What makes individual investors rally behind a corporate charity? Why would a public company mine electronic data in search of ‘shareholder intelligence’? And what’s driving the spill of corporate marketing techniques into the inner sanctum of the IR web page?
The causes are worthy, the sponsorships sincere – and the data collection is legal. Shareholder loyalty is the common denominator. Building and retaining it has become both an art and a necessity. In today’s bear market, as institutions bail out of yesterday’s equity du jour, public companies beat the bushes for faithful followers to stabilize their stock. Fiercely they compete for the individual investor’s dollar. And the companies that succeed in nurturing their individual investors typically benefit from a loyal and stable following in weather both fair and foul.
‘The biggest thing that creates value in terms of building a shareholder base is communications,’ admits Marcus New, CEO of Vancouver-based Stockgroup. Investors want to hear about and ‘be a part of their company’s success,’ New reports. His firm helps companies to ‘use technology to effectively communicate with large numbers of people and make them feel they have a close relationship with the company.’
Ask and ye shall receive
In 1997 a predecessor company of Paris-based Suez asked shareholders for advice on its communications strategy. Today, Suez’s shareholder advisory committee convenes four times a year to provide advice on communications. ‘The committee comprises 15 shareholders chosen according to geographic and professional criteria,’ says Rita Rio, individual shareholder relations manager at Suez. It organizes work sessions on specific subjects such as the annual report, presentation of the company’s financial results, the annual shareholders’ meeting and the Suez web site. ‘Their views are important to us,’ continues Rio. ‘They have shareholder sensitivity. Everybody knows that the best communication is the one that corresponds to the expectations of the target.’
Through its Shareholders Club (a pioneering concept when founded in 1998) Suez aims to establish an open and ongoing dialogue with its individual investors, many of whom may be customers of the company’s water, power, waste management or communications subsidiaries.
Today, the club has grown to include 33,000 members out of a total of 460,000 individual investors. ‘Shareholders place their confidence in a company by investing in it and owning a stake,’ Rio says. ‘As stakeholders they have a legitimate right to receive information directly from the company. But we owe shareholders more than information – we owe them our presence. We want to talk with them.’
So in addition to newsletters, e-communications, and two web sites (one in French, the other in English), Suez sponsors programs enabling club members to participate in ‘regular conversations’ with management. Last year, Suez officials met with about 4,000 shareholders, hosting six conferences in French towns. ‘We organize conferences on topics of particular interest, such as water resources and energy, which concern our businesses,’ Rio says. Company-run plant tours give shareholders a first-hand look at business operations and provide more opportunities for interaction.
The Shareholders Club also builds loyalty by educating investors. ‘We offer one-day training courses about the Paris bourse or the internet,’ reports Rio, who pays close attention to attendees’ comments. ‘We changed the content of one course in response to shareholder requests for instruction about warrants.’
Fairground attraction
Getting direct feedback from individual investors also keeps Shawn Roberts in touch with what’s on investors’ minds. As director of investor relations for Aflac, Roberts spends about 15 weekends a year talking about his company and getting input from shareholders and prospects at investor fairs around the US. ‘We hear from lots of people and I personally respond to every e-mail about our stock,’ says Roberts.
He must be doing something right, since individual investors hold about 45 percent of the company’s outstanding equity and Aflac is one of the most popular stocks in terms of shares held by investment clubs associated with the National Association of Investors Corporation (NAIC).
‘We’ve been shooting for a large number of individual investors to give some balance to our stock,’ Roberts says. ‘It’s not too often that big numbers of retail investors jump out of the stock and into something else.’
The company’s online dividend reinvestment program (which is approaching 60,000 participants and under which all fees are waived for stock purchases) along with its new web-based capability, Aflinc, provide compelling reasons for shareholders to cling to their Aflac shares. Through Aflinc, investors can track their accounts online, view details about their last direct stock purchase trade, and sign up to receive information electronically.
Retail philosophy
Retailers work hard to keep their shareholders happy, too. For example, Home Depot’s shareholders can purchase stock online through the company’s paper-based program or link into the electronic capabilities of an outside service. This mirrors the company’s consumer retail philosophy. Reports James Grant, Home Depot’s manager of investor relations, ‘We look to do business on the customers’ terms – however they want to do it. If they want to walk into our store, call in an order or use our catalogue, it doesn’t matter. We take the same approach when it comes to investing.’
‘Some people feel more comfortable with a full service broker,’ and are willing to ‘pay that extra dollar to get that extra hand-holding,’ continues Grant. However, other people ‘really embrace the internet and would rather invest online.’ Grant says he doesn’t really care which way investors pursue stock ownership, he just wants them to be comfortable doing so.
To maximize investors’ comfort with the stock, Home Depot employs low-key affinity marketing programs to inform shareholders of web site features they may find convenient. Investors can sign up for e-mail updates, or to receive an annual report, proxy statement or proxy card directly on the internet. ‘We know that some investors are very likely customers as well,’ adds Grant. So if they elect to receive company updates, he’ll send them a brief message that might be of interest from a customer’s perspective.
Intimate approach
Intimate Brands takes a direct merchandising approach for its online investment program. The home page sports a sleek model (clad in Victoria’s Secret lingerie) with a call out for IBInvest Direct that links would-be investors to the IR area for program details. The investment program lets investors open an account, make ongoing purchases, reinvest dividends, establish an IRA (a tax-exempt investment account) or give a gift of shares. Since the company’s spin-off from The Limited, ‘One of our challenges has been getting the general investing public to link the names Bath & Body Works and Victoria’s Secret with Intimate Brands,’ says Debbie Mitchell, Intimate’s vice president of communications and investor relations.
Putting IBInvest Direct on the home page helps address that need and calls attention to the program as well, explains Mitchell. ‘For a consumer-based company like ours there is such a direct link between people who are loyal shareholders and people who are loyal customers.’
That link is the basis of one investment strategy of an online brokerage service, BuyandHold.com. ‘We call it Buy what you buy,’ says Michael Macleod, president of BuyandHold. ‘What car do you drive? What computer do you use? What clothes do you wear? Those are potentially great things for beginners to look at if they are getting started and hold for the long term.’
An advocate of long-term investing and portfolio diversification, BuyandHold uses the popular shopping cart model found on consumer sites to help customers shop for stocks. According to Macleod a number of public companies link to the site from their IR web sites, thereby attracting retail investors who can reinvest their dividends for free – all without having to pay typical annual service fees to keep registered shareholders on their books. There’s also a parallel program companies can make available to their employees.
Prime target
Employees are a prime target for companies striving to cultivate loyal, long-term investors along with encouraging superior work. Many companies encourage employee stock ownership through stock purchase programs with such features as payroll deductions, discounts and/or waiving brokerage commissions and fees.
Intimate Brands ‘definitely encourages associates to have an equity interest and be partners in the company,’ says Mitchell. ‘Associates can have as little as a dollar a week deducted from their paycheck and have it invested in the stock.’
The convenience works. Full-time associates (at Intimate Brands and at its sister company, The Limited) account for approximately 75 percent of the shareholder base at Intimate Brands.
‘We all share a common interest…which is to create value,’ continues Mitchell. ‘Stock ownership is part of the overall motivation. It’s not only about working for your salary or your cash comp,’ she says, but also understanding how your efforts can contribute to creating long-term value in your stock price.
At Wendy’s, employee stock ownership ‘has become a powerful compensation program,’ reports John Barker, vice president of investor relations and financial communications. ‘All full-time employees from floor manager up receive 10 percent of their total salary in stock ownership.’ Barker notes that about 44,000 employees currently have an equity interest in the company.
Suez, too, has launched a discount stock purchase program designed to involve even more of its employees in the growth of the group. Last year’s launch campaign spanned 1,100 subsidiaries in 25 countries and required communications in 15 languages. ‘We adapted the offer to meet the local regulations of each country. Then we mobilized a team of some 2,000 employees around the world to help educate their colleagues about the program and supplement our intranet and other communications,’ says Rio. Efforts paid off. ‘By year-end, 64,000 employees had signed up, investing a total of E456 mn,’ reports Rio. ‘Total employee shareholdings grew to 3 percent of equity capital, from 1.2 percent the prior year.’
Share miles
As employees and other individual investors enter the equity markets, databases bulge. One company is charting new directions through shareholder data analysis. Using data mining technology and expertise gleaned from gathering customer intelligence for segment marketing campaigns, pepper technologies [sic] in Munich is piloting a shareholder loyalty program.
‘We launched the program in 2000 to help our client, a publicly-traded venture capital company, recruit and retain shareholders and reduce the cost of capital,’ explains Jan Schemuth, director of shareholder intelligence at pepper technologies.
‘Shareholders benefit too,’ he continues. ‘They receive information targeted to their needs plus bonus points which they can redeem for special investment-oriented rewards. Our bonus points – share miles – are similar in concept to frequent flier programs popular at many airlines.’
Here’s how the program works at Knorr Capital, a small-cap venture capital company whose shareholder loyalty program is called Shares and More. ‘We invite both investors and interested prospects to register, complete a profile and a questionnaire, and grant the company the right to track and analyze their activities,’ reports Schemuth. ‘Electronic technology captures each transaction and rewards the participant with bonus points. Points may be redeemed for attractive prizes such as an investment magazine, a newsletter, a power brunch with the CEO or an invitation to a meeting held for professional investors.’
According to Schemuth, the value and number of points acquired – and the degree to which the awards are personalized – directly correlate to the number of shares the investor holds. Activity starts at the members level, proceeds to the lions level and culminates with the elephants, who own the heftiest stakes. Participants purchasing more shares earn more points redeemable for more valuable rewards.
Only a few individuals with significant holdings might earn the prestige of a personal telephone call from the CEO. The top reward is the chance to participate in a pre-IPO program, a fund exclusively open to shareholders. According to Schemuth, ‘The first such offer just raised DM10 mn (E5 mn) for the company,’
Program members now number 10,000. It’s still a little early for meaningful quantitative results. However many participants have informally reported to Schemuth that were it not for the program and the benefits it provides, they would have sold their shares in the current bear market.
