Your results are out. They’ve been distributed to the regulatory news service, the newswires, the corporate web site and a whole range of other news disseminators. You’ve held a presentation for analysts, one for journalists, done an international teleconference call and you’re on to doing the rounds of one-on-ones with the buy-side. You’ve met the information dissemination rules of your market. Best practice investor relations prevails. Or does it? Some key audiences believe that current best practice isn’t that good at all. They believe they’re getting a raw deal. Retail shareholder groups and financial journalists in continental Europe are beginning to wake up to established international IR practices. Many of them don’t like what they’re seeing. Indeed, some believe they are being relegated to the second division of corporate audiences.
So what’s the problem? Best practice and market rules in most countries dictate that any price-sensitive information is released to everyone at the same time. Fine. Unfortunately, the in-depth explanation and background to this price-sensitive information is often only given to a select group of analysts and fund managers. Costs and logistics mean that retail shareholders are locked out. The majority of companies also choose to exclude journalists often the information conduit between companies and retail shareholders from access to such meetings. They argue that the media is driven by a different agenda and either won’t be interested in the type of detailed exchange going on with the financial community or, in many cases, won’t understand the context. Not surprisingly, many journalists don’t view it that way and believe companies are hiding something. If, they argue, there isn’t anything to hide, what’s the problem in granting access?
Hot topic
Lynge Blak, investor relations manager at International Service Systems and head of the Danish investor relations society, reports that these ‘closed meeting’ issues have been fiercely debated in Denmark of late. He admits that there is a real problem but no ideal solution. It is, after all, wholly impractical and too costly to invite every shareholder along to a meeting every time the company’s got something to say to the market. And many companies feel there are real communication benefits in separate targeting of their journalist, analyst and institutional audiences. ISS deals with the problem as best it can by making information available on its web site, inviting representatives of shareholder groups along to its meetings and granting as much direct access to journalists as possible. In the past, it has also made some of its regular meetings ‘open’ to all (although Blak dislikes the connotations behind the terms ‘open’ and ‘closed’ meetings). The current Danish discussion has also led to suggestions that a stock exchange representative should attend analyst and fund manager presentations to keep a regulatory eye on proceedings. Blak’s key concern is that some companies smaller than ISS might sense danger in these issues and believe that the best way to deal with them is to reduce or stop direct briefings of the financial community. ‘Some of the smaller companies which don’t have our resources or financial strength may pull back, believing it is safer to do nothing.’
Ongoing concern
Nicolas Pawloff, investor relations director at Bank Austria in Vienna, says that the correct, best practice dissemination of information is an ongoing concern for any IRO. ‘All we can do is ensure information is made publicly available,’ says Pawloff. ‘As we have bearer shares it is very difficult almost impossible, in fact to give that information directly to every shareholder. So we try to disseminate information as broadly and widely as possible.’ After results announcements, the IR approach at Bank Austria tends toward group presentations for sell-side analysts and then one-on-ones for the buy-side. Journalists are handled separately but all have the opportunity to come back to the company to ask further questions. Pawloff feels that the different audiences are probably best kept separate because of their different agendas and needs. ‘We’re communicating the same information but differently. Different audiences almost have different languages and we tailor it accordingly.’
Cost considerations inevitably come into play in determining the way in which audiences are handled. ‘If a shareholder requests a one-on-one meeting, management will generally make themselves available. There has to be a certain weighting in this though it’s a question of cost and benefit.’ Pawloff notes that he doesn’t think most shareholders would appreciate a huge escalation in cost just for the sake of increasing the level of resources devoted to keeping every individual shareholder informed. In any case, logistically it’s very difficult. The availability of the web certainly helps. Pawloff points out that the small, retail shareholders can access information, including analyst presentations, on the web site and the company spends a good deal of time talking journalists through any issues and answering their questions. But at the end of the day, ‘the small shareholder has to be active, like all shareholders, in finding the information.’
Age-old solution
‘It’s an age-old problem,’ notes Jim Prout, managing director of IR agency Taylor Rafferty and a former attorney at the SEC. ‘Fortunately, the age-old problem is dealt with by an age-old answer making the playing field as level as possible.’ He argues that it’s similar to the problem of seamless dissemination of information to international markets. Five years ago that was taxing many companies trying to deal with cross-border communication for the first time. Today, it’s rarely a problem: the IR community has developed ways, means and practices to cope. Prout argues that the recent resurgence of retail shareholders in the US many US companies now have retail shareholder levels of around 50 percent is likely to spread to other markets. Even if it doesn’t, any company seriously looking at the US market is going to have to cope with the trend in IR terms. ‘I’m afraid that companies are going to have to learn new skills. They’re going to have to get more sensitive to dealing with retail shareholders.’ That sensitivity might include a higher level of respect for retail brokers. Prout believes that many companies just don’t give them enough of their time due to the oft-accepted view that retail investors are not that important. ‘Most companies are not confident dealing with retail brokers and a lot of them view retail investors as not as important. In the future, there will have to be a lot more retail brokerage presentations. As the retail investor audience grows, companies will have to respond. And they will respond.’ Prout adds that there will still be complaints, whatever method is chosen to increase information dissemination to the retail investor community. If, as expected, the internet is increasingly relied upon then there will be complaints from those who don’t have computer access. If the level of communication with retail brokers increases there will be others who don’t use brokerage advice who will feel marginalized. ‘It’s a question of equality of access not just equality of information,’ he concludes.
No magic wand
Those representing retail shareholder interests admit that there are no magical answers to their access problems. You can’t just wave a wand and allow equal access to management for thousands of individual shareholders. Sure, the internet might help the situation but it can’t bypass the fact that analysts and institutions gain direct, face-to-face access to management. ‘We’ve not got any brilliant solutions,’ honestly admits Donald Butcher, president of the UK Shareholders’ Association. ‘ The sheer force of circumstances means that private investors are always going to be seen by some companies as poor relations to the institutions. The more difficult question is how to counteract that. I guess one has to assume that the age of the private [retail] shareholder will come along with the internet. That’s going to have a very serious and positive impact on the relationship between companies and their individual shareholders.’ Butcher adds that some companies, such as Royal Dutch Shell, have made a real effort to try to restore the communications balance by holding briefing sessions for retail shareholders. Certainly, some European companies (perhaps the best known being Air Liquide in France) have worked to ensure that retail investors are accorded an equal level of respect. As well as increased use of the internet, Butcher suggests that companies invite representatives from retail shareholder groups along to their meetings. And he also encourages companies to make room for those representatives in the post-announcement one-on-one schedule.
Top of the list
Whatever the range of options to help elevate the status of the retail shareholder in the future, the internet is certainly at the top of everyone’s list. Donald Nordberg, a former Reuters journalist and now director of London-based research consultancy News Directions, has just completed a study entitled Online investor relations: How technology is reshaping shareholder communications. He believes that retail shareholders are going to become a more potent force in the future and that companies should recognize this when planning their information strategies. ‘Several companies, especially but not exclusively in the US, have adopted the policy of open disclosure by organizing open access to all events,’ notes Nordberg in the report. ‘That might take the form of presentation slides and a feed of audio, with direct questioning of management only by those registered in advance and deemed likely to be most on top of the subject. At least that way the private investor has no reason to complain when the stock falls after an analyst presentation but well before he had a chance to find out, even through the broker whose firm was represented on the conference call.’
Nordberg believes that granting this form of open access to analyst presentations over the internet is likely to become best practice in the future. He says it has the advantage in that the output is open and free to all audiences yet the company retains control over the input who does the presentation, who asks the questions, and so on. And he’s also convinced that the relatively cheap cost of internet communications means that they are just as accessible for small caps as for large. In that case, Lynge Blak’s fears may not be justified. ‘I would think that a small company could probably conduct an online event cheaper than in an hotel,’ says Nordberg, suggesting that the traditional roadshow schedule may be a thing of the past. ‘Maybe they shouldn’t bother with the big events at all,’ he adds. But that’s not necessarily appropriate advice for every company. The debate over a level playing field has already reached fever pitch in the US, where Bloomberg, Reuters and Dow Jones have all been pushing for access to IR conference calls. The SEC is increasingly concerned over insider trading and is urging companies to open up their analyst briefings to the media. Having said that, some reporters with good Wall Street connections will sneak onto conference calls whether or not they are invited. There’s also the question of a company’s liability if its ‘select’ audience trades on inside information (inadvertently leaked in a closed meeting) before the company can put out a covering release. No-one can afford to ignore the rising clamor from retail investors and the media that serve them. As the alarm bells over fair access ring worldwide, investor relations officers would do well to listen up.
