For some companies, the dawn of the retail investor was reminiscent of a 1950s B-movie plot. Think: Night of the Living Dead. It starts off with one or two corpses coming to life and ends with an army of zombies attacking two protagonists who have barricaded themselves in the local shopping mall. In the last five years, the retail investor phenomenon has taken on a life of its own, moving from a small number of ambitious individuals dipping their toes into the equities pool to a substantial chunk of the population diving in. Okay, the IR world isn’t exactly the demented world of voracious zombies, but it has been infused with an army of individual investors who arrived drove-like, with arms outstretched, eyes glazed.
So how are public companies handling this young investor population? We spoke to some denizens of the international IR community to find out.
Case study 1: Microsoft and broad disclosure
As one of the first companies to set up an investor relations web site, Seattle-based Microsoft is a pioneer of retail communications. For the last five years, the company has addressed the concerns of individual investors as part of its overall IR strategy, says Carla Lewis, Microsoft’s director of investor relations. In a nine-person investor relations team, two IR professionals are dedicated to the needs of the retail community. Dennie Muscarella is in charge of the retail investor program and Peg McNicol is the program manager of online shareholder communications. Microsoft’s IR web site and an investor hotline, which received over 10,000 calls last year, facilitate the lion’s share of communications.
Over the last 12 months, retail ownership of Microsoft shares has increased significantly from 28 percent to 35 percent, says Lewis. ‘We are always pushing the envelope to reach a broader audience and make more information broadly available.’ In 1996, Microsoft started webcasting its earnings release presentations in order to provide retail investors with more details about the company’s story. Lewis thinks this may have helped attract new individual investors. ‘Good news travels fast and pretty soon thousands of retail investors were logging in to hear our earnings webcast,’ she says. ‘We think webcasts provide a level of detail that sophisticated investors want and gives them additional confidence in the Microsoft story.’
Microsoft recently conducted a survey with individual investors to find out if they would like to be able to ask questions during earning calls. ‘Respondents said No, because they can listen to the questions posed by Wall Street analysts who are following the company closely,’ reports Lewis.
The web has clearly revolutionized the capacity of IROs to interface with the retail community. Lewis thinks it’s a tremendous advantage to have a real-time personal dialogue with investors even if it means hearing their beefs. ‘It’s heartwarming to receive a congratulatory note from an individual investor,’ notes Lewis. ‘Investors don’t hold back in sharing their views about things that frustrate them about the company.’
Another key information channel for the retail audience is the mass media. Over the last two years, almost every newspaper and business publication has written about the US government’s antitrust lawsuit against Microsoft. As a result of this courtroom battle, Microsoft has received thousands of interview requests from the media. Since Lewis cannot participate in every one, she looks for newspapers and magazines with a retail investor readership. ‘We certainly take the opportunity to have our CFO interviewed by the local newspapers here in Seattle,’ she admits. Lewis and her public relations colleagues also chose to have Microsoft executives participate in a chat hosted by Motley Fool, a venue that attracts a large retail investor audience.
Case 2: Volvo gets local
Think of Volvo and most people think of safe cars and Sweden. Interesting then that the transport engineering and manufacturing group ascribes much of its popularity with retail investors to its uniquely high profile in Sweden. ‘Volvo has a good reputation and is a very big name in Sweden. With our heritage in this country, it’s our obligation to serve our private investors,’ explains Fredrik Brunell, head of investor relations.
Indeed, this commitment to retail shareholders means the company is more than happy to get local in its financial communications. ‘We do a lot of IR activity with the Swedish association of shareholders. We do six or seven presentations a year to private investors around the country,’ Brunell adds. And where do these presentations take place? Not for Volvo the faceless business hotels and giant conference venues. ‘We go to local schools, halls and the like.’
This dedication to meeting private investors in their own backyard also presents a ‘wonderful opportunity’ to meet the company’s shareholders, Brunell says.
‘We spend a lot of time getting calls from large brokers and banks, so it’s nice to get a private investor’s view.’
But these investors are clearly no mugs. Given the high profile of the company, Brunell reports that many retail shareholders are well educated on the key issues and are prepared to pose some tough questions in the meetings. ‘There is a huge interest in stocks and shares in Sweden. The man on the street has a high level of understanding. We can get some tricky questions.’
While investor meetings provide the necessary face-to-face contact, Volvo’s IR department is making heavy use of the internet to reach more private shareholders. The company already webcasts results presentations, and makes all information available for all investors. Volvo is also currently re-designing its IR web pages in preparation for a fall launch – all part of the company’s attempts to reach more private investors. ‘In the new site we will have a section where private shareholders can go for information that is better targeted for them, such as tax issues, et cetera,’ Brunell reveals.
Retail challenge
While IROs have figured out how to streamline their communications with the individual investor population through investor web sites and 1-800 phone lines, measuring the success of retail IR is part science, part art. With most retail investors registered under Street name (that of their brokerage, for instance), it’s very difficult for companies with enormous shareholder bases to develop an accurate profile of this community. However, many companies are using their web sites to track retail sentiment. ‘We measure the success of our program by the number of hits we have on our web site. We have the ability to measure which parts of our sites are most important to an investor and which are least important,’ says Lisa Magleby, investor relations analyst at Cisco Systems, which has 7.2 mn retail shareholders, accounting for around 30 percent of the company’s investor base. Magleby has run the company’s retail IR program for the past three years, with the help of Tiffany Grissom, an IR administrator, and the voice behind Cisco’s popular IR hotline.
‘Cisco’s market cap and size grew vertically in a very short period of time, so we didn’t even have a chance to target individual investors. They came with the territory,’ adds Blair Christie, manager of finance.
So, while the ultimate measure of successful retail investor relations is still being born, one thing remains clear in the minds of these formidable IR players: the more retail investors know about a company, the easier it is to communicate with them. As Magleby says, ‘The smarter they are the better the relationship will be.’
Case study 3: BCE and the Nortel spin-off
Maarika Paul, senior vice president of investor relations at BCE, handles a lot of IR inquiries. ‘Last year we had 3000 e-mails and close to 4000 phone calls on our investor hotline from retail investors,’ she reports. The company also had heavy traffic flow on its web site with about 150,000 hits a day, half of which went to the investor relations section. Canada’s telecommunications giant has set up its retail investor arm with two professionals dedicated to private shareholers within an IR department of ten people. Lyne Roy and Lisa Max man the phones and respond to the many e-mails sent by retail investors. Both report to John Ripplinger, BCE’s associate director of investor relations.
With a hefty 50 percent of its outstanding shares held in retail accounts, Paul says she is pleased with the balance of the company’s shareholder base. BCE also offers a share ownership plan to employees. Therefore, many of the company’s retail investors are either current employees or retirees of the telecom giant. ‘These shareholders follow what happens to BCE and are in close contact with us,’ notes Paul. Last year over 3000 people attended BCE’s annual general meeting, many of them former employees who still hold shares in the company.
BCE’s IR department targets individual investors by setting up visits with the top five or six brokerage firms that hold the most stock on behalf of retail shareholders. ‘It’s our annual retail roadshow,’ explains Paul, ‘We go across the country and meet with brokers to explain our strategy and allow them to ask questions.’ In terms of content, the retail roadshow presentation is similar to a regular roadshow. ‘It’s a little more tailored to the interest of the retail side; we might spend more time highlighting our returns and talking about the dividend pay-out than we would with institutional investors.’
BCE had to ramp up its communications with the retail community this year when the company announced plans to spin off most of its 77 bn shares in Nortel Networks. This meant BCE shareholders would inherit around 513 mn Nortel shares. Communicating the implications of the Nortel spin-off to retail investors involved several steps, notes Paul. On one level, ‘There was all the legal information that went out with our proxy circular and shareholders were invited to vote at a special meeting which was held in conjunction with the annual meeting.’ BCE further explained the transaction by sending out letters to all registered shareholders, and helped to educate them by posting a special section on the deal on its IR web site.
Also, the company used its intranet to send information to members of the employee share plan. Paul admits the most complicated part of the spin-off was explaining the transaction’s tax implications to individual investors: ‘They had to know how they were going to attribute things so we included some examples on a section of our web site explaining the Nortel transaction.’
Case study 4: Abbey National’s institutional shift
There can’t be too many listed companies that boast a shareholder base composed entirely of retail investors. But that was exactly the challenge that faced UK bank Abbey National twelve years ago, when it became one of the first in a long line of building societies to demutualize. ‘Now our retail shareholding is at 37 percent of total stock, around 2 mn shareholders,’ reports Andrew Holliday, deputy head of shareholder relations at the London-based bank. Though this may seem like a large figure, it’s chickenfeed compared to the 5-6 mn individual shareholders Abbey National had to cater for in the immediate aftermath of going public.
Along with a gradual shift toward institutional ownership, Holliday is also witnessing an increased sophistication on the part of Abbey’s retail investors. ‘The types of questions we’re getting are changing. There’s been a definite shift. Retail investor interest and shareholder activism have both stepped up. Early on we had to deal with a lot of basic questions from individual investors. Now that’s gone, and people are looking more and more for year-on-year and month-on-month financial data,’ he adds.
Though its shareholder register may have shrunk in recent years, communicating with all investors effectively is still an expensive job, Holliday acknowledges. ‘We try to put as much as possible into our statutory mailings. We also regularly refer investors to our online materials,’ he says. Indeed, the bank’s IR web site is one of the most impressive around, featuring a wealth of key data, statutory information and news updates. It also gives details of the Abbey National Shareholder Rewards scheme, a plan which features special offers and perks to retail investors. ‘We’ve been doing it since 1998. Shareholders are often good customers, and it’s also a thank you to our investors, a reward,’ Holliday adds.
But with a growing number of institutional investors mixing with a hefty retail investor base, is it not difficult to pitch IR communications to the different audiences that feature differing levels of sophistication? ‘We have three levels of investors – Naîve, Interested and Expert, who are the institutions,’ explains Holliday. ‘We try to make sure we always use plain English, and the most obvious vehicle for our retail communications is the annual review, which contains a lot of information, but is a lighter read.’
It’s a similar story with Shareholder News, a regular IR newsletter targeted at retail investors. ‘It’s a magazine-style publication, written in journaliste,’ Holliday adds.
Sector watch
Where are retail investors putting there money in 2001?
Health: 9 percent
Industrial: 6 percent
Retail: 3 percent
Utilities: 7 percent
Communications/Media: 7 percent
Biotech: 11 percent
Financial: 12 percent
Technology: 26 percent
Other: 16 percent
None: 3 percent
Source: World Investor Link
Investor confidence index
Are North American retail investors bullish or bearish? World Investor Link surveyed 10,249 retail investors and developed an investor confidence index by dividing bullish investors by bearish investors. Here is the summary:
January: 2.2
February: 1.6
March: 1.4
April: 1.7
May: 2.8
Source: World Investor Link
Expert advice
‘Webcast. It is the most effective, cost efficient way to get information to a broader audience. It doesn’t mean they won’t call, but they will be more educated when they do.’ – Lisa Magleby, IR analyst at Cisco Systems.
‘Benchmark your retail program with other companies. IROs are very open to sharing information,’ – Blair Christie, manager of finance at Cisco.
‘Think about what mix of retail and institutions works best, and understand whether your stock is value or growth. Also, find out why retail investors are investing and what they expect, i.e. do they want a dividend?’ – Maarika Paul, senior VP of IR at BCE.
