Retail shareholders have often been characterized as being much less influential, less knowledgeable investors than their institutional counterparts. They also stand accused by the IR fraternity of requiring excessive labor for little return.
And yet, with so many European companies having a significant segment of shares directly held by private individuals, it is an increasingly misinformed approach. In many markets it is becoming outdated – not to say legally risky – to view small shareholders as one ignorant, disinterested mass. Today, many European companies are seeking to nurture and maintain links with individual investors, despite the fact that, in terms of total shareholding, the institutions still have far greater influence upon a company’s strategic direction and stock price. Retail investor power in Europe may not be anywhere near as great as it is in the US but it is certainly on the way back up. Company investor relations departments which choose to completely ignore that power do so at their peril, particularly if they sell products or services aimed at retail customers.
Retail flocks
Understandably, many of the European companies with the largest numbers of retail shareholders are those that have been recently privatized or demutualized. Either by default or through clear intent at the time of the offering or demutualization, they have attracted large numbers of small investors into their fold. Only then do they realize the full implications of looking after such a wide investor base. Other companies have actively sought to encourage retail investors onto their share registers, often in a bid to benefit from the much-vaunted long-term holding and stability that is associated with the private investor.
Deutsche Bank is one of many leading European companies which has a positive policy toward its large number of private shareholders. At the last count, the bank had 34 percent private shareholders in terms of voting rights, representing roughly 500,000 individual investors. Most of these have between 20 and 200 shares each. Over the past three years, retail numbers have grown tremendously – increasing by around 100,000.
Head of Deutsche Bank investor relations Dr Wolfram Schmitt believes the main reason for such a leap in numbers is what he calls the growth of the ‘equity culture’ in Germany. As a household name, the bank is a direct beneficiary of this trend. And of course, behind the 64 percent of nominally institutional investors stand many more individuals who place their trust in the bank via mutual funds.
‘We now tend to do much more for the retail shareholder,’ says Schmitt. ‘Normally, shareholders would only get the annual report and the quarterly reports, but for the first time last year we gave presentations at a private shareholder fair in Dusseldorf where I outlined the bank’s strategy.’
However, the bank does not send out any additional literature to its small investors; all groups receive the same annual and quarterly reports and, of course, all can gain access to information on the company web site.
‘While we say we should have one-third private and two-third institutions, we don’t really have a target,’ Schmitt adds. ‘What we are looking for is a good spread of shareholders, and we want to have a good mixture because the reactions of each group to certain situations are different. For example, while some institutions may sell because of some particular news, the retail segment may not.’
Loyal, stable
The size of the retail shareholder segment is not necessarily a guide to the amount of focus a company will devote to this element of its investors. The ‘ideal’ percentage of retail holdings obviously depends on a variety of factors. These include a desire to forge a strong link between satisfied customers and faithful investors; the market liquidity of a company’s stock; and the management’s perceptions of the stability offered by private investors.
Certainly, as regards the last of these, it is clearly a high priority for many companies to create a ‘bolster effect’ in their share portfolios to ensure a stable element that will show more loyalty during times of volatility. The French telecoms systems and equipment producer Alcatel is one company that views retail ownership in this light.
Some 350,000 individual shareholders, representing around 10 percent of the company, hold Alcatel shares. While this may only represent a small fraction of some other European companies, the focus on this group is no less proactive. Indeed, quite the contrary, as head of investor relations Claire Pedini explains. ‘Alcatel has a very proactive policy toward individual shareholders which has been recently reinforced, for instance, by increasing the frequency of the shareholders’ letter Actions and by developing the number of shareholder meetings we hold,’ she says. ‘We believe in individual shareholders because they are faithful and represent a key element in ensuring the stability of our capital ownership.’
Equal footing
While individual shareholders are dealt with separately by Pedini’s colleague Dominique de Causans, the company does not seek to tone down or differ any of the messages it conveys to private shareholders as opposed to the institutional holders. The many thousands of private investors can contact Alcatel in a variety of ways, including the company web site and France’s interactive e-business channel, Minitel. The company also operates two telephone hotlines which provide direct access to the latest share price and give callers the opportunity to ask any questions they may have about the company. One of these is solely for the use of registered shareholders.
Alcatel’s private shareholders receive regular information, including the annual report, a letter to shareholders, the Actions newsletter, which is now published four times a year, and a chairman’s statement. In addition, when special announcements are made, specific documents are produced for the company’s retail holders. So, for example, Alcatel, published a shareholders’ guide to the impact of the euro when the new currency was introduced.
The French commitment to retail investors is well personified by the efforts of France Telecom. Still part-owned by the government (62 percent), its avowed objective is to make itself ‘a company for everyone’. The company’s retail investor base is described as ‘exceptionally huge’ by its director of shareholder relations, Gérard Gruet-Masson. In January 1999 the company had around 2.4 mn retail shareholders, and 500 institutional holders. ‘During the IPO and when the second tranche of capital was placed at the stock exchange in November 1998, France Telecom wanted to seduce as many retail investors as possible. This is why on each occasion we launched a huge advertising campaign involving TV, radio and print media,’ says Gruet-Masson. ‘There are two reasons for this approach. The IPO of a publicly-owned company is more easily accepted when some advantage is given to individual shareholders. Being a customer-oriented company with over 26 mn customers, creating happy shareholders means creating faithful customers.’
As a consequence of this philosophy, the company aims to provide its shareholders and clients with a ‘first class service’ through a variety of special activities, ranging from a shareholders’ club which has a membership of 500,000, to its 1010 call center facility which receives 4,000 calls a day.
Maintaining loyalty
An erstwhile rival in some areas of the telecommunications market is Ericsson. Despite being in the same market, with many customers who could also be retail shareholders, the Swedish company places more emphasis on maintenance of retail holders rather than growth.
With nearly 300,000 investors in total, retail holders now own about 10 percent of the company, as opposed to nearer 20 percent just a few years back earlier in the decade. ‘But we recognize that loyalty and stability are persuasive reasons for having retail shareholders,’ says investor relations manager Karin Almqvist. ‘While we only tend to make a special effort toward this group at the usual key times in the year, such as annual results, we are mindful of the need to keep it at its current level and not allow it to go below this.’
Ericsson has a team of three in Sweden who look after all aspects of IR and does not formally divide its energies between retail and institutions. However, Almqvist does frequently fly to distant locations in Sweden to meet with retail shareholder groups as part of her efforts to maintain the 10 percent level currently in existence.
For Almqvist and others, ignoring the retail element of the shareholder audience is a dangerous strategy to adopt, but the precise percentage a company aims for depends very much on the market conditions in which it has to operate, and the strategic goals a company’s management has set for the organization. One thing is clear, if a cartoonist were to draw a caricature of a retail shareholder wearing a blindfold and baa-ing like a sheep, the reaction from any savvy IRO would be that this was the work of a rank amateur with no current understanding of the role of retail shareholders at the sophisticated companies of today.
