Fans of HMS Pinafore may remember that Sir Joseph Porter rose from a humble legal career to become The Ruler of the Queen’s Navee. In some ways, Sir Joseph’s career path is less unusual than Elizabeth Smith’s odyssey from law to the head of Texaco’s investor relations. Most IR professionals come from the fields of communications or finance instead.
But Smith’s case – as the active Niri and Investor Relations Association member admits – is the exception that proves the rule. ‘Working at Texaco, I feel I’ve learned the equivalent of an MBA,’ she claims.
Smith graduated from Georgetown Law, joining Texaco’s legal team back in 1976 at a time when business was highly regulated. She recalls: ‘Back then, no sales or changes of customers could be made without the legal department. I enjoyed it, not least because it gave me a chance to get to know the business. I had some exposure to a great deal of the senior management.’
So Smith was well prepared when she moved into IR in 1984, right after the Getty merger and just before the start of the Pennzoil litigation that was to cost Texaco $3 bn. ‘It was unplanned, but helpful that I knew all the lawyers and knew about the litigation. So when I spoke to investors, I felt that I could add something.’
Grasping Horns
Less helpfully, the company lost the litigation, went into bankruptcy, and fought a huge proxy contest against famed raider Carl Icahn. It was a traumatic introduction to IR but, Smith says, ‘it revealed the full opportunity for IR. With CEO Jim Kinnear and our chairman, Al DeCrane, we covered 21 cities in 15 days, meeting with all our investors, basically one-on-one. It was a campaign for votes, and despite a lot of gloomy prognostications, we were successful.’ In retrospect, she ruminates, ‘In a major crisis like that, senior management is so busy that people who can take the bull by the horns and run with things can just do it. For an IR person, dealing with a major crisis can be an opportunity.’
In general, the 1990s have treated the new lean and mean Texaco relatively kindly, as September’s two-for-one stock split suggests. It has also increased its dividend, and a buyback of half a billion is under way.
Feeding Back
Smith reports to CFO and senior vice president Patrick Lynch, who led Texaco’s bankruptcy reorganization team. ‘But the reality is that I have very close contacts with all the senior management, including the CEO. I hope I’ve played a role in feeding what investors are looking for back to operating heads and senior management.’
This consultation often occurs over lunch with senior executives, an occasion Texaco’s chairman and CEO, Peter Bijur, views as an opportunity for informal staff meetings. ‘Obviously, if it’s something critical, then I pick up the phone and just tell him. But it’s usually face-to-face,’ Smith remarks.
Lunches apart, e-mail is the medium for her message. She electronically circulates First Call analysts’ notes and similar input to all managers, for example, and stresses the value of a good e-mail system. The information from analysts can make it around the globe almost instantaneously. It’s critical that anyone in the organization, down to the person running offshore pumping, understands how their job leads to the bottom-line. That’s how the returns have been improving and that’s how the company has been improving its operations.’
As vice president for IR and shareholder services, Smith heads a department of 29 people. But at the sharp cutting edge of IR are just three: Smith, her assistant Nicki Decker, and secretary Judy McGee.
The department works closely with the comptroller’s department, the PR department and the corporate planning and economics group. One reason for the large size of Smith’s department is the emphasis that Texaco, unlike some mega-corporations, puts on retail investors. Although 65-70 percent is held by institutions, ‘We’ve worked hard to keep that 30 percent individual holding. It was one of our strategic thrusts even before I became VP in 1992.’ Oil companies traditionally have a high individual holding and Smith’s department services some 200,000 shareholders. ‘There was a drift to institutional holdings, but we didn’t want to accept it as inexorable.’
This is not mere sentiment. ‘We did a lot of sophisticated polling, which confirmed that individuals are very long-term holders, much more likely to buy our products, and very supportive of management in terms of proxy issues. That’s important.’
So Smith’s department also handles the dividend reinvestment plan and communications with individuals. ‘This way we can coordinate the messages and the plans.’
The company administers its own stock transfers, which Smith says it can do at a competitive cost. ‘And we know our services are better. We also think it provides the opportunity to be closer to the investors. We send out comment cards with our proxies, and we get lots of them back letting us know what they want.’
One thing investors want, this showed, is lots of product information. Now such information gets sent out with dividend checks. Texaco, Smith proudly claims, was also the company that first drove ‘super-Drips’ through regulatory approval with the SEC – ‘and others copied us.’ Smith expresses similar pride about Texaco’s ‘very good’ Esop plan, which has built employee ownership up to around 10 percent.
International Weakness
Although the company is a major international player, Texaco does not have strong overseas shareholdings. The exact proportion of shares held outside the US is unclear but it seems to have declined from a peak of 12 percent, despite stock market listings in London, Brussels, Antwerp, and Zurich, as well as New York and Chicago. There are still, however, major holders in Europe and Japan.
Last July Smith organized a roadshow to London and Scotland, and the IR team travels abroad at least once a year.
Back home, the emphasis on individual investors, does not mean Smith neglects the interests of Wall Street’s sell-side. On the contrary, Texaco holds an all-day meeting once a year to expose all the senior management of all the operating divisions to analytic scrutiny.
Although bullish on technology, the company does not use videoconferences to connect managers in far flung places. ‘I think it’s coming, but it’s too frustrating for now.’ Each quarter’s earnings are released at an analysts’ meeting in New York, followed by a conference call later that morning. ‘And of course we do one-on-one meetings all the time.’
Texaco is an occasional rather than regular user of targeting services. ‘As our financial performance improves, we’re attracting investors looking for more growth,’ Smith remarks. ‘In the past we have had too many yield investors.’ When she plans one-on-ones, she aims at ‘the highest quality investors, hoping to bring more of them into our shareholder base. In a sense, this is targeting, but it isn’t the same as using one of the black box consultants.’
Texaco’s top management has put a priority on going out to meet with investors: ‘They obviously appreciate the importance of institutional investors and come on roadshows when necessary.’ A big advantage is being headquartered in the New York suburb of White Plains. As the gateway to corporate America, New York sees a lot of visitors pass through, and many stop for a visit at Texaco headquarters.
But for those who can’t make it to White Plains, there is instant electronic outreach through the Web site. ‘Anecdotally I know that investors are using it. For example, I went over to Japan last year, and a fund manager who had just pulled our annual report off the Web complimented us. And an investor called yesterday and told us, You have one of the best Web pages I’ve seen; it should get an award. We recently put up our Drip forms, and we keep trying to add more things to it.’ The actual site maintenance is done by the PR department.
Smith’s impression is that analysts are ‘starting, just starting, to use e-mail.’ She has had several e-mail inquiries from the sell-side, which she likes ‘because it gives me a chance to get the information, and make sure it’s timely, up-to-date and comes from an operating person.’ To get in touch with analysts she still uses the blast fax since ‘we haven’t found enough of them consistently using e-mail. That will change and we’ve already had requests from some for e-mail press releases.’
However, Smith is no nerd: ‘The new technology is great, and I think it will be used more and more. But IR is still one-on-ones and meeting with folks.’
Tapes Tangle
After a tape recording made by a disgruntled Texaco manager came to light last year, the massive race-relations furor extended well beyond Wall Street and around the world. It was eventually calmed by prompt settlement. In the meantime, the company’s stock price dropped from $100 to less than $95 – a loss in capitalization of over $1 bn.
As IR chief Elizabeth Smith learned firsthand during Texaco’s Pennzoil crisis in the 1980s, a whiff of litigation often frightens investors. She recalls of the tapes crisis: ‘It became very critical to get the word out to investors about what the damages would be, even if we continued to litigate. The mission was to keep them totally informed.’ Smith describes the effort as a combined PR and IR operation, ‘with PR doing the heavy lifting with press and public. It was very critical that we all spoke with the same voice. Our chairman and CEO, Peter Bijur, was leading, and obviously there was a constant interchange. We in the IR department had input but we didn’t have to convince anyone what strategy to use. It was never even debated.’
However, it was not just the financially fickle that needed attention. With socially conscious institutional investors apt to sell or divest, Smith went after them to state the company’s case, beginning with the Council of Institutional Investors. ‘We went proactive, phoned and arranged to meet the council leaders and members. We put all 300 on a fax list to keep them up to date about our settlement and diversity arrangements.’ Within the first week after the crisis broke, Peter Bijur agreed to speak the Council. ‘We got a lot of points just for agreeing so quickly to turn up. Peter went and gave the lunch speech, forthright and from the heart.’
Smith also met directly with major activist investors like Calpers, along with the Texaco government relations team. ‘It was a lot of intensive team work,’ Smith says, pointing out that by this summer Texaco was trading at $115, suggesting the crisis had indeed been well-managed.
What the Analysts Say John Hervey
Donaldson Lufkin Jenrette
Hervey praises Smith for ‘making sure she gets in touch with the right people at the company to get the right answers. If I have a question about international E&P, then she’ll put me right in touch with the head of international E&P.’
‘Texaco IR professionals don’t try to front-run questions,’ Hervey adds, ‘and they don’t try to work as a barrier to management. They try to work as a conduit to management, and that’s something Liz does very well. I don’t think there’s an oil company around that has an open-door policy to the degree that Texaco does.’
Concludes the oil analyst, ‘Liz is also very responsive to calls – she’s one of the best. Compared to other companies, she typically will provide a better degree of depth; she looks at the job as providing as much information as possible, not as little as needed. It also helps that she’s very pleasant to deal with – one of those responsive people who it’s nice to get on the phone.’
Todd Bergman
Goldman Sachs
Bergman says that before Smith joined Texaco’s IR department it was not a particularly open company. ‘When she came into the position, they made some great strides. By virtue of her personality and her tenure, she has established a lot of credibility for the company, with some very good cooperation from the management. Their willingness to sit down with investors has given them a lot of credibility that they didn’t have before she took over.’
Bill Randol
Lehman Brothers
Randol is equally affected by Smith’s telephone manner. ‘Liz is always accessible to analysts and quick to return calls. If she’s not there, someone always backs her up. If she can’t tell you something, she’ll say so. She’s got a good sense of humor, too.’
But there’s more to IR than telephone technique, Randol confirms. ‘More importantly, she knows the company really well. She’s been an attorney with Texaco, she always has the ear of the chairman and can always tell you what’s going on.’
As a self-confessed fan of Texaco stock, it’s not surprising that Randol rates the company’s IR program as excellent. ‘Texaco is very good about lining you up with operating people, and they really put out once a year with an all-day analysts’ meeting – it may be too long, but it’s certainly thorough.’ The clincher, he concludes, is that ‘they really know the way to the heart and mind of an analyst: Liz is taking me to the PGA golf tournament this week.’
Gene Nowak
ABN Amro Chicago Corp
Nowak points out the advantages of seniority among IR personnel: ‘Liz has been with Texaco a long time, which is very important. She was there through good and bad times, like the Pennzoil litigation, and she knows the company really well. She has excellent access to top management and provides analysts with access to them.’ In Smith’s own right, Nowak concludes, ‘She is extremely responsive, and enthusiastic – a pleasure to talk to.’
