects of currency fluctuations.’
