In 2000, the Aflac duck waddled and quacked its way into the insurance company’s advertising campaigns and raised the company’s customer profile beyond all expectations. Ken Janke, senior vice president of investor relations at Aflac, doesn’t duck for anyone. He has been skillfully fielding investors’ questions for the company since 1985.
This year Janke and his team were rewarded for their IR efforts at the Investor Relations Magazine US Awards. Aflac took the Grand Prix for best overall investor relations and best annual report award in the large-cap category. The Georgia-based company also received honorable mentions for best IRO, best corporate advertising and best communications with the retail market.
It’s a lot to quack about because this IR team basically does it all themselves. Aflac’s annual report, for example, is done in-house. ‘We own a printing subsidiary,’ says Janke. ‘IR generates the theme for the report and we make sure our communications reflect what we are doing on the corporate side.’
For the last three years, the IR department has incorporated the company’s popular duck mascot into the annual report. The duck has boosted name awareness for the company among customers and investors alike. ‘It’s amazing how many people think we only started advertising in 2000, when in fact we began in 1990,’ observes Janke. Indeed Jim Gregory, founder and chief executive of Corporate Branding, has chosen to write about the success of the Aflac duck as a case study in his next book on branding.
‘It has really benefited the growth of our insurance operations and of course that makes my job so much easier,’ Janke comments. While it’s difficult to measure the direct impact the brand has had on the stock, Janke says US institutions are certainly more aware of the company since it began using the duck two years ago.
More than IR – or ducks – Janke modestly attributes Aflac’s healthy stock price to a healthy business. ‘Our stock appreciation has been driven by rapid and predictable growth in earnings and pretty much industry-high returns on equity,’ he says. ‘At the same time, we pay a small dividend that has increased for 20 consecutive years and is a reflection of our interest in individual shareholders.’
Making up the rules
Apart from such obvious successes, Aflac’s IR prowess is seemingly counterintuitive. First off, the company’s main business is cancer insurance and Americans tend to be superstitious about cancer. Adding humor to the advertising campaign was a bold stroke indeed. Also, 70 percent of Aflac’s earnings come from Japan; and Wall Street has been equally superstitious about Japan for the last decade.
To counter that superstition, Aflac’s IR team came up with its own rules. While analysts demand access to senior management, Aflac only provides this contact at major events such as analyst conferences. ‘Some of them do scream and shout about it but the company is better served if the CEO and CFO are extremely busy running the company,’ says Janke. ‘They’ve delegated the communications to me and it shows their commitment to the IR function.’ It also raises Janke’s profile among analysts who view him as part of the management team. ‘The IR function reports directly to the CEO who takes a tremendous amount of interest in it but at the same time he relies on our judgment for doing a lot of things,’ Janke says.
Investor relations at Aflac is well staffed and budgeted. Seven IR professionals work at headquarters in Columbus, Georgia. The team includes specialists in A/V, speechwriting and editing, and meeting planning. The company has a separate team of four in Japan. Aflac’s IR group gets a lot of support from corporate communications, financial reporting, actuarial and investment departments. They also work very closely with an internal stock transfer department.
In Columbus, Robin Mullins, who shared the honors with Janke as a finalist for best IRO at the Investor Relations Magazine US Awards 2002, deals with institutions. Shawn Roberts concentrates on Aflac’s retail investors who make up 45 percent of the company’s shareholder base.
Moms & pops
Janke’s own exposure to investor relations began with the National Association for Investors Corporation (NAIC), where his father is the current chairman. As a political science graduate from the University of Michigan in 1981, he discovered that his degree did not enhance employability in hard times. So Janke worked at NAIC during the day while studying for an MBA at night. One of his clients was Aflac, a long-time sponsor of NAIC programs. Then, when Aflac needed a second-in-command IRO, it hired Janke. Aflac still has close links with NAIC, with Shawn Roberts sitting on the shareholder organization’s board of corporate advisers.
When Janke started with Aflac, the company had only a couple dozen institutional investors and the rest of its shareholders were retail. ‘We’ve always had an affinity for individuals because we recognize what they did for us in the early days and consider them to be a very valuable constituency.’
‘We make ourselves as available to the individual investors as we would to analysts,’ says Janke. ‘It’s that long-term commitment to really working with that market that’s helped.’ When Janke’s team looks at decisions on buy-backs, stock splits, and dividends, they weigh the pros and cons for both institutional and retail investors.
On the question of stock splits, for example, Janke says there is no empirical evidence that splits work, but individual investors seem to like them. Institutions, on the other hand, don’t like them because they increase their transaction costs. ‘We try to strike a balance with that,’ he says. Recently, a slowdown in price movements has slackened off the pressure to split.
Janke believes individual investors should play an active role informing investor relations departments by communicating any additional information they need. ‘While it’s up to us to make the information easily available whether on the web site or in the annual report or in advertising, a good part of the onus has to be on them,’ he believes. ‘I think they have to take the responsibility by asking for information.’
Great equalizer
Like many IR departments, Aflac’s IR team uses the internet to maintain relations with investors. According to Janke, the internet is ‘the great equalizer’ for retail and institutional investors because both groups have access to the same information. ‘Both retail and institutional investors can download the 100-page briefing book or the 26-page statistical supplement,’ he says. ‘It’s certainly made our job easier and helped us control costs.’ Aflac’s site has a simple, user-friendly design in order to make it easy for users to find information quickly.
Despite a four-strong IR team and the success of Aflac’s business in Japan, the stock is somewhat less popular there. ‘Believe me, we have tried hard,’ Janke comments. Despite a listing on the Tokyo Stock Exchange, Janke reports no significant Japanese ownership. Employees in Japan own a small portion of the stock that amounts to about 7 percent.
That is not to say the Japanese IR team doesn’t pull its weight. ‘From our point of view, our Japan IR team provides a lot of information about what’s going on,’ notes Janke. ‘We have a tremendous amount of interest from buy-side and sell-side analysts in the US who want to visit Japan. This fall we will conduct a tour for them and for rating agencies.’
‘As Japan’s economy improves over the long term, we think its investors will change, so we want to be ready for them with best-in-class IR,’ he adds. According to Janke, there is already more institutional interest in Japan than a few years ago.
It may sound rosily optimistic, but so did the company’s move into the Japanese insurance market a quarter century ago. Now, among foreign companies in Japan, only IBM makes more money than Aflac. ‘We’ve certainly bucked the trend; we’ve been one of the fastest growing insurance companies in Japan and possibly the best performing insurance company in terms of growing revenue and earnings,’ says Janke. It helps that Aflac did not invest in the real estate bubble. ‘We avoided that, so we have a pristine balance sheet with minimal exposure to securities rated as junk.’
In terms of analyst coverage, Janke’s team has built up the number of sell-side analysts covering the company to 20. When Janke started in 1985, Aflac had no coverage. The secret has been to provide very complete disclosure with a very detailed analysis of Aflac’s business, Janke says.
When it comes to targeting, Janke relies on sell-side analysts to line up his ducks in a row. ‘They’ll say, Look, I’ve talked with investors on the west coast and they are interested in talking with you. How about we make a trip together?’ he says. ‘They have a pretty good idea where the stock could be placed and who the interested parties might be.’
Aflac was awarded many laurels at this year’s Investor Relations Magazine US Awards based on a survey of over 1,800 US portfolio managers, securities analysts and retail investors. The survey’s findings are contained in Investor Relations magazine’s US Research Report 2002. As was the case with many winning IROs, Janke considers Aflac lucky to have received the recognition. ‘Last year was such a hard year and we didn’t execute as well as we should,’ he admits. Aflac failed to achieve one of its key objectives, which was new sales growth in Japan. ‘We thought we would have a great year and we didn’t,’ says Janke. ‘We still met our earnings expectations though.’
What the analysts say
Nick Pirsos, Sandler O’Neill
‘Aflac has set the model for investor relations,’ says Pirsos. ‘It’s really hard to find any way that they can improve on it.’ According to Pirsos, Aflac is thorough and timely in putting out information. He sees Aflac’s IR efforts as a benchmark for all companies, and has always found Aflac’s management team to be very responsive. ‘They are always willing to set up a conversation, and if not, Ken steps in,’ he says. ‘That is very different from most companies where IR professionals don’t have the same authority to speak; Ken has both the command and the authority.’
Steven Schwartz, Raymond James
‘At Aflac, Ken and his predecessor put up the very first professional IR department,’ says Schwartz. ‘They were the first to do conference calls and an annual [analyst] conference as well as the first to provide real disclosure through a supplement.’ Schwartz describes Aflac as a pioneer in IR: ‘Other companies have followed but they started it and they are still ahead of the game.’ When institutional salespeople inquire about meeting with Aflac’s CEO or CFO, Schwartz refers them to Janke who ‘knows absolutely everything that’s going on.’ As Schwartz says, ‘There is no other company where I could just take the IR guy out on the road. It’s really testament to how the Aflac IR department is respected on the Street.’
Vanessa Wilson, Deutsche Bank
Wilson has known Aflac’s IR team for over a decade. ‘They have little turnover of staff and are very honest and diligent,’ she says. She adds that Aflac has the best IR program in the insurance industry: ‘It’s very well developed in terms of the experience of the people, their accessibility and the quality of information they provide,’ she says. Wilson observes that many other IR professionals perform more of a PR function while Aflac’s team is financially savvier. ‘[Aflac’s IR staff is] financially astute so they can answer very detailed questions about insurance accounting and the company’s investment portfolio.’ According to this analyst, Aflac’s IR professionals treat sell-side analysts the same no matter what their current rating on the stock is. ‘It’s the same whether we have a buy or a hold on the stock, which is very unusual.’
