Investor relations executives often revert to martial metaphors during times of stress. They tell ‘war stories’ about hostile takeovers, about how they coped with lower than predicted earnings, or the discovery that the momentum players they didn’t know were on board had suddenly jumped ship.
But what kind of investor relations can you practice when you have to spend more time explaining the politics than the numbers? When we checked around, it seemed that the recommended, tried and trusted methods were the usual best IR practice: get your story out there first to all the relevant constituencies.
Carol Ruth and Whit Clay, respectively CEO and VP of Edelman Financial in New York, have literal war stories to tell about the hostile takeover of ICN’s pharmaceutical plant in Serbia. Slobodan Milosevic sent Serb police armed with submachine guns in place of proxies to kick down the door of the plant and, despite the workforce’s opposition, took it over.
The chairman of ICN, Milan Panic, could hardly claim to be totally above politics, since he was the former prime minister of Yugoslavia, but his reaction showed a response time unusual for modern politicians. Ruth recounts how she was roused at 3:10 am at her beach house by the company president’s phone call. Panic was in Vienna and he wanted to have a press conference to let people know that this was a serious seizure of American property, and that ICN intended to sue and fight to get restitution.
Time advantage
Although it was only three in the morning on the east coast of the US, it was already 8:00 am for Edelman’s London representative. He started working the phones to ensure that reporters heard about it, before boarding a plane to Vienna. In the meantime Carol Ruth, Whit Clay and the American team worked through what was left of the night to prepare a press advisory to send over to Vienna, and to prep Panic for the press conference.
Despite numerous threats, Nato had not started bombing when the ‘takeover’ was staged, but already Panic was in enormous demand. ‘He probably knows Milosevic better than anyone else in the world,’ notes Whit Clay. ‘So the question was, how do we use him? What made sense for the company in terms of exposure? What didn’t?’
Clay says the real challenge was how to communicate the company’s position and mitigate investor concerns about what was going on in that region. ‘And, of course, how to communicate the company’s strategy for dealing with it.’ He advises that when you have a figure like Panic, it is important to work out how to leverage the media’s demand for his input on the political side to include opportunities to talk about the company.
‘The key is to keep the company in mind when handling media relations when you have a figure who is important in both politics and business,’ Clay points out. And Ruth chips in here with the fervent faith of a true believer in investor relations: ‘After all he’s the chairman of a public company, and shareholder value is important.’
By the dawn’s early light their two-stage strategy had taken shape. Firstly, Ruth explains, ‘We decided we would fight to get the assets back and so we ran an ad campaign to bring it to the attention of certain publics, particularly the peace talks at Rambouillet, to highlight what had happened and that we were going to sue.’
Government relations – not only with the one in Washington but across the globe – were obviously very important at such a sensitive time. They used press conferences, advertisements and mailings to Congress and even the United Nations. The advertisements were tightly focused with ads in the specialist press read by Congressmen and their aides, such as The Hill, and Roll Call.
Advertisements were also directed at delegates at the peace talks. Clay comments with obvious satisfaction that, as a result of these efforts, the state department spokesman Jamie Rubin issued a statement in support of the company, pledging its support to get it back. That’s not something often done by the US government. In fact, smiles Ruth, at least one analyst gave them a boost with a report concluding that the start of the Nato action meant that ICN would soon get its plant back.
Traditional methods
The second stage was a more traditional variation of IR. ‘We tried to explain that the company had already totally written off the Yugoslav operation. We wanted the public and investors to know that there was no value on the books for this operation, but that our other operations in the region, the Czech Republic, Poland and Hungary were strong and not affected. That was crucial to our strategy.’
However, to allay fears from investors, she adds, ‘It was also important to stress that the company wasn’t committing any more of its money to those regions.’
But surely most investors would question the wisdom of a company management that opted to invest in Yugoslavia, given that the investment was first written off and then stolen by Milosevic?
Ruth’s obviously well-rehearsed answer to this question is as follows. ‘The company went in with a long-term strategy and in the rest of the region it’s doing well and has very healthy prospects.’ In fact, she explains, the plant itself was very successful, the only reason it had been written off was that its major customer was Milosevic’s sanction-strapped government, whose record on paying for pharmaceuticals was even more abysmal than its payment schedule to its pensioners and employees.
The other problem is that analysts and investors think in categories. Serbia is in eastern Europe, ICN has many plants in eastern Europe, therefore, they conclude….
Ruth agrees. ‘People do think that way and write it all off. When things are good in emerging markets, everyone thinks you’re a hero. But then when they turn around, everyone thinks, This is no good. The truth of the matter lies somewhere in between, doesn’t it?’
Ruth and Clay’s joint advice to investor relations professionals who might find themselves facing a similar crisis is as follows: ‘The first thing to do is to come up with a firm objective: to know what your goal is. Once you have a sound strategy to deal with the issue, the most important thing is to be proactive in your communications, to let the investors know what the company has done to prepare for the crisis. Inform them what the company is doing about this, what the value of the plant was, what would it mean to the results.’ And they conclude, with what could be the first law of investor relations: ‘It’s uncertainty that causes problems.’
Where are you?
Lubo Solpys of Wood & Associates is also dealing with spillover from the war, as well his own specific problems. His Prague-based company is advising on the privatization of Slovak telecommunications.
For those of you who missed the recent history of Slovakia, it ceased to be part of the former Czechoslovakia five years back when it and the Czech Republic split to form two separate states. Until last year’s elections Slovakia retained a somewhat antediluvian-style authoritarian government. That’s changing now, but promoting the country’s telecoms corporation still means giving lessons in history, geography and politics to explain a country that did not even exist until half a decade ago.
Firstly, says Solpys, ‘You have to reassure investors that [Slovakia] is not close to Serbia. But you also have to differentiate the company from other regional telecom companies in the pipeline, since now both Croatian and Polish telecoms are looking for investors. Poland is much bigger, so you have to focus on the prospects, such as GDP per capita.’
The IR effort for the Slovak telecoms company also involves sessions with geographically challenged investors to explain how Slovakia nestles between Poland, Hungary and the Czech Republic. ‘So if you want to build some kind of geographical corridor then this is it.’
And right now, for obvious reasons, it has to be stressed over and over again that Slovakia is a long way from the Serbian border; and that the country has little or no trade with Yugoslavia – even before the war – because of the embargo.’
The other transforming factor was the defeat of the old government in Slovakia last October. ‘It’s completely different now. Obviously it takes time for investors to see the difference, but the government is trying to change the bad image. It’s going for EU enlargement, Nato membership, tax holidays for investors and so on,’ he says. However, following the best IR policy, he cautions that even now, ‘Slovakia is still not a country for portfolio investors. But it is a very good country for strategic foreign direct investment.’
Cutting the links
On the other side of the world, in Venezuela, Serbia is about the only thing Gustavo Morales has not had to worry about. The vice president of Fondo Valores Inmobiliarios, the Caracas real estate company, he complains that, as well as recent political instability at home, he has had to cope with all sorts of investor fears, some more rational than others.
‘As an emerging market, we are affected by the economic and political situation of other countries,’ says Morales. ‘For instance, Venezuela is recovering its market cap after the Brazilian crisis, the Asian crisis and the oil crisis. Our company and Venezuela are monitored by those analysts – who can’t tell the difference. The investors don’t care – they just see emerging markets.’
Morales adds that the company was even affected by the Russian crisis; and before that there was political uncertainty, with the favorite to win last December’s election being an army officer, Hugo Chavez, who had led an unsuccessful coup five years before. Between them, these external and internal factors sent the Caracas stock market into a major downturn. One result was that Fondo Valores Inmobiliarios’ outstanding ADRs in New York went from a high in April last year of 6.8 mn, to just 3.5 mn in November. The number outstanding has now crept back up to 5.2 mn, but the price is still only half its peak.
Morales’ major weapon is to try to introduce facts into investors’ consciousness. He always starts the roadshows with a summary of the political and economic situation. ‘Then we talk about the company, and the figures, and at the end about the new projects,’ he explains. When investors come to visit, he takes them to see the properties, so they can meet the tenants and see the way the buildings are maintained.
Morales advises that the best way to treat shareholders and investors in such circumstances is first of all to try to acquaint them as deeply as possible with the country and its real estate market. ‘I know what kinds of financial information the investment community is going to ask from me and we’re happy to give them all the information they may need. In Venezuela and most emerging markets, the main problem is the lack of information. The more open you are, the more you demonstrate the accuracy of the figures you use to make your decisions, the more they are going to give us.’
He recommends being up-front about the company and the country at all times. ‘I have to be realistic. I can’t hide something from an analyst,’ he insists. ‘They’re too smart for that; they know what’s going on in our country. So the more information you give them, the more they’ll trust you.’
The first thing that he does at the moment is to reassure them that there are no political or military disturbances now and that the new government, despite the anomalous record of the president, has significant investor confidence. ‘We don’t see a totalitarian government here,’ Morales remarks.
Then come the comparative advantages of the Fondo Valores Inmobiliarios. Above all, as both Morales and the company’s web site proclaim, ‘Our leases are denominated in dollars. And our tenants are all blue chip companies – Shell, Mobil, Elf, BA, and Citibank – blue chip names. And our properties are in Caracas and on the east side – the Golden Mile, the most exclusive area for office space.’
There is even good news on the macroeconomic front: since the Opec agreement, oil is up to $18 from almost as little as $8 at one point. Even so, Morales knows, ‘Investors are worried about the uncertainty of the government’s direction. All of 1999 will be taken up with a process of rebuilding our country’s institutions.’ So far, the government enjoys considerable popular support, not least for the hope that it offers of stamping out the rampant corruption that had become rife in the last 40 years. That was certainly something which wasn’t easy to work with from an IR perspective.
The big insurance for business is that ‘Since we need the help of the IMF, the government has to go by the book. All the analysts see that the president’s hands are tied. He must follow only one way – unless he gets crazy.’
And in that remote case, as with all our IROs, it’s back to war-zone IR – telling the truth quickly, loudly – and in Morales’ case stressing all those dollar leases.
