It was a dark and stormy night. Rain lashed the Intrepid’s flight deck and wind rocked waves against its anchorage. Sheltered from the tempest, IR socialites gathered below decks to compare war stories, listen to live jazz, and wander among the relics of battles past. On March 29 the Intrepid Sea Air & Space Museum hosted over 850 IR professionals at the sixth Investor Relations Magazine US Awards.
After a year that saw both the christening of Regulation Fair Disclosure and the sinking of the bull market, IR professionals were ready to pay tribute to those who stood out in choppy waters. The room was hushed as one of the great captains of the western business world appeared on the larger-than-life video screen to send his message of thanks. Jack Welch, CEO of General Electric and winner of the first ever award for best investor relations by a CEO, gave his heartfelt thanks. Welch’s virtual appearance was one of the highlights of this year’s US Awards, and was indicative of the growing symbiosis between senior management and IROs.
GE’s IR team emerged as an unscathed and prized battalion, taking three more awards – the Grand Prix for best overall IR, best IRO and best communications with the retail market. As one survey respondent said of GE’s IR, ‘They are very sensitive about their stock price and they work to help analysts and investors better understand the key drivers.’ Mark Vachon and Joanna Morris of GE were both presented with Irmas (the new nickname for the Investor Relations Magazine Awards) for best IRO in the mega-cap category. ‘It’s really just us two in the department, so I understand why we were both nominated,’ notes Morris.
As with successful navy fleets, strong IR is built on reputation. ‘Credibility, knowledge, and being able to deliver’ are the keys to a successful IR program, says Morris. ‘We are really glad to be back in the game with our award for best communications with the retail community,’ she adds. GE won the award two years in a row in 1998 and 1999 but missed the top rank last year. Morris says she and Mark Vachon do a lot of outreach to the retail community. ‘We travel to over 200 cities a year, doing a broker lunch in each place with 30-50 brokers who sometimes invite clients,’ she says. ‘Since it’s such a fragmented market and difficult to reach, we like to participate in NAIC meetings as well, where there are 500-1,000 people.’
Swimming upstream
When Mark Aaron first joined Tiffany & Company to head the IR department in 1987, the company was a small fish entering a big pond. ‘When we went public that year, we were a much smaller company and a lot of people on Wall Street were impressed by how seriously we took our status as public company,’ says Aaron, winner of best IRO in the mid-cap category. ‘We were, and remain, very committed to communicating meaningful information and keeping everybody fully aware of where Tiffany is going.’
Analysts and portfolio managers acknowledged that commitment this year, awarding it the Grand Prix in the mid-cap category as well as best IRO and best annual report. ‘Obviously, there are a lot of analysts and investors out there who appreciate credible communication, which has always been my approach to IR,’ says Aaron, who prides himself on open disclosure. ‘Even before Regulation FD, if there was a problem, we would talk about it. We don’t hide.’
Staying on course with the investment community is much easier when top management is on board. Aaron attributes much of his success to the continued support and commitment of Tiffany’s CEO and CFO. ‘They allow me to be very proactive in building and maintaining solid relationships with the sell side and the buy side as well as traveling to meet with investors and speaking at conferences,’ he says.
Routine exercises
Routine IR is often more complicated for crew members of small-cap vessels. ‘Getting known within the investment community is definitely more challenging for small caps,’ says Debra Peterson, IR program manager at Plantronics, the communications headset maker that sailed off with two trophies in the small-cap category at this year’s celebration: the Grand Prix and the award for best disclosure policy. ‘A company like ours is in a very small niche market and, therefore, does not have a lot of peers,’ says Peterson. ‘Analysts might have a hard time finding a comparable company to measure us by, so it’s really a challenge to get on their radar screens.’
However, get on their radar screens is exactly what Peterson did. As one survey respondent said, ‘Debbie has a complete understanding of her business and the competition. The company itself believes in full access to corporate executives and is willing to keep investors informed.’ Peterson agrees that despite the challenges, Plantronics has been relatively successful in garnering analyst attention. ‘The company has been performing well, so once you set up an initial meeting or phone call with an analyst, they usually see why it’s an interesting story,’ she says. ‘Plantronics has been in business for 40 years and has a very strong balance sheet, consistent earnings growth and some new and exciting opportunities as well.’
By far, the most significant change to the practice of investor relations in the last year was the implementation of the SEC’s Regulation FD. Many IROs have spent considerable time educating both senior management and employees on what the regulation means for corporate communications. This year’s winners for best disclosure policy in the small and mid-cap categories made significant changes to their companies’ disclosure policies following Reg FD.
Plantronics’ Peterson says that once it became clear that Reg FD would be officially implemented, her IR department worked hard on the company’s disclosure policy. ‘We did a lot of studies, attended a lot of meetings and seminars and then worked very closely with our legal teams,’ she announces. According to Peterson, the intention was to work within the confines of the new regulation while still providing as much information to the investment community as possible. ‘One thing that has changed is that we are giving our own guidance now when we issue our quarterly results; this is something we didn’t do before. Rather than clamming up we’re actually giving out more information.’
‘We definitely made changes to our disclosure policy to comply with Reg FD,’ says Jenny Lee, the IR contact at eBay, winner of best corporate disclosure policy in the mid-cap category. ‘We started putting presentations on our IR web site.
For example, we recently posted a presentation we did at a Goldman Sachs internet and new media conference so that the folks who did not attend could still find out what was said.’ Lee says another post-FD initiative was to start issuing earnings guidance via press release. The company also nominated spokespeople from both PR and IR as well as the CFO and the vice president of finance, all of whom are identified in eBay’s written disclosure policy.
Despite these changes, Lee says adjusting to FD was fairly seamless. ‘At eBay, we have always had a very open disclosure policy. We’ve used the internet extensively to broadcast our conference calls even before FD, and have invited press to listen in on our earnings calls as well as be present at our analyst days,’ she says. ‘So for us the change was less drastic.’
Distress calls
The market downturn in the second half of 2000 translated into Mayday calls for some companies, whose IROs set out on missions to rescue stocks. The winner of best IRO in the small-cap category, Debra Wasser of Veeco Instruments, headed just such a mission. ‘The market was crazy so communicating our company’s story through what was a great and then a very bad market was challenging,’ admits Wasser. ‘Also, we had a rough year because we made two acquisitions – one which was excellent and one which was dilutive. So, we had two quarters where we missed Street expectations.’
Wasser and her senior management team battled lower earnings with a strong communication plan that ended up raising the company’s profile in the Street’s eyes. ‘We preannounced as soon as we knew things were going to be bad; we did last minute conference calls both times and media interviews,’ says Wasser, who believes this informative approach was the best way to communicate during a difficult time. ‘At the end of the day, if you were to ask me why I think people thought we did a good job at communicating, I would say it’s because we were strong communicators in good times and in bad.’
Veeco’s crew not only survived the perils of last year’s market but managed to soar. ‘We made up for our poor financial results by doing everything we said we were going to do to fix the business and by actually exceeding expectations in the fourth quarter.’ In the process, Wasser, vice president of IR at this $1 bn market cap company, has become an expert in multitasking – juggling IR, corporate communications and marketing. ‘We have a lot of outside resources that are key support staff for someone like myself: web designers, a web hosting firm, a stockwatch firm and a proxy solicitor. My position entails a lot of responsibility but it’s also challenging and fun.’
Critical missions
‘Our focus on the financial media has been a critical mission through our corporate communications team to address the needs of the financial community,’ says Yahoo’s Andrea Klipfel. Yahoo was awarded two medals of honor this year for best financial media relations and best communication with the retail community in the large-cap category. Klipfel says that during 2000 her investor relations team ‘worked very hard on retail communications through the NAIC and the launch of a direct stock purchase plan.’ At the time Yahoo launched these initiatives, the stock was trading around $170, which meant retail investors ‘appreciated the opportunity to be able to buy stock in the company at levels that best fit their budget,’ she notes.
Klipfel says Yahoo places high value on its individual shareholders and works hard to ensure a high quality of products and services to meet their needs. Throughout 2000, she and her IR colleagues participated in one NAIC national congress as well as several other smaller chapter meetings. ‘We got great feedback at those events,’ she says.
Yahoo’s IR department also went to work on the company’s web site, tailoring it to the needs of retail investors. ‘We are a staff of four with one IR coordinator specifically focused on retail investors,’ explains Klipfel. ‘We use the web site as a tool to communicate with the retail audience, to promote events, post webcast information, make new announcements, give the business outlook and provide a list of analysts who cover the stock.’
Tour of duty
The winner of this year’s lifetime achievement award has been on active duty in the IR field for over 25 years. Having started out as an analyst, Debbie Kelly entered the world of investor relations at Lowes Companies before moving on to a distinguished career at the Quaker Oats Company. At Quaker she ended up heading new business development for Gatorade before becoming an IR consultant with Genesis Inc in Colorado. ‘There have been a lot of changes in the field of investor relations since I started as an analyst,’ says Kelly. ‘There was no such thing as forward guidance then, so you sort of had to stick your head out as an analyst. Sometimes, you really had to pull information out of companies who were generally reluctant to talk about the future.’ When Kelly reflects on the current environment, she can’t help but notice the ‘enormous sea change in terms of companies giving guidance and being somewhat protected by safe harbor language and Regulation FD.’
Throughout her various postings, Kelly has been at the center of that sea change as an active member of two milestone disclosure committees. ‘When the first safe harbor statement for forward-looking information was out for comment in the 1970s, I happened to go to an analyst meeting in North Carolina,’ she recalls. ‘Actually, I drove a considerable distance to Chapel Hill, which was 85 miles from where I was, to listen to Sandy Burton – then chief accountant of the SEC – talk about this proposal.’ As Kelly tells it, she felt like a bit of an outsider at this meeting and was too shy to ask questions at first. However, once she realized none of the attendees was going to raise any questions, she let loose. ‘Following that meeting, Sandy sent me a note.’
Around the same time period, Kelly happened upon an article in the Journal of Accountancy which featured a research study showing that analysts were usually more accurate at predicting earnings than companies because of their broader world view. ‘That was very interesting to me in the context of safe harbor; it shows that when a company gives guidance it’s merely a tool.’
Kelly was subsequently recommended by Burton to serve on the SEC advisory committee on disclosure that resulted in the original safe harbor. ‘There were quite a few luminaries on that committee,’ she notes. ‘It was chaired by Al Summer, who was a former SEC commissioner, and included Warren Buffet.’ Following her work on safe harbor, Kelly continued to play a role on the blue-ribbon advisory committee on corporate disclosure and most recently in the SEC’s design and development of Regulation FD.
As this year’s crop of winners emerged from the awards ceremony into the blustery night, they were facing an equally stormy market. Indeed the only thing certain in the year ahead is the importance of their role – and the need for them to be able to steer a straight course through choppy waters.
Target: IR
Winners of this year’s awards were determined by an independent study conducted by Erdos & Morgan. The study reflects the views of 1,675 sell-side analysts, buy-side analysts and portfolio managers identified by Thomson Financial/Carson and a further 233 retail investors who are subscribers to Barron’s Online. This total of 1,908 respondents is the most ever in our network of surveys now covering the US, Canada, the UK, the Eurozone, Latin America, Australia and Asia.
As well as quizzing investors and analysts about companies’ IR prowess in various categories, Erdos & Morgan also surveyed their general views on IR. This year, responses were dominated by Reg FD, with opinions ranging from love to hate. Their opinions, along with verbatim comments about all the shortlisted companies and many more, make for fascinating reading. The full US Research Report 2001 can be purchased for $295 ($350 for non-subscribers to Investor Relations magazine) from Gabriel Barbaro at +1 800 757 4371 or e-mail [email protected].
