This year is the 126th anniversary of GE, but another commemoration may be more memorable for our readers. It is also the 50th anniversary of GE’s investor relations program, which makes 2003 the golden jubilee of investor relations as a profession. The company that made America’s bulbs light up was the one that had the flash of inspiration to invent ‘investor relations’.
Founded by inventor and entrepreneur Thomas Alva Edison, GE is the only surviving company from the original Dow Jones Industrial Index, and its shares first traded on the NYSE in 1892. Its track record of reinvention has kept the company thriving as all the buggy-whip corporations around it closed down.
Richard Wacker, current incumbent of the IR throne (vice president, corporate investor relations), hazards that the inspiration for investor relations was ‘an appreciation of the fact that we had a big constituency out there and that we needed to communicate with them. We could become more familiar with them and they could get to know us better.’
GE has been around for so many fads and fashions that what looked old-fashioned about it a year ago – like paying dividends – is now almost avant-garde. The company proudly points out that GE has paid a dividend every quarter since the year 1899, and, despite a few ups and downs in the business cycle, has increased its payout every year since 1975.
Recently GE rejoined the Dogs of the Dow, a list of companies that were once considered, well, dowdy, for their low PE and high dividend yield but are now getting serious attention from investors morosely perusing the meatless bones of the former high fliers. JoAnna Morris, director of corporate investor relations at GE, says, ‘We’ve always been part of the Dow and over time we rotate from the dogs to the top depending on the cycle. We love it that people are jumping into us now for dividend yields or value investment.’
While the company bought back $2 bn in stock last year, that was less than in previous years and Wacker points out that the buyback was only in third or fourth position in terms of GE’s cash usage.
This year the company only has plans for $500 mn in buybacks. The company has, however, increased spending in another area. ‘The general decline in equity prices has a flip side: it’s easier to make the type of acquisitions that Jeff Immelt wants to in order to round out the company,’ says Wacker. ‘We think we’ve been able to pick up some very good platforms and technologies and bolt them onto our businesses. As the economy rebounds, we’ll have even more powerful businesses to grow organically through the next cycle.’
Shareholding masses
One abiding characteristic of GE has been its huge retail shareholder base. They hold a steady 45 percent. Morris really likes the individual owners. ‘They are a very stable crowd – that is, the percentage has been stable for years, although we don’t track them individually.’
To look after those shareholding masses Wacker and Morris are perpetually on the road doing meetings with institutional investors and brokers. While on the road, they often meet retail clients in addition to attending a dozen or so NAIC meetings a year. The retail portion of their program is backed up by Pauline Berardi, whose sole task is to handle calls from retail investors. ‘With 9.9 bn outstanding shares, there’s a steady stream of calls. She’s fully employed,’ says Wacker. ‘She’s wonderful, and has a good style for answering the whole gamut of questions.’
The annual meeting is also a moveable feast, held in different US cities depending on the algebra of GE’s corporate presence and the size of the local investor base. ‘We’re very broad in our coverage around the country. We work very hard to understand where all the money is and what the GE holdings are, and to work out what the opportunities are. That’s how we target part of our communications effort,’ says Wacker.
Despite their attention to detail, with a small staff stroking a huge investor base, GE’s IR team will not necessarily be kicking in your door if you were foolish enough to sell some of your stake. ‘We try to maintain regular communication, and in the course of conversations you can usually get a sense of which direction they are leaning,’ explains Wacker. ‘Throughout the year, JoAnna and I are on the road, and we try to address their concerns. For those who are at a decision point, we will also make senior management members available to help them evaluate either the overall business or a position of particular concern for them.’
In the spotlight
One of those concerns was former CEO Jack Welch’s retirement package, the details of which were revealed during his high profile divorce. ‘We certainly had some feedback from investors,’ Wacker explains, adding, ‘But Jeff [Immelt] and the board came out very clearly supporting the decision made and Jack’s [Welch’s] part in fulfilling that agreement. Fundamentally we wanted to keep people in touch with what was happening today, what Jeff was saying and driving in terms of governance and transparency actions today, and that seems to have quieted things down.’
Although 40 percent of GE’s revenue comes from overseas and while it has listings in London, Zurich, Paris, and Frankfurt, less than 5 percent of the stock is held overseas. JoAnna Morris sees this as ‘an opportunity to sell more shares.’ Disclaiming any attempts at targeting, Wacker says, ‘We love every investor we have. We tell the story to everyone who is looking at us.’ With the stock price halved as the recession bites deep, Wacker admits, ‘There’s a different investor evaluating GE than when the PE was 40, and we are sensitive to that.’
As part of GE’s financial communications team, David Frail describes himself as ‘sort of the sidecar’ to the four-strong IR department. ‘It’s the same message for a different audience. Rich and JoAnna talk to investors, I talk to the media. We sit side by side, go through the same process of presentation, analysis and review of the results, and that way we ensure consistency.’
The IR team reports officially to CFO Keith Sherin, and David Frail to Beth Comstock, vice president of communications, but GE’s flat managerial structures and topological proximity (15 feet between desks) remove any artificial boundaries. ‘It does not matter who we report to; we focus on the processes of getting the work done,’ says Wacker.
Exposure for executives is, Wacker says, ‘one of the things that makes GE stand out – the strength of the leadership team. We love to get the public and investors a direct line of sight to the people who run our businesses, so we always try to ensure accessibility and visibility for them.’
It is of course a two-way process. Wacker explains that with a tiny department to handle so many investors, ‘We deputize pretty much anyone in the company we feel can be helpful in the communications. A phone call from JoAnna or me to anyone in the different businesses gets action. They make sure that their teams provide us with the information, the data and the understanding we need to communicate the company.’
Size doesn’t matter
To put the task into perspective, eleven of GE’s 13 businesses would themselves merit inclusion in the Fortune 500 if they were spun off from their parent. Uniquely huge and almost uniquely consistently profitable, GE has resisted the Street’s usual desire for simplicity and deconglomeration. Wacker also insists that in a way, size does not matter. ‘We’ve demonstrated over time that the collection of businesses we have together makes up an overall company that outperforms. It’s not our size but our performance that means people have to pay us attention. If we were big and unprofitable, not many people would cover us.’ As it is, there are a dozen or so sell-side analysts who cover GE pretty much full time – ‘And if you take the buy side and the sell side that cover us broadly, it runs into the hundreds.’
Webcasts of analyst meetings now play an important part in communicating the GE story both at home and abroad. ‘The webcasts are better than just a conference call,’ Wacker explains. ‘The web site is clearly a big priority as well. We’ve taken some big steps this year, and we spend a lot of time benchmarking what’s out there so we can continue to improve it.’
As so often in IR, the entry points into the profession can be mysterious, even for the entrants. ‘Before I took my job I did not even know there was an IR function,’ says Morris. ‘We were invited into IR, we didn’t apply. In a company of 300,000 people, it’s not really on most people’s horizon or in their career path, so it’s down to luck of the draw and timing.’
For his part, Wacker spent 18 years in operations and finance, and was formerly CFO of GE Card Services. ‘In GE, it’s a group we are always invited into. It’s unique. It gives experience that not many people in the company get on a day-to-day basis. It’s terrific to learn the investor’s view of the company.’
Since the storm clouds of 2001, Wacker admits that the reassurance component of investor relations is stronger than it was. ‘And corporate America and the business community in general have certainly given investors reason to want reassurance, to ask twice and to do more due diligence,’ he says. ‘In that environment companies such as GE have the obligation to continue to be as visible and transparent as possible, and I think you can see we have been doing a lot of work on that in the last year.’
‘We were following Reg FD before it was implemented,’ Wacker declares. ‘And with the NYSE recommendations, we moved very quickly to comply with everything. By November we had met all of the requirements, even though many had a two-year phase-in period. It reflects the leadership role Jeff [Immelt] wants the company to have. He is a very strong believer in governance and having a strong board – he sees strong governance as a benefit for good companies, and a confidence builder for investors.’
It is this type of detail that investors want, the IR department believes. They also want to know where the company is going and how it will grow. The overall IR message, according to Wacker, is ‘safety today and growth tomorrow.’
What the analysts say
Eliot Spitzer’s campaign to clean up the sell side combined with the NYSE’s rules about dealing with the media have made analysts very chary of talking to the press, even when the subject is not a company’s investment story but how the story is told. Indeed, as one analyst points out, too close a relationship with the company and the IR department could damage career prospects in the new environment. Getting quotes for this article was like doing dentistry on tigers. These two were willing to comment off the record.
‘Having two professionals in investor relations has benefits. They have to travel a lot, but this means that you can usually get one of them. Their overall attitude toward making presentations available on the web and webcasting their presentations live is a huge improvement. Their effort to add a lot more disclosure on the capital side has been a big improvement, and they have been effective in educating investors.’
Anonymous sell-side analyst
‘GE has evolved the whole process of investor relations. Twenty years ago it was about keeping people abreast rather than proactively reaching out and helping people understand not just what GE does and its businesses, but well beyond the traditional factory tour.
They moved on to give people a better insight into how companies are run. How became just as important as what. They offer better transparency about their operations, making their management available to travel and meet clients. They keep climbing up the ladder to better, quicker and fairer dissemination of information – through the web, for example.’
Another anonymous sell-side analyst
