If you want to look at the transition from old economy to new, you couldn’t find a starker example than Mark Steinkrauss. Last year Steinkrauss left Fruit of the Loom, the underwear manufacturer, to handle communications for Chicago’s Telephone and Data Systems. An established telecoms holding company with 3.5 mn customers in 28 states, TDS is at the beating heart of the new economy. It’s not a dot-com, yet the Chicago-based company is still subject to the whims of a volatile market, a beneficiary of the explosive growth of wireless communications.
But to hear him tell it, the journey from cotton briefs to cell phones was relatively simple. ‘I was at Fruit of the Loom for five years,’ said Steinkrauss. ‘You bring all your finance skills, your basic accounting; a P&L is a P&L,’ he says of a profit and loss statement. ‘If I were to go from a Colgate to a Toys R Us to a TDS, it’s all pretty similar.’
IR professionals who have made the leap say their skills are remarkably portable, whether their industry is in broadcloth or broadband. Investor relations requires a few bedrock skills that can be learned on the job, and can travel easily to the next. A financial background and familiarity with balance sheets and market jargon is vital. So is the ability to plan and carry out a communications strategy.
‘Are you a good communicator? A bit of an extrovert?’ asks Steinkrauss, who is clearly both. ‘By the end of the day, my throat hurts and I’m tired of hearing my own voice. You have to have no ego, a thick skin. My job is to help all those sell-side analysts to understand what the company is doing; to make the big buy-side institutional investors feel comfortable with the company. If I can create more demand for the stock, then I’ll raise the valuation of the company, and the higher the valuation the cheaper it is for the company to finance itself.’
Simple. Logical. Traditional. If your company is 30 years old, that is. ‘TDS is very established,’ acknowledges Steinkrauss. ‘We have a positive cash flow. We sell real things to real people and make real money. We’re not a dot-com.’
Ah, the brave new world of the new economy. Perhaps the power of a seasoned investor relations officer is best illustrated at these start-up companies, the ones whose stocks fluctuate with the market’s ebbs and flows; the high-risk, high-return stocks that are sucked up and spat out by day-traders; the kind of deeply speculative newly-public companies that need to keep the cash infusions up or risk flaming out before the big pay-off.
How do you convince institutional investors to sit tight and ride out that kind of fluctuation? How do you maintain a bank-worthy image for your CEO, a goateed 28-year-old techie in sneakers? How do you convince more traditional lenders and investors that even though there is a basketball hoop in the hallway and employees show up with their children and pets, this new economy is just a more tolerant, worker-friendly version of the old economy they’re used to?
This, say experts, is where the investor relations rubber meets the road. And a little gray hair can buy your company a bit of gravitas in a world where speed is regularly redefined and expectations can pop like champagne cork – or a balloon.
‘It hasn’t hurt to look like the founder’s father,’ says one investor relations consultant with clients in Manhattan’s Silicon Alley. ‘It’s psychological, but I’m effective with the investors and the media. I provide a stabilizing presence, and I speak their language.’ The new economy – whether it’s high-tech, biotech or a cheeky dot-concept – requires Olympic stamina and nerves of steel.
Nerves of steel
Kerk Hilton spent some three years as manager of corporate communications and investor relations for Prudential Steel, a Canadian TSE-300 company and a paragon of the old economy. Nonetheless, he admits to being spooked from time to time by the volatility within his new job, managing investor relations for Jaws Technology, an information security company that went public in April. ‘Every day is a rollercoaster,’ he admits. ‘Technology investor relations is not for the faint hearted and, you know, there are days when I just don’t think I’m cut out for this.’
When Hilton started at Toronto-based Jaws in October, the over-the-counter share price was $1.44. It reached a high of $15 and now has settled in at $5. Nothing in his education or at Prudential prepared him for these kinds of fluctuations.
‘The transition from old to new was difficult,’ he confesses. The oil industry and others like it, he says, have some degree of cyclicality, but they are largely based on a number of predictable factors. That is not the case with some of the more risky industries or companies, whose stocks can spike on a rumor.
All of which puts more pressure on IROs to watch what they say. For example, 75 percent of Prudential stock is held by institutional investors – generally patient and knowledgeable shareholders who have the luxury of getting to know an industry, a company and its management team. Institutional investors might hold a traditional stock for an average of seven months, Hilton said, while many high-tech speculators keep a stock for three to four days. Individual investors hold nearly three-quarters of Jaws’ outstanding shares, and they are looking for an edge.
‘These investors are looking for any gleaning of insight into the industry,’ Hilton declares. ‘It’s becoming mercurial; people are hanging on every breath and every word, because investors are scared. It’s hand-holding time.’
Steinkrauss says that much of the IR portfolio is almost intuitive, and there’s no substitute for experience. ‘You want to put information out there, but no company wants to run afoul of the SEC. It’s a challenge, because there is a lot that isn’t covered in black and white in the SEC rule book. So many disclosure issues you learn by watching what other companies around you do wrong or do right.’
For example, he says, mergers can be disclosure minefields. There is no definition for when a deal is legally in motion, nor when a black-out order should be imposed on executives to stop them from trading – or talking – in compliance with Securities and Exchange Commission rules. There is no universal definition of material information.
‘The SEC doesn’t define it, but they know when you’ve done it wrong,’ Steinkrauss sighs.
He has been around the block, having started in communications and investor relations with a forerunner of the new economy, the once-mighty Digital Equipment Corp. In his 14 years with the company, Steinkrauss saw the computer giant soar from $1 bn in sales to more than $10 bn. It didn’t last. After years of budget tightening and lay-offs, the company was finally devoured by rival Compaq.
New valuations
Many say that a shifting landscape serves to underscore the investor relations officer’s importance. It also creates a near bullet-proof demand for seasoned professionals. ‘There are so many jobs out there,’ marvels Steinkrauss, who claims to have fielded three calls from headhunters earlier that day. ‘People are retiring, the stock market is good, everyone is making money.’
Sometimes, that money is a puzzle. Traditional businesses in the old economy are relatively easy to value, using PE ratios, sales and inventory figures, and similar widely accepted methods. But that often doesn’t work in the new economy, where the shares of the likes of Amazon.com keep splitting even though the retailer has yet to turn a profit. ‘This is a bit more ephemeral,’ Hilton explains. He muses on the difference in valuations between old and new, and acknowledges that valuation of new line companies is difficult to rationalize.
‘If Jaws is to be measured on a PE basis, that’s not a good thing for the shareholders or the venture capitalists or the entrepreneurs who have started the company.’ He suggests alternative measurements such as price-to-sales, strategic position in the market, or the size of work force and customer base. ‘When I left Prudential it was a $15 stock. But if you were to value it on the metrics that Jaws is, it would be a $400 stock!’
By skillfully communicating with investors and market-makers, a good investor relations officer can actually make money for his new economy company. Imagine that. ‘Valuation is critical for stock growth,’ Steinkrauss maintains. ‘To grow, you need to have the highest possible valuation on your stock, and it’s worth $300,000 or $400,000 to pay someone to get that for you.’
