Money can’t buy you good investor relations – but it definitely helps. With a market cap topping $180 bn and more than 100,000 employees in 100 countries, global oil giant British Petroleum (BP) is more than just a head above the rest. Its IR team has more robust resources than the average IR crew but also has a massive job on its hands with 1.2 mn shareholders in the stock and listings on nine stock exchanges including Paris, Zurich, Tokyo and Frankfurt.
The head of IR for Europe’s largest public company is Fergus MacLeod, a former senior oil sector analyst at Deutsche Bank who joined BP’s IR team in 2002. MacLeod and BP IR director Peter Hall were jointly voted best IRO this year by more than 700 investment professionals who responded to the IR Magazine UK Awards research survey. For the third time in five years, BP also took home the grand prix for best overall IR at this year’s UK awards.
MacLeod manages a team of ten: six in London, three in New York and one in Illinois. It’s a considerably larger team than five years ago due to BP’s significant growth during that period. Since 1999, the company has trebled in size through a series of major acquisitions. As such, the IR team of today deals with a much wider investor base and a broader range of issues surrounding the company’s three core businesses, which include oil and gas production, refining and retail sales.
The right mix
Pooling different talents and experiences works for many IR teams and BP is a prime example. Hall, the team’s main contact for buy-side and sell-side analysts in Europe, joined BP’s IR department twelve years ago after positions in the company’s upstream and downstream businesses. Hall had acquired extensive inside knowledge through his involvement in some of the company’s most important deals over the years, including the Amoco mega-merger and the acquisition of Arco.
‘Peter and I already knew each other because I was an analyst following BP,’ says MacLeod. ‘It is helpful to have the perspectives of somebody who has had a long career with BP and understands how it works in addition to someone who spent most of his previous career looking at BP from the outside and is familiar with the needs of the audience. I direct the efforts and manage the relationship with senior management, but Peter does the hard work – the lion’s share of communication with people on the sell side and buy side.’
Hall acknowledges McLeod’s background as equally useful. ‘Bringing in somebody with experience from outside the company and looking at the firm from an analyst’s point of view ensures that we in the team don’t get too parochially minded,’ Hall explains. ‘Fergus is permanently there, probing and checking to make sure the organization remembers the external focus.’
On the other side of the pond is Rachael MacLean, BP’s deputy head of IR, based in New York. She joined the team in 2002 after 24 years running big parts of the company’s US business, and will soon replace outgoing Terry LaMore, who retires at the end of this year, as head of the New York IR department. Like Hall, MacLean has a deep understanding of the business that ensures US institutions and analysts get the deepest possible insight.
‘For me to be able to talk with the knowledge of having done the planning and strategic development and having lived through the strategy we developed back in 1989 is very powerful for investors,’ says MacLean. ‘They appreciate hearing it from somebody who actually did it.’
Support from above
Naturally, part of BP’s IR success is attributed to management’s support of investor relations. MacLeod, who regularly engages management, says management’s enthusiasm for IR doesn’t mean it loses sight of the woods for the trees, however. ‘Management is interested in the views of the shareholders, but that doesn’t mean it will always dance to the shareholders’ beat,’ he says. ‘We have to take a long view – normally a longer view than the market takes.’
The best time for BP’s business leaders to get firsthand institutional feedback is at the annual roadshow – lasting between two and three weeks – which follows the main strategy presentation early in the year. For the roadshow, the company’s eight managing directors split into groups of two, add one IR representative and then meet with BP’s top 100 shareholders – which represent 65 percent of BP’s equity.
‘We don’t have a monopoly on wisdom and we can learn a lot by listening to what’s happening in the market as long as we can separate the signal from the noise,’ notes MacLeod. ‘It’s the second year we’ve done a roadshow [like this] and the feedback has been positive. Shareholders can ask questions on anything they’re not sure about after the presentation.’
For MacLean, getting face time with management is more complicated. Luckily, BP’s largest center of employment is in Houston and she communicates regularly with top executives there. ‘We don’t wait for execs to come over; we visit investors regularly,’ she explains. ‘I’ve only been with IR for two years. Before that I was an executive in the upstream business for 23 years – in that sense I am an executive.’
Roadshows continue throughout the year even when management is unavailable, adds Hall. ‘[The annual roadshow] provides most of the upfront contact between management and shareholders, but we visit other areas of the US and Europe on an IR-only basis,’ he points out. ‘I have just returned from a broker-sponsored trip to Spain. They had asked if we would do it again, which we gladly did. Before that we did one in Scandinavia. It’s important to go to all the big financial centers in Europe just to follow up on the meetings we do [earlier in the year] with management.’
Russian gamble
If there was ever a time the team needed to engage energetically with investors, it came on February 11, 2003. That was the day BP presented its annual strategy presentation and informed the market it was combining its oil assets with Alfa Group and Access-Renova to create TNK-BP, Russia’s third-largest oil company. It was the first time a Western company in this sector had done anything on a major scale in Russia – and investors were naturally skeptical.
‘It was a classic IR challenge,’ says Hall. ‘Here was a new area not widely known about in the market. It was a big challenge for us to put across our side of the story and put it into perspective.’ Almost immediately, the venture dominated investor meetings with many fundamental questions being asked. Anxious shareholders carped about the risks, given Russia’s turbulent history.
For MacLean in New York, who was still learning the IR ropes, the announcement was a baptism by fire. ‘It was frightening and exciting,’ she recalls. ‘We were still learning about it in the IR [department] at the same time the news was happening!’
The team decided to prepare a full-day presentation later in the year to flesh out the complete strategy with investors and assuage concerns. It called in outside experts from Cambridge Energy Research Associates to talk to shareholders about Russia’s political, economic, social and industrial background.
‘We gave [the experts] a free hand,’ says MacLeod. ‘We didn’t say, These are the areas people are interested in; we said, Just say what you think. It wasn’t BP’s view – it was the view of recognized leaders in the field. That’s unique. I’m not aware of any precedents of allowing stage time to a third party where you have no control over its content and ask it to give its honest opinion.’
In the end, BP challenged the market logic successfully and explained the rationale behind the strategy. ‘We didn’t sugarcoat it – we recognized the risks,’ explains MacLean. ‘We gave a context and wrapped it with the strategy that was in play. People said, Oh, I get it. This isn’t just about this year or next, it’s a much longer-term play. That’s so important in IR – to clearly communicate the context about decisions and actions.’
Today, BP’s Russian venture is just another of its many areas of business. MacLean says investors were so impressed by the all-day session that the team is currently organizing a field trip to Russia in September, comprising 45 buy-side and sell-side investors.
Something for everyone
While smaller investors account for about 15 percent of BP’s overall float, half of its US ownership is in the hands of small shareholders. This harks back to the legacy of Amoco, which had a strong US retail following when it merged with BP in 1998. BP has subsequently done a good job in holding on to those shareholders.
‘For many European companies that have gone through similar mergers with US companies, a lot of the US retail shareholders have sold out one way or another,’ notes MacLeod. ‘But that hasn’t really happened with us because we have an extremely good team in the US.’ He adds that Kenneth Kaminski, who has run BP’s US small shareholder services office in Illinois since 1997, deserves much of the credit for that success.
The other cornerstone of BP’s retail communications is the web. In terms of content, BP arguably has one of the richest web sites of all FTSE 100 companies. It doesn’t take the IR team much time to fill because much of the content is built on materials previously used in strategy presentations, says MacLeod.
‘We simply don’t have the capacity to see all our shareholders,’ explains Hall. ‘So the web site is a shop front for all and a considerable aid to the IR effort. It’s one thing to have a lot of information there but another to make it useful and allow people to maneuver through what could otherwise be seen as a stagnant wall of data. It’s got to be relevant and accessible to everyone.’
Peer pressure
Unfortunately – or fortunately – for BP, Shell, one of its key competitors, has become entangled in a major scandal involving fraudulent reporting practices over its oil reserves, leading to the resignations of its CFO and chairman. The episode sent tremors through the industry, raising questions of how other oil companies calculate their reserves.
‘Analysts thought this could be an industry problem so they started asking all of us about reserves,’ says MacLean. ‘It’s been good in a way because it’s been a wake-up call in terms of transparency and understanding why reserves are important to a resource business. Many analysts hadn’t really thought about reserves before, they were just taken for granted. They’re a lot more interested now.’
Peer comparability will be made easier for analysts with the adoption of international financial reporting standards (IFRS), which US companies are applying within a different time frame. BP’s policy has been to focus more on cash results because of the way income results may change. The firm sees it as a major challenge to ensure the market understands the format in which it will present numbers going forward.
But the process has also been clouded by a lack of regulatory clarity from authorities. ‘We, like anyone else, suffer from the fact that not all the relevant standards have been finalized,’ says MacLeod. ‘We can’t move at a rate any faster than that of the regulator and the relevant bodies – it’s been quite frustrating, actually.’
The BP IR group has evidently found its stride. Just two years after a batch of new members came on board, the team feels focused and comfortable with the pattern it has established. But it also knows it can’t ever stand still in this game.
Looking back on the last two years, MacLeod finds virtue in consistency when it comes to IR. ‘Fund managers change over time but if you can establish long-term relationships in a reasonably patterned way, it helps the process,’ he says. ‘We know things will continue to change and that nothing is ever static. We just need to be as proactive and aware as we can be.’
