They say experience is a tough teacher: she gives the test first and the lessons later. And, as IR magazine reflects on ten years of US awards and research, we can only be surprised by how quickly conditions have changed for public companies in such a short time. In the fast-moving world of IR, we now know change is the only constant – and it is linked to each passing business cycle.
When our US awards first hit the scene in March 1996, the soaring use of the internet was fuelling a relentless appetite for new tech stocks and other stocks that would epitomize the late 1990s. As more investors turned to the web for research, companies also rushed to post online versions of their annual reports and other documents. There was a keen interest in everything IT, and among the 17 awards up for grabs we proudly included cutting-edge categories such as best use of teleconferencing, best use of multimedia and, in 1997, best world wide web site.
IR audiences of the time were impressed – two thirds of the 800 investment professionals we canvassed for our 1996 US research report, mainly sell-side analysts and portfolio managers, said IR programs were better than in the previous three years. Many of the new tech companies had only just floated so the awards were still dominated by large household brands such as Coca-Cola, GE and McDonald’s, which all ran the more sophisticated IR outfits of the time. It wasn’t until 1997 that IR magazine gave awards to small-cap companies in six of the categories.
Times were good, with some blue-chip price earnings ratios (PERs) towering at 35:1, and there was an ingenuous sense big business could do no wrong. ‘I called Intel and requested every single annual report since 1970,’ one astounded analyst told us. ‘It FedExed them all to me the next day!’ Others were awed to know that GE’s celebrity chairman, Jack Welch, had actually written the entire letter to the shareholders – all 2,500 words of it – himself. On the corporate side, too, the excitement was a little overwhelming: ‘I felt I was playing hooky,’ award-winner Sam Levenson, then IR director at Staples, confided in 1997.
With so many good things happening to IR at the same time, it was almost hard to choose the winners. ‘If only IR programs ranked up points like basketball teams, or paraded like purebreds at a dog show, choosing the best would be a breeze,’ we wrote in 1997.
In the days before Sarbanes-Oxley and Spitzer, when scandals were fewer, the stock market was heading north, research was kinder, shareholders were quieter and governance was an afterthought, investors were generally less skeptical. This didn’t stop one lone analyst from praising Merck for not over-compensating its senior management members, adding with incredible foresight: ‘It just seems to have a good group of outside directors who help direct the company well.’
Razzle dazzle
IR Magazine Awards’ nights are as much an occasion for IROs to kick back and relax as they are for comparing notes with peers. But even with the awards becoming more Oscars-like each year, it was evident the industry’s notion of what constituted best practice IR was becoming a lot more demanding and complex. As early as May 1999 IR magazine concluded that helping to put a company out front on the complex global market stage is as much a marketing job as ‘selling Kevin Spacey in The iceman cometh.’
In 1999 NYSE CEO Richard Grasso somewhat dampened the mood for our 700 attendees by describing the awards event as ‘one of the last times we will celebrate at a relaxed and congenial dinner such as this because in a few years we’ll be dining amid a 19-hour trading cycle.’ There was a sense the electronic age had raised the disclosure bar very quickly, although it was still unclear what exactly that meant. But this didn’t seem to bother anyone because by 2000 the awards were all about superlatives: record earnings, the largest M&As, the highest number of IPOs and unstoppable year-end run-ups.
At the height of the internet delirium, belief in the new economy was so hopelessly optimistic that our keynote speaker told firms to either go down the e-commerce route or shut down altogether. Perhaps it was the goldfish swimming in bowls on top of every table becoming slowly bloated on bread rolls, or the slow renditions of Led Zeppelin’s Stairway to heaven by the Hampton String Quartet and its raunchy lead viola, but there was something unreal about the evening that probably left some wondering: ‘How long can this last?’
Not very long, as it turned out. The Nasdaq Composite Index, having almost doubled since late 1999, nearly halved between the time of our US Awards in March and the end of November 2000. Few could have predicted the succession of corporate scandals that would rock the world of business and finance until well into 2003 and put American executives in the dock.
‘All bets are off,’ said Blair Christie, Cisco’s IR director, at our 2002 awards, only months after the atrocities of September 11. In just two years, Cisco’s stock had gone from a high of $80 to just $14.
Back to earth
IR magazine officially proclaimed 2001 the most difficult year in IR history, but Regulation Fair Disclosure (Reg FD), implemented in October 2000, was to be just the first in a series of radical new measures – culminating in Sox in 2002 – to set the new tone of corporate disclosure, transparency and accountability. Words like ‘volatility’ and ‘trust’ had suddenly crept to the top of the investment lexicon and the underlying message at our more somber 2002 and 2003 awards was that IR needs to be even better in bad times than in good.
For Mark Aaron, chairman of the National Investor Relations Institute (Niri) 2003-2004 and former VP of IR at Tiffany & Co, adaptability and responsiveness were the core lessons to be learned from the market’s roller coaster ride since 1999. ‘My early attitude was that you build an IR program for a couple for years, then you go into autopilot,’ he said in 2004. ‘I’ve realized this is not the case. There has not yet been one year on autopilot; things are always changing.’
Indeed, we now know the Street continues to measure IR professionalism even during the downtime, while transparency and accountability – not gadgets – are key to promoting the creation of long-term shareholder value. For all the glitz and glamour of the IR Magazine US Awards, nothing can detract from the fact that IR is now an altogether more serious and high-pressured affair.
