Never mind how they do it, where they do it is interesting enough. For Michelin’s headquarters is not in central or even suburban Paris but in Clermont-Ferrand, known to Europe’s motoring holiday makers as a point at which a choice of autoroutes has to be made – depending on whether they are heading for the Dordogne, the South of France or the Alps. But Clermont-Ferrand is more than that. It is also historical home to – and a town traditionally dominated by – Michelin et Cie, the company whose brandname is known worldwide, thanks to the Michelin man, Michelin maps and guides, the coveted Michelin restaurant stars and, of course, Michelin tires.
Down there in Clermont-Ferrand, Etienne Mercier became the man responsible for investor relations at the world’s largest tire company last November, when Guy O’Lanyer, his predecessor, retired. At about the same time, Michelin won the prize for most improvement in investor relations at a ceremony at the Paris bourse, organized by l’Agefi with the support of the Bourse.
Given that timing, Mercier is hardly about to claim the credit for himself for the award-winning quality of the company’s IR program. Moreover, he is modest on the part of the company, too. Investor relations, he notes, is a relatively new function for Michelin, starting only in 1990. Before that there was virtually no contact with analysts or investors, let alone with the financial press. ‘I think we were awarded the prize to recognize that we have made some effort to move from zero to something more than zero,’ he suggests. ‘So we feel very modest about it, but we appreciate it because it shows our efforts have been taken seriously by the financial community. And we see that as an encouragement.’
Forward engineering
Although only a recent IR incumbent, Mercier has had a long career with Michelin. ‘I’ve been with the company for 20 years, in very different positions.’ Indeed, Mercier’s route to IR has taken in many aspects of Michelin’s business, made possible by the fact that he studied both engineering and business administration. His recent ap-pointment reflects a view at Michelin that whoever handles IR should have a thorough-going understanding of the company. ‘What matters most in IR is having a good knowledge of the company,’ Mercier confirms.
‘I started as an engineer, working on the products side – with motorcycle tires. But later I moved to the economic department, in charge of financial control of different product lines, in France and afterwards in North America. Thereafter I had a more classical career path, as administration manager of a plant in France then finance and administration manager of a French subsidiary.’ Mercier’s last post before IR was in the finance department of the French operating company, where he was in charge of debt management.
Now ensconced in the IR function, he runs the broader-based financial communications department, reporting to the CFO Eric Bordais de Charbonni re. According to Mercier, Bordais de Charbonni re is ‘the real boss’ of the investor relations function. ‘He defines the policy.’
Mercier’s financial communications department includes an economic intelligence group, whose role is to monitor the trade press for data concerning the tire market worldwide, for use by various other departments in the company, including marketing departments for the different product lines.
In terms of pure IR, however, there are just two people – Mercier and his assistant – in the office in Clermont-Ferrand, and none in any other location. He handles the usual range of IR tasks, as well as some of the company’s press relations. ‘We have a first-line communication department in Paris dealing with the press, but I also have contact with financial journalists,’ Mercier explains. ‘I deal with about 20 people, mostly in France.’
Foreign anonymity
Outside France, Michelin has what Mercier describes as ‘a substantial amount of shareholders’ and, he adds, ‘We have very strong demands from them for information. They show great interest in knowing our company better. So we meet them regularly.’
Although based in Clermont-Ferrand, Mercier also has an office in Paris which he travels backwards and forwards to frequently and without complaint. ‘It’s not typical for a company like ours to have its headquarters outside Paris but it’s no problem in the age of modern communications,’ he says. ‘Whenever foreign shareholders come to Paris and ask to see us we are pleased to agree.’
Pressed on the question of how Michelin’s shareholders break down in geographical terms, however, Mercier is not pleased to agree. On the contrary, he says Michelin’s policy is not to disclose where the company’s shareholders are based: ‘We do not give any numbers regarding our shareholders.’
Why ever not? It’s certainly not that the company lacks the information since, unlike a lot of French companies, its shareholders are all registered, so their location can be pretty readily identified. No; Mercier’s answer is far more unlikely: ‘It’s because we think that this is the kind of information that doesn’t belong strictly to us; it also belongs to our shareholders,’ he says. He will go no further than to say that Michelin’s foreign shareholder proportion is not very different from that of the other companies in France’s CAC-40 index of leading companies. And that means about 40 percent of the shares are owned by non-French shareholders.
What is a matter of record is the extent of Michelin’s operations outside France and outside Europe, together with the fact that these have grown significantly in recent years. During that time the company has been very acquisitive and has also strengthened its financial position, by paying down debt, for example.
All this has boosted Michelin’s profile, especially in North America. ‘It’s true we have a strong presence in North America and this has given us more visibility with the financial community there. And they are certainly curious about what is happening in North America when they meet with us.’
Roadshow routes
This level of interest is reflected in the fact that, although Michelin has no ADR – nor, indeed, any stock exchange listings outside Paris – the company is a regular visitor to the east coast. ‘We take roadshows to New York and Boston twice a year, usually after the announcement of the annual and mid-year results,’ explains Mercier. ‘We also go twice a year to London; and we go once a year to Edinburgh. Last year we went to Switzerland for the first time, to Geneva and Zurich, as well as to Frankfurt.’ As Mercier notes, having been to these last three centers once, the company has effectively made a commitment to go back regularly, so Switzerland and Germany will now be regular ports of call.
The roadshow team comprises Mercier and Bordais de Charbonni re; between them they hold a number of one-on-one meetings to supplement the larger and more formal presentations of the tours. ‘We have lunches and breakfasts with a number of attendees; we try to meet with as many people as possible,’ explains Mercier. ‘But many investors insist on having one-on-one meetings and of course we try to give them satisfaction, especially the bigger shareholders.’
So much for Michelin going out to meet the financial community. What about investors and analysts coming to see the company’s operations, meet divisional managers and so on – on site visits, for example? ‘No, no,’ responds Mercier firmly. ‘Of course we have a demand for this,’ he concedes. ‘But so far we have not met it. As a policy, we do not let people from outside visit our facilities or meet with our management, except for Bordais de Charbonni re and myself.’
Camera-shy
The reason? ‘We have historically had a policy of secrecy,’ explains Mercier. Indeed, vestiges of this remain. For example, the company’s press office will only provide pictures to the press of Fran ois Michelin himself. Requests for photos of Mercier or even CFO Bordais de Charbonni re were politely but firmly declined. Nor would Mercier have allowed Investor Relations to take his photograph for this article, since that would run counter to company policy.
‘We are very shy with regard to people outside the company,’ notes Mercier. ‘We believe we have to change and to evolve and we’ve been doing that over the last seven years.’
No-one doubts that, least of all the European automotive analysts who cover the company. They say that Michelin’s secretive stance is typical of the industry, at least in Europe, and that no other tire company will allow visitors to plants.
In fact, Michelin does seem to have led the way in improving European tire industry IR. As Chris Will of Lehman Brothers explains, it was largely a question of having to: ‘Historically Michelin was very closed but it went through a long period of having to rebuild its balance sheet and therefore needed to raise equity. That necessitated a complete IR program,’ he says. Will, who has been covering the company for about five years, reports that during that time the IR effort has been ‘above average by the standards of others in the industry in Europe.’
But Mercier is certainly not complacent. ‘We will have to increase the level of contacts between the company and the financial community,’ he says. ‘But it takes time and we have to educate people inside about financial communications first. They have to understand the role of investors, for instance.’
Meanwhile, there are plenty of people on the outside busy educating themselves about Michelin. ‘We have about 40 Paris-based analysts following Michelin; and about another 30 in London,’ Mercier reports. A healthy following, by any standards. And that’s purely on the sell-side. ‘There are a few buy-side analysts as well, in both Paris in London. In New York, we meet with some sell-side analysts too. Usually they have correspondents in London so our first contact will be with someone there, but we do have contacts with a few sell-side analysts in New York.’
Shareholders aplenty
Investors, too, are plentiful. Michelin’s household name status attracts plenty of individual shareholders and, although there is no scheme to facilitate employee stock ownership, members of staff do buy shares in the company.
‘With registered shares, we are able to communicate with shareholders easily and we write to them twice a year,’ says Mercier. Of course, not every single shareholder is immediately identifiable: a proportion of holders are always disguised behind nominee or street-names. ‘That makes it more difficult to have access to them.’
Nor are the individual shareholders encouraged to come out of their shells by the offer of shareholder perks – cheap retreads, perhaps. ‘At the annual general meeting we often offer them a small present and we would like to do more for them,’ says Mercier. ‘One of the difficulties is that because our headquarters is in Clermont-Ferrand we hold our annual general meeting here, so not so many people come as they would in Paris. But we have plans to enhance communication with individual shareholders. It has to be done. It’s not done yet.’
On the institutional side, Mercier reports with some surprise that corporate governance has not been much of an issue for Michelin so far. ‘I think this is a subject that is more debated in the media than among our shareholders. We have occasional questions about the kind of resolutions that are passed, but so far it has not really become an issue.’
This may have something to do with Michelin’s unusual structure. The company is in fact a general partnership, a different kind of legal entity from most French companies. Essentially, this means the company is run by three general partners – two of them members of the Michelin family (Fran ois and Edouard) – who cannot be removed by the shareholders. Such a structure is normally anathema to most shareholders but it means, as Mercier explains, that most of the recommendations on governance put forward in the Vienot Report on French corporate governance do not, strictly speaking, apply to Michelin.
‘However, we do think it’s important to give shareholders more information about the company and better insight into company strategy. So, as far as the spirit of Vienot goes, we are very much involved in putting the recommendations into effect,’ says Mercier.
‘The key thing is to improve our financial communications and our contacts with shareholders. That’s my job, actually.’
Analyst notes
Chris Will of Lehman Bros says Michelin’s IR has certainly improved and is now at least as good as other European car companies. ‘The background,’ he adds, ‘is not just one of a secretive family firm; the industry itself is also terribly secretive. Tire companies are all very careful about who they let into their plants, for instance, because they are so sensitive about new production technologies.’
Will notes, however, that Michelin has been particularly helpful to analysts, singling out Mercier’s predecessor for special praise. ‘Most of us who’ve been around [covering tire companies] for some time learnt most of what we know from Guy O’Lanyer spending ages with us individually.’
Susanne Oliver, who covers European automotive companies for Credit Suisse First Boston, says of Michelin that its IR may not place it ‘at the top of the heap, but it’s certainly in the top group.’
She notes a change among tire companies as they move from a past obsession with market share to a new preoccupation with shareholder value. She welcomes the fact that Michelin has become more open about financial targets, for example, and says its IR has ‘improved hugely over the last two or three years.’ She, too, notes tire companies’ sensitivity about new technology, but accepts that it’s ‘easy to interpret that as being unhelpful, harder to know if it’s really necessary to protect commercial interests.’
