The Commonwealth Bank of Australia swept the board at the first Investor Relations Magazine Australia Awards in April. Along with many honorable mentions, it won the Grand Prix for best overall IR, best investor relations results meetings, and best communication of shareholder value.
Most of the analysts credit the IR program’s success to the appointment of CFO Michael Ullmer three years ago. Formerly heading the banking practice at PricewaterhouseCoopers, he came over with an enthusiasm for investors in general, and analysts in particular, that had not always characterized the bank.
At an early stage, he appointed Carolyn Kerr head of investor relations and, with her team of four, they have pursued a proactive investor relations policy that has involved seeking out investors and analysts so assiduously that proactive is almost an understatement. Indeed, Kerr reports, ‘We’d decided that we wanted to get closer to our investors, but now we’ve got to the stage where some of them think they’ve seen quite enough of us. Especially after a results presentation, some investors say that they don’t need a one-on-one meeting with a senior manager.’
Ruefully, she comments, ‘My initial view was to be over-active in offering one-on-ones with institutional holders, but now we tend to wait for them to ask, and they don’t ask very often. But they know we’ll arrange them if they want.’
Even so, it’s clear from analysts’ feedback that they like to be offered the opportunity.
The response from offshore is much more unqualified in its enthusiasm, and Kerr reports attendances of 30 at the company’s recently-instituted broker breakfasts in New York.
And for those who thought that business breakfasts were, along with drive-by shootings, a distinctive feature of the Big Apple, they had already been instituted equally successfully in London.
As one would expect, Commonwealth Bank’s targeting strategy aims at long-term, large-scale holders, but tracking is much more of a hands-off process. If someone is selling, ‘We tend not to get in touch,’ says Kerr, ‘since it’s usually quite clear to us why, and if there is a lot of buying or selling the brokers tell us the market mood, but of course not the details. For example, when our stock price was up to A$28, there was some profit-taking, but when big investors sell, they tend to keep a large holding anyway.’
Tracking is an impossible task anyway for over half of her holders. CBA was set up as the ‘people’s bank’ and also functioned as the Australian equivalent of the Federal Reserve until 1959. The government targeted retail investors during the three tranches of privatization between 1991 and 1996, and sought to avoid heavy foreign investment. It was certainly successful in every way. From almost nothing, Australians now have one of the largest proportions of equity investors anywhere in the world. No less than 400,000 of them bought and still hold 60 percent of CBA’s stock. That number is about to be doubled when the bank merges with Colonial Bank this summer, with the added complication that Colonial also has 80,000 holders in the UK, 33,000 in New Zealand and a lot in Fiji.
They are still wrestling with some problems. Colonial traditionally paid its dividends to UK holders in sterling so Commonwealth Bank has to decide whether to continue doing so. At present, reflecting Canberra’s concerns at the time of privatization, Kerr reports that the bank’s 10-12 percent overseas holdings are lower than most of its competitors.
Commonwealth Bank has an unlisted, almost entirely unused American Depositary Receipt program in the US, but most overseas holdings are direct through the Sydney exchange.
Teaching aids
It might be thought that such a large retail holding could swamp an IR department, but it appears that Aussie holders break the rules in the opposite direction to the national stereotype – they are no trouble at all. ‘We get about one call a month, and that’s likely to be an MBA student wanting material for a thesis,’ Kerr reports. ‘I understand it’s different in the US.’ Of course it also helps that CBA’s stock price has risen steadily since privatization.
When Kerr took over two years ago, the high proportion of long-term retail holders had her worried about insufficient liquidity. Today, however, and although some brokers still occasionally fret, ‘When I speak to the institutions and major brokers, they see no problems. So we realized that there was no reason to worry about the high retail proportion. Our volume isn’t as much as other major banks, but we’re still up near 2 mn shares traded a day.’
The bank has a dividend reinvestment plan, which until recently garnered a 43 percent investment ratio, but when they put a cap on it, of 10,000 shares, it brought it down to 22 percent. Even so, it’s available to 98 percent of the shareholders since at current prices that cap amounts to over A$250,000. Originally, to encourage retail ownership, the Drip also offered a discount, but that was abandoned when it became plain that the individual holders needed no encouragement.
On the other hand, they are not taken for granted. The company has inaugurated a series of shareholders’ meetings in cities across Australia. Last year’s meeting
in Perth brought out 800 shareholders, and this year’s event in Brisbane should attract even more since there are fewer than 80,000 Colonial holders there, in addition to Commonwealth Bank’s own. Kerr describes the events as ‘being like the annual general meetings without resolutions,’ and they are designed to educate shareholders who don’t live in Sydney or Melbourne where the actual annual meetings are held in alternate years.
‘The questions tend to be more on strategy rather than opening hours and bank charges – because that’s how the presentation is angled,’ Kerr says, with satisfaction. For the 40 percent of institutional holders – about 200 of them – and the ten analysts that cover the stock, the department frequently arranges and attends one-on-ones, and is proactive in working with brokers to arrange roadshows abroad.
In general Kerr relies on the brokers to help arrange meetings with potential investors on roadshows, ‘since they know who is interested in buying banks, or in buying into Australia.’ In the US Commonwealth Bank used an IR firm which successfully targeted several investors on its behalf. ‘It’s very hard for IR people to identify who’s out there, so we need the help, but over the last few years we have learnt a lot more about potential shareholders and make sure that we meet them, as well as current holders, on roadshows.’
Accommodating analysts
Although reflecting recent trends by spending more time with the buy-siders, she reassures, ‘Of course we still spend a lot of time talking to analysts. They tend to want to come and talk to management,’ she says, but since one of the IR department’s tasks is to husband executive time efficiently, ‘We want to make sure that if they are seeing an executive committee member that they are senior analysts.’
One measure of how seriously CBA takes its IR is the size of the department. Kerr has three managers, Kath Baker, Peta Johnson, and Jennifer McOwan, and one assistant manager, Louise Chan, supporting her in the mission to explain the ways of the bank to investors. They are all available to handle calls, although if anything is too complicated, Kerr says, ‘either I’ll take a look at, or we’ll get answers from elsewhere.’ However, she does put the staff numbers in perspective. ‘Everything to do with shareholders comes through us,’ she comments. So they specialize in different tasks that in many companies are handled elsewhere, such as producing the annual report, and arranging the annual meeting and shareholder meetings. They also manage everything to do with the share registry, which, fortunately for staff time, is outsourced to ASX Perpetual.
They rotate the annual report and annual meeting responsibilities annually; other jobs, such as the web page, the budget, analysts presentations and speeches or liaising with the share registrar, are swapped every six months, which Kerr says ‘works well, because communications is such an important issue that each aspect of it is important.’
Kerr herself reports to Michael Ullmer, whose official title is group general manager, finance and risk management, although most people seem to find CFO an accurate and shorter description. In addition she is in frequent contact with managing director (aka CEO) David Murray, not least since she and her team write his speeches for him.
While Ullmer and the sector managers carry the main burden of meeting investors and analysts, Murray also has occasional meetings with analysts. ‘Before we let people meet him ad hoc but now we screen for the major shareholders and so at least once a year he probably meets with most of our major investors,’ Kerr comments. Some analysts have a slightly different interpretation, which suggests that they think the managing director and analysts have not always wallowed in harmony.
Keen communicator
Kerr moved into IR from the bank’s corporate finance division in the equity infrastructure area, after an earlier career with other banks and with BP – before deciding to move into IR. ‘I was keen to get involved in a communications role, I heard about the vacancy and applied,’ she says. The job has lived up to expectations. Not only does she work closely with corporate communications, like many in IR she relishes exposure to ‘the variety and the access to strategic thinking by senior management, so you can look at the broad sweep.’
Kerr developed her expertise on the job. ‘I learnt by seeing what other companies and countries were doing, relating to analyst and brokers, reading Niri publications, and of course reading Investor Relations magazine,’ she says. There is no Australian investor relations association as yet, despite regular informal gatherings, although steps are now being taken to create one. ‘There’s a general view that investor relations has started to move a lot in Australia – it’s becoming more and more important and the credibility issue for companies, whether the news is good and bad, is focusing attention on it.’
Certainly the Australian Securities and Investments Commission watches the US SEC very closely, especially when it comes to disclosure and investor information. CBA is involved because they are very eager to develop the internet as a means of ensuring retail access for information, on which ASIC chair Alan Cameron is as strong as Arthur Levitt.
Measures meant for retail investors also benefit professionals – several analysts remark on the plain English style of CBA’s presentations, and expressed appreciation for postings of texts and slides on the web even before the live presentations.
While disagreeing with some overly prescriptive aspects of recent ASIC suggestions, ‘We do agree with the thrust: equal access for shareholders,’ says Kerr. ‘The internet is increasingly the best vehicle for that. We’re looking at how many of our holders are online – but even if you are senior citizen without a PC of your own, you can still go to the public library and get access there.’
Currently, on Commonwealth Bank’s web site, investors can readily access their own shareholding information, and they are looking at the next stage, which would include proxy voting online. Kerr admits to some caution: ‘We don’t want to lead with the cutting edge technology unless we know it’s effective,’ she says. ‘And we have to make sure ASIC is happy as well.’
But keeping the shareholders happy is the main aim.
