The shift in focus from institutional to retail investors presents IR professionals with a new set of challenges. And all of them are being accelerated by the growth of the internet. Service is destined to become a key IR differentiator in the new e-economy, alongside messaging and brand.
The e-business model is instructive for IR officers. Dot-coms stand or die by their successes in customer selection, acquisition and loyalty. And even if the customer delivers precious little short-term profitability, fund managers still sign up in their droves.
Pretty bewildering but a flick through the Wall Street Journal or Financial Times shows that not only are the dot-coms getting all the ink, but shareholders increasingly expect traditional operators to meet the capital growth that the Amazons, e-Bays and Freeserves now generate.
Clearly, business is on the threshold of unparalleled change. Conventional firms must now operate in an environment in which business value-add is fast becoming transparent, price margins thinner and consumers ever more powerful. Established brands, it seems, stand for little in the internet economy.
The lessons for the IR professional lie in how to use the new internet technologies efficiently to attract and retain investors. It will require a much greater understanding of the needs of the small investor, but offers the opportunity to strike a deeper, richer set of relationships, a prerequisite for success online.
To understand how necessary this is, it’s worth going back to internet basics. The drivers for change in investor relations can be re-stated as follows:
- Increased competition for capital, exacerbated by the mountains of finance being thrown at dot-coms.
- More international shareholders, making logistics more complex, and costs steeper.
- More active and demanding shareholders, both institutional and retail, especially in terms of access to management.
- Greater need for accountability to ever wider sets of vested interests – financial, consumer, social, environmental.
- More widespread equity culture, with more retail shareholders and a broader investor base for the average publicly-listed firm.
- A more level playing field, as technology gives small investors access to information and rumors, once the sole preserve of professionals.
- Regulatory pressures for equal disclosure, led by the SEC and now other regulatory bodies. For example, the UK government’s latest statements show strong backing for the small shareholder.
The internet is the only tool that will allow companies to tackle these satisfactorily and cost-effectively. Yet the quality of online IR approaches differs markedly and is indicative of the confusion surrounding the medium. They range from presenting the annual report, and probably a share price link, to highly sophisticated database-driven sites which tailor information to each individual’s needs.
Occupying the middle ground is the ‘twelve-point shopping list’ approach, comprising the dozen items most regularly found on a corporate investor relations web site. Increasingly standard, this includes some financial news, the latest quarterly or half-yearly statements, the financial calendar, and IR contacts, among other features.
This is clear evidence of a culture in which owners are failing to address satisfactorily the short-term opportunities and long-term threats posed by the new business environment.
Ambitious questions
The key question is one of ambition. Assuming you can afford the basic entry level cost, how do you want to be perceived online? How is your peer group approaching the internet? Could you afford to be outclassed on the web by a smaller player?
Your corporate web site is viewed as a showcase on how you are approaching the internet, not just as a communications tool, but as a broader business proposition. With evidence showing that decision-makers in business and the media now regularly use the internet to research and receive information, and make contact with others, your site should be treated as a real opportunity to deliver something of value to shareholders.
Yet all this underestimates the changing role of the retail investor. With much more collective capital at their disposal, a far greater range of investment options and the ability to trade in and out of shares instantly on the internet, their effect is already apparent on the markets in their greater liquidity and volatility. They are increasingly knowledgeable, too. They want specific answers to their questions with a personal response. In short, they want someone to talk to, and to be listened to by the company.
The retail investor of the future must be dealt with in a way that is more timely, detailed and relevant. To do this, companies need to understand their shareholders more fully, align their interests and draw them ‘closer’.
Here are some key requirements that all corporate sites should meet.
- Provide access to high quality information. Some companies are going well beyond putting basic corporate information online, providing investors with a wide-angle lens on all their financial and broader activities. Analysts and investors value the one-stop-shop concept – a mini-corporate portal.
In practice, few companies approach the internet in this way. Exceptions include French media and technology group Lagardere (www.lagardere.com), where you can download (for free) recent analyst reports on the company in full. AT&T also has an outstanding all-round IR site (www.att.com/ir) with quick links to peer group performance, major indices and other comparatives. Above all though, it is what it offers to retail shareholders that really stands out: portfolio valuation tools, an interactive voice response telephone system for account information, downloadable lost certificate forms and the like.
- Personalize the delivery of information. Many online services have found to their cost that the internet fails when treated as a one-way medium…people don’t like to have to look for information when they can receive it direct to their desktop. BP Amoco (www.bpamoco.com), for instance, enables investors to register for – and receive by e-mail – financial, technology, environmental and other news upon release.
- Customize access to, and packaging of, information and data according to your needs and preferences. Mitsubishi (www.mitsubishi.co.jp), for instance, enables you to generate a bespoke corporate report, drawing on financial and other information. Though simple for the time being, it is not difficult to imagine how sophisticated, and useful, this type of tool could be.
This is not dissimilar to AT&T’s account management tools online (www.att.com/accessatt), where users can customize their own page of useful company links and access the relevant customer services.
- Communicate with executives. Stuck in the annual report mentality, too many firms take the ‘brochureware’ approach online, thinking of the web page itself as the corporate interface with the outside world. It is not. The key is to think internet, not web. The internet is both e-mail and other networking and broadcast devices, as well as the graphical interface itself.
Already, audio and video broadcasting have become widely used applications. Few companies, however, enable two-way real-time dialogue with executives. But Intel (www.intel.com) allows shareholders (and others) to fire questions direct at its management board via a web-based interface containing real-time audio and video coverage with synchronized power pointslides. And then there is e-mail, fast becoming a critically important tool. An October 1999 survey conducted on behalf of Servicesoft Technologies, a leader in internet customer service, found that 73 percent of online customers prefer e-mail to alternative communications channels. But, only 8 percent said e-mail consistently met their expectations. Their main problems? Auto-reply messages that do not address specific problems, or even a complete lack of a reply.
- Offer the possibility to discuss corporate issues with (third party) experts. This is the holy grail for most investors, and is usually limited to third party news and personal investment services. But leading firms looking to bolster confidence in their stocks are publishing their analyst presentations, complete with Q&A’s. Software provider Open Market (www.openmarket.com) is a good example. Oil giant Shell is even inviting ‘opposition’ spokespeople from the green and other lobbies to talk on its web site, and encouraging its stakeholders to respond.
- Transact on the basis of an informed decision. Proxy voting, dividend reinvestment and even share trading can be facilitated online, typically through a service provider such as First Chicago’s Equiserve, or E*Trade. Ford (www.ford.com) is an example of a company offering a near seamless service, while maintaining a clearly objective stance.
Equally, the IR professional should be able to:
- Collect, store, analyze and act upon data. The customization and personalization of web pages and information delivery, in addition to voting records, enables companies to build an accurate picture of shareholder behavior, as individuals and as groups. It also enables companies to respond to crises immediately by having a rebuttal database of e-mail addresses at hand, as well as to measure more accurately the effectiveness of their IR activities online.
- Update information in real-time. A key requirement in the information age is to be able to publish information and data instantly upon release. E-mail and the corporate web site allow companies to do this themselves, direct to the shareholder, rather than having to rely on third party intermediaries.
The difficulty is in having the technologies and the processes in place to do it. Software now exists to enable companies to report in real-time (probably the best example being Cisco Systems, which now reports internally on a daily rather than quarterly basis). It is also clearly preferable to have the IR department itself managing its part of the site rather than the IT department, which requires learning a new set of skills and adopting a proactive, internet-based editorial mindset.
- Respond to queries immediately. Experience shows that the retail investor is already more proactive in demanding information online. It is a trickle rather than a deluge for the great majority, but can be expected to increase.
But this raises new sets of challenges. Who should answer both the routine and more complex questions – someone in-house or out-of-house? Will your answer affect the share price? Should the lawyers get involved?
In the field of targeting and retaining the retail investor, service will become a key differentiator online. Done effectively, it will require a new set of processes and skills, as well as a clear understanding of objectives. But while technology is driving change, it is people that will make the difference, for only they can strike a truly personal relationship with investors. Call it retail investor relations with a human touch.
Charlie Pownall is director of e-services firm Syzygy.net’s corporate communications practice, and author of ‘iRelations – effective online investor relations’
