It’s an explosion in German terms. The number of individual shareholders in Germany jumped 28 percent between 1997 and 1999, from 3.9 mn to 5 mn. Juergen Kurz from the German Association for the Protection of Shareholders expects a further half million Germans to join in this year. ‘There is great potential for further growth with the possibility of 10 mn private individual holders in the near future,’ Kurz predicts. If private investors participating in mutual funds are taken into account, this target would be well within reach. In the last two years, including mutual funds, the increase in private holders is even more pronounced with a 46 percent surge to 8.2 mn from 5.6 mn. This may not sound like a lot in a country of more than 80 mn people, except that Germans traditionally have been notoriously shy of shares, looking at them with deep suspicion as they sought the security of government bonds. As a result, a significant private shareholder culture is emerging only now in Germany.
The boom began in November 1996 with the privatization and stock exchange listing of Deutsche Telekom. A massive marketing campaign aimed at the general public enticed many Germans into putting a part of their savings into the former telecommunications monopolist.
At the same time, the creation of a new breed of small shareholders was encouraged by a number of laws aimed at promoting the German financial markets by giving more protection to shareholders. In addition, as globalization increased the investment needs of merger-hungry German companies, their interest in equity financing grew, encouraging a more welcome corporate climate for private investors. Financial disclosure also became more transparent with an increasing number of companies reporting according to International Accounting Standards or US Gaap.
Meanwhile, the German media jumped on the bandwagon with a flood of colorful, new publications competing for private investors by offering tips on how to make a sure profit. Long-established business publications such as Capital, Managermagazin and Wirtschaftswoche now line kiosks along with Bizz, Euro, Teleboerse and Boerse Online. The international media saw a chance that couldn’t be missed. The UK’s Financial Times now publishes a German-language edition with offices in Frankfurt, Berlin and Hamburg. And the Wall Street Journal Europe exchanges content with leading German business daily Handelsblatt.
Good timing
In responding to the needs of this growing army of private investors, the internet has arrived at the right time for the investor relations departments of German companies. Their web pages have become the major means of communicating with retail investors.
Clicking into the investor relations web site of SAP, the software producer, investors can’t help but feel welcome. Up pop the friendly questions: ‘Do you need more information about our company or SAP shares? Would you like to order an SAP annual report? What do you think of our internet page for investors? We welcome any ideas or criticism and feedback,’ questions and comments, SAP notes. SAP investor relations officer Stefan Gruber says feedback over the internet from smaller investors has been rising enormously, from five or seven e-mails a week two years ago to around 70 today. ‘Small investors want the same information as institutions. The internet is such an easy way for individual investors to reach the company,’ Gruber suggests.
Astrid Lurati, investor relations officer at chemical and life science concern Bayer, says that the company’s six-person IR team is not large enough to do the personal contact work with smaller investors that it does with institutions. So, she notes, ‘The internet is an important way of reaching private clients.’
At Deutsche Telekom, some 40 staff permanently take care of investor relations; and IR personnel are added during major events such as the company’s global offering of 200 mn new shares in June. This E13 bn offering was the world’s first case of a company targeting smaller investors in 18 countries, from the US to Europe to Japan. The offer was enormously complicated as Deutsche Telekom’s investor relations effort sought to satisfy widely-differing national regulations and to communicate in seven languages.
Deutsche Telekom spokesman Stephen Broszu says that a tradition of reaching smaller investors began when the telecoms giant went public, and the company has since made it clear that it wants a global shareholder base to complement its global reach. Today, Deutsche Telekom is Europe’s largest telecoms company and the third largest in the world. Binding the loyalty of smaller consumers worldwide through making them shareholders is also a way of getting them to use your services, analysts say. For Deutsche Telekom, the internet provides its major medium for reaching smaller investors. Click into the company’s site at telekom.de and if the corporate information provided on financial accounts and latest news doesn’t satisfy, there is a toll-free call center where investors can air their gripes. Investors are invited to join Forum T-Aktie, a club of Deutsche Telekom shareholders that now has 600,000 members. ‘The number of smaller investors using the internet site is growing rapidly,’ said Broszu. ‘The information need is there.’ Indeed over the last few months alone the Forum T-Aktie club membership has risen by some 100,000.
Clarity counts
The retail investor explosion has also led to a change in the makeup of financial reports. Eckhard von Muenchow from the IR team at technology giant Siemens says growth in smaller investors has resulted in Siemens producing an annual report with ‘more clarity and transparency.’ In addition, Siemens publishes a thick investor’s handbook that anyone can order free over the internet. Thomas Pfyl, who heads investment research at Bank Vontobel in Zurich, says the handbook is an invaluable tool for ‘everyman’, and puts Siemens in the category of German companies that are best attuned to investors’ information needs.
When DaimlerChrysler first traded its global shares in November 1998, the merged German-US automobile manufacturer had around 1.4 mn private shareholders, representing about 22 percent of its equity capital. Since then, the number of private holders has increased by 29 percent to 1.8 mn holding around 24 percent. The DaimlerChrysler IR team in Germany says many channels are used in caring for the increasing segment of private investors. These include seminars and lectures held at the company, at banks, trade fairs or shareholders’ association meetings. On the internet, contact is maintained through answering e-mails, providing continually updated financial and market-relevant information and direct transmission of press conferences.
Since the merger, the team says the IR strategy has changed in many ways that benefit both private and institutional investors. To satisfy the demands of US financial analysts and investors, the company now provides quarterly reports with information on sales, production, inventories, earnings-per-share and other data that goes way beyond what is required in Europe. Because of the different time zones, the release of information is timed so there is no disadvantage to either European or US analysts and investors. In addition, DaimlerChrysler’s German IR team works closely with IR colleagues at the company’s US headquarters in Auburn Hills, Michigan so that the group’s information is consistent, focused and clear. The team also says that since the merger roadshows and one-on-ones have become much more international to reflect the company’s global culture.
Change in approach
With an increasing number of German companies listing on the NYSE and acquiring or merging with US companies, the DaimlerChrysler model promises to become much more widespread in Germany. Juergen Strube, chief executive officer at chemical concern BASF, sounded the opening bell on June 7 at the NYSE, ushering in the first trading of BASF’s ADRs. Rolf Reinecke, IRO at BASF, says the listing meant a major change in approach to corporate communication. ‘German law is heavily oriented towards protection of creditors and the US system is oriented towards investor protection,’ Reinecke points out.
Thanks to globalization, there has been a sea change in Germany’s approach to shareholders, according to Andre Baladi, co-chairman of the International Corporate Governance Network, an organization representing $10 trillion in institutional investors’ funds. ‘In Germany, corporate governance is moving very rapidly,’ Baladi observes.
Be that as it may, representatives of the growing phalanx of smaller investors say one of their major concerns is that institutional investors often get a head start on market- moving information, despite the legal obligation to inform individual and institutional shareholders equally. Reinhild Keitel, board member at the Association for Protection of Small Shareholders, says IR teams must be careful to see that this does not happen. However, when it does occur, company executives increasingly are likely to get an earful from small investors at their annual general meetings. Whereas German shareholders’ meetings once were relatively passive, small investors have started speaking out.
And private-investor associations are gaining muscle in parallel with Germany’s increasing interest in equities. ‘We have existed for 40 years and we have never seen such a growth in members,’ says Keitel. Her association’s members have more than doubled to around 12,000 in the last five years. Unabated growth will continue, pushed by the increasing need for an ageing population able to care for itself with less reliance on the state, Keitel predicts.
The German Association for the Protection of Shareholders has seen a similar development in member volume, more than doubling its membership to 25,000 from some 12,000 around seven years ago. The association’s Kurz says that, although institutional investors continue to have an information advantage, the internet has at least narrowed the gap.
Young guns
On the other hand, says Kurz, there is also a problem of doling out irrelevant information. Under German regulations, companies are obliged to publish potentially market-moving news via an electronic ‘ad-hoc’ distribution so as to avoid insider trading. ‘There used to be four or five announcements a day, now there can be up to 100,’ says Kurz. ‘Companies are using ad hoc information to influence the share price.’
He charges many German companies with using investor relations as a marketing tool and with making some questionable forecasts. ‘Investor relations is a young field in Germany,’ suggests Kurz. And, he adds, German companies are more used to hiding information than giving it away.
Indeed, Germany’s Neuer Markt has caused many fledgling private investors to bite their nails as share prices roller-coasted this year in tune with technology stocks worldwide. Some 300 young, growth companies have listed on the Neuer Markt since its founding in March 1997. And after Neuer Markt stocks dived this July in the wake of pessimistic profit forecasts by analysts, companies were accused of acting too late in denying that they were in financial trouble. ‘Similar developments took place in the US two months before. Every company’s management should have known that this would come over here eventually, but few became pro-active,’ says Harald Petersen, spokesman at the Association for Protection of Small Shareholders. Petersen says young German companies have a long way to go to learn the ins and outs of investor relations.
Pressure is also coming from private investors for German companies to pay higher dividends, a proposal recently made by Ulrich Hocker, president of the German Association for the Protection of Shareholders. Illustrating the growing importance of private investors, Harold Hoerauf, who heads the stock exchange in Dusseldorf, has said he does not see the merger of the London and Frankfurt exchanges into the super exchange iX as a threat. Indeed Hoerauf promises that Dusseldorf will concentrate on winning private investors through new products.
