Which often-disregarded group of investors is right under the IRO’s nose? The answer: employees. Through Esops, stock options, 401k plans and other investment schemes, employees are a key part of many companies’ shareholder mix. Instead of taking them for granted, some IR departments have launched efforts to educate workers about their stake in the company and how each individual can promote shareholder value.
Michael Watras, president and CEO of Manhattan-based Straightline International, points out that ‘too often, companies large and small push employees aside and favor outside investors.’ He continues: ‘Should companies do more to educate employees? Absolutely, unequivocally, yes.’
Michael Reilly, founder of Hally Enterprises, agrees, noting that ’employees are an important audience because they own the stock out of a true and deep commitment to the company’s future. This is the retail investor-plus. This is patient money. They’ll support you through the dark hours.’
Ford Motor Company is one company that’s made notable efforts to educate employees about their investment in the company. At Ford, 372,000 employees own 20 percent of the stock, according to Mel Stephens, who oversees IR. ‘We’re trying to teach all our employees to think and act like employee owners,’ says Stephens. ‘We’re using IR to help drive shareholder value.’
Lessons learnt Encouraging employees who own stock in the company to view themselves as shareholders is only one part of IR’s educational role. Increasingly, companies see advantages in teaching the workforce about the IR function itself. Knowing how Wall Street views the company – and how IR is portraying the company to analysts and portfolio managers – can help employees understand what they contribute to the performance of the company’s stock. In a drive to create shareholder value, an informed workforce may be a company’s best friend.
Reilly recalls that when he managed IR at Reuters in the late 1980s and early 1990s, he spent time educating employees about the IR function. ‘We attempted to reach out and offer teaching programs and seminars to explain what we did,’ says Reilly. Some of this education, he says, was quite rudimentary, including ‘why there is an IR department and what the buy-side is and what the sell-side is.’
Reilly advocates addressing all employees, not just managers, about IR: ‘We talked to technical people. We talked to people outside the US. I talked to staff in South America and in Cuba.’
Gerry Foster, senior vice president of IR for Schering-Plough, says that she tailors her internal IR presentations to show employees how their behavior affects the company’s stock price. When, for instance, Foster recently explained IR to the human resources department, she emphasized that Schering-Plough ‘is only as good as the people hired within the company.’ Knowing the drug company’s IR objectives helps Schering-Plough’s human-resource officers make hiring decisions that support the company’s strategy and fulfill its promises to Wall Street.
Some IROs view education as part of a larger vision for the company. At Ford, which sets five financial milestones a year, Stephens notes that the IR department reports to Wall Street – and to all employees – on how well the company is meeting these milestones on a quarterly basis. Employees use the updates to clarify their focus. ‘Everybody who has a stake wants to know what we’re trying to do, how we’re doing, and what it will take to do better,’ says Stephens. ‘Employees ask, If this unit is not competitive, what does it mean for my job?’
Watras believes that the growing trend toward teaching employees about IR extends overseas. To illustrate, he cites one of his clients – an Italian holding company called Monrif – that excels at training employees about IR. And in Australia, WMC Limited, formerly known as Western Mining Corp, has initiated a detailed course to instruct managers and other employees about how they can support the IR function, says Charles Reis, manager of shareholder communications for the Southbank-based company.
Educating employees can even serve as a risk-management strategy. Reis is concerned that managers unschooled in IR leave themselves vulnerable to the possibility of revealing material information or wrongly withholding information that’s already public. To manage these dangers, Reis worked with Paterson Sturgess to develop a half-day course and stand-alone kit explaining the IR function.
When Reis teaches the course, ‘the first question tends to be: So, what does this have to do with me? Most employees didn’t see the connection between their job and the analysts and the brokers.’ Reis continues: ‘We wanted to ensure we imparted judgement and skills for a lawful and appropriate dialogue with shareholders and analysts when they are on site.’ He says managers need a broad understanding of the market, what type of information investors desire, and the listing rules on the Australian Stock Exchange in order to be successful.
Making time
IROs don’t necessarily have to schedule special seminars to educate employees. MCN Energy addresses IR-related issues in the company newsletter, according to Stewart Lawrence, manager of external communications for the Detroit-based company. And at GATX Corp in Chicago, the investor relations team makes a presentation at every new employee meeting and at the annual meeting for all employees, says IRO Bob Lyons.
Something as simple as broadcasting the company’s stock price to all employees can promote greater awareness that the company is being constantly evaluated on Wall Street. At GATX, for instance, on the day after the stock hits a 52-week high, employees are permitted to wear casual dress to work. The program is so popular, says Lyons, that ‘we even had to have a sign made for the corporate cafeteria because we were getting so many phone calls in the corporate communications department. It’s raised the awareness about the stock price. It’s something they look at every day.’
Intelligence gathering
When IROs broaden their role to include internal education, they also take insights gleaned from the markets and present them to managers and other employees. ‘In the past, the responsibility of the IR function was to put a case out to the world,’ says John Lafferty, founder of Chicago-based J M Lafferty Associates. In IR departments that value education, he says, ‘IR also draws in market intelligence.’
Such intelligence may not exist anywhere else within the organization. ‘Companies are awash in data about themselves. They don’t have a lot of information about the rest of the world,’ says Lafferty. He believes that corporate leaders focus so intently on their own business that they may be blind to the competition or larger market forces. Lafferty would argue that analysts and portfolio managers – the very people IROs talk to on a regular basis – possess the vital intelligence that corporate insiders lack.
To illustrate, Lafferty points out that the number of high-income pet owners has increased, fueling the success of pet super-stores. The CEO of a retail-store chain may be oblivious to this trend, which is outside the purview of his own company, and would therefore miss the opportunity to boost sales by allocating square footage to pet supplies. When IROs use their contact with analysts to monitor and educate about such trends, they share ideas and insights with the company’s decision-makers.
Stephens has seen the role of IR expand within Ford. ‘The traditional IR function was interfacing with the outside,’ he says. ‘The new view is that’s half the role.’ Ford has taken the unusual step of inviting analysts and other external voices to interact with internal departments and explain how the company is perceived by the world at large.
Exposing employees to the perspectives of movers and shakers within the investment community may be a wave of the future within IR. ‘You can’t have a closed communication system,’ concludes Stephens. ‘You can’t say, I don’t want to hear what those idiots on Wall Street are saying. Whenever you’re trying to drive results, you have to open the company more.’
