It’s a recipe for permanent red-eye. Despite e-mail, the web and the good old-fashioned telephone, maintaining high quality communication with non-domestic shareholders still poses more of a challenge than talking to fund managers based round the corner. And that’s to say nothing of the differences in language and culture.
An Investor Relations magazine survey indicates that IR staff in an average, developed market, blue-chip typically find themselves spending a third of their time on overseas shareholders – despite the fact that this group actually constitutes no more on average than 10 percent of the share register. It is a big commitment. It’s also a threat to sleeping patterns. So why bother? Surely domestic shareholders would be less trouble, and just as good.
Most suggest that there are clear financial benefits that make courting foreign shareholders worth the effort. Widening a company’s shareholder base to include investors from outside its country of incorporation creates a larger and more liquid market for its shares, and should ensure that its stock is more fairly valued by the marketplace. If, for example, construction shares are more highly valued in the US, then having US shareholders will tend to improve the rating of a UK construction company. That’s because investors will benchmark it against the comparable US stock price.
Access to a deeper pool of international capital should also reduce share price volatility because buyers and sellers will trade within a narrower range. And a greater geographic spread of shareholders will reduce the risk of shareholders all wanting to exit at the same time for domestic financial reasons.
In the special case of an international IPO, the access to a wider pool of capital can have more immediate benefits. Kevin Feeny, investor relations director at College Hill Associates in London, recalls the Croatian industrial company Pliva’s IPO four years ago, which pulled in non-domestic capital to invest in its plant. Here money from more affluent markets was attracted into an emerging market through the medium of an international IPO. Whether the domestic capital market could have supported such an investment program is doubtful, and the cost of this capital requirement would certainly have been higher.
Balancing interests
However, the advantages of overseas shareholdings have to be balanced against the resource required to service shareholders. ‘It would be a big mistake to ignore them,’ comments Feeny. ‘Poor communications will encourage shareholders to assume the worst. After results are announced, a teleconference with analysts from around the world is a minimum. But major shareholders will expect one-to-one meetings, and that can turn out to be very time consuming.
Feeny says the communications problems are most acute in a hostile bid situation, where lobbying and personal visits are more difficult. ‘In this situation, it is crucial to have established good personal relationships through face-to-face contact, so that overseas shareholders will tend to give management the benefit of the doubt and trust their judgement,’ notes Feeny. And he warns: ‘The alternative could be fatal.’
Solving this IR problem naturally depends on exactly where your overseas shareholders are located. For many large public companies the cross-border relationship is Euro-American, with shareholders on both sides of the Atlantic. One solution is to have two IR departments. Pharmaceuticals giant Glaxo-Wellcome, for instance, has an IR base in London to look after the UK and continental Europe and another IR department in New York to service the North American investment community.
‘It is part of being a global company,’ says Glaxo-Wellcome investor relations manager Duncan Learmouth. ‘The US is more of a challenge than the UK, and we find that presenting at healthcare sector conferences hosted by the brokers is an efficient way of communicating with shareholders who are very geographically dispersed around the country. He notes that in the City of London, everything is more concentrated in one place, so it is easier to see shareholders.
But the world comprises more than North America and Europe. ‘We also have a small shareholder base in Japan, and we see them when they come to the UK,’ says Learmouth. ‘But we don’t tend to visit Japan.’ Glaxo-Wellcome’s results are released first in London, then in New York. ‘We make one continental European trip a year, covering the major centers plus one-off visits to the Continent. But we don’t have a strategy to target particular geographical markets; we just follow capital flows. At the moment continental European institutions are more interested, so we are devoting more time to them.’
Glaxo-Wellcome’s investor relations program to service overseas shareholders underlines the point about the amount of commitment required to do the job properly. Indeed, it represents a lot of effort considering that 80 percent of shareholders are based in the UK, 8 percent in the US and the balance elsewhere. Clearly globalization of shareholdings involves a far bigger increase in the IR function than might be thought to be the case.
Telecommunications behemoth British Telecom has tried to push technological solutions to this problem to the limit. ‘We post our report and accounts simultaneously on the web site, and our corporate news,’ said a spokesman. ‘For analysts briefings in the UK, we organize audio listening. We also have the usual roadshows for investors and analysts, and the top managers take part in US investment conferences. And we have one investor relations manager based in New York.’
Market timing
Only a few global companies use videoconferencing to organize worldwide conferences for shareholders and analysts at results time. Time differences often make this impractical. Shareholders in the Far East are unlikely to be keen on an evening presentation from London. However, when videoconferencing is suitable it can really be of benefit. South African Breweries, for example, operated a videoconference in London, Johannesburg and Cape Town for its results presentation earlier this year.
As might be expected information technology companies are keen to promote internet solutions to global shareholder bases. Web casts are particularly popular, a type of videoconference over the internet. Always a touch evangelical in their communications with the outside world, major listed information technology companies in Silicon Valley tend to practice what they preach.
California-based Sun Microsystems has 40,000 international shareholders. Investor relations manager Andrew Casey explains some of the implications: ‘We service them by attending international conferences, and provide web casts of our operations, earnings and special interest conference calls.We always provide international dial-in numbers, and organize senior management visits. But the primary information technologies we utilize to communicate better with investors are e-mail and the web, through web casts and overall web site information.’
But even modern technology has its limitations, and nothing beats face-to-face contact. That makes travelling unavoidable for senior management. Angus Prentice of Thomson Financial in London points out that top 30 investors will expect a personal meeting once a year to give them the opportunity of questioning management on strategy. He recommends fitting these commitments around other worldwide business meetings, and believes that there is really no substitute for ‘direct and proactive communication by senior management.’
No foreigners here
The greatly-admired BP Amoco investor relations department models its strategy around just such a commitment, although as an Anglo-American company with more than a third of its shareholders in the US, BP Amoco does not admit to having ‘foreign’ shareholders as such. It prefers to see a global shareholder base as a logical part of operating a global company. The oil giant has a five-strong IR team in London and three IR staff in New York.
‘Having senior management committed is the most important thing,’ says IR manager Richard Hubbard. ‘They allocate a lot of time to BP Amoco investors and see them as a key audience. It is not a matter of paying lip-service. The BP Amoco IR team is on the same floor as the executive directors, and has a rolling program talking to US and UK investors with one-to-one briefings. We see two or three institutional investors every week, and are in daily contact with sell-side brokers.’
BP Amoco expects its European shareholder base to grow rapidly in the near future as continental investors acquire a taste for equity investment, and diversify into non-eurozone stocks. This will clearly be a major consideration in the direction of the company’s IR strategy, which will have to accommodate shareholders outside the Anglo-American axis, and service them to the same high standards.
Giving global satisfaction
The message about overseas shareholders that comes across from these diverse companies is fairly clear. Globalizing share registers confer the benefits of a wider, deeper and more liquid market in a company’s stock. But the price is a more than linear expansion of the investor relations function and its resources. It takes more manpower to service overseas investors, who may require IR on-the-spot, than to satisfy domestic investors.
For investor relations professionals this global phenomenon offers exciting prospects for career development. The globalization of companies and their shareholder bases will result in a more than proportional increase in the demand for IR, and expert practitioners will find their services in short supply. Better career opportunities could prove compensation enough for the hectic traveling schedules required to visit shareholders around the globe.
It is also evident that senior management will have to devote far more time to international shareholders in the future, if only because of the time it takes to get to see them. So who knows? One final consequence of having overseas investors may turn out to be that greater importance is attached to the IR function itself within the corporate hierarchy.
