IR Magazine Think Tank: The noise from North America [AUDIO]

The settings for this year’s IR Magazine Think Tanks in Canada and California seemed near-polar opposites, particularly for anyone who’s never been to either event before: one nestled in a hotel in leafy Palo Alto, minutes away from the famous garage where Hewlett Packard was born; the other held just below the bustling trade floors of Toronto Stock Exchange (TSX) on the night the city’s Blue Jays were hosting a crucial major league baseball game. 

Panelists at the IR Magazine Think Tank – Canada 2016

Consistent at both locations, however, were the capital markets veterans offering their expertise to an audience of IR professionals, before they in turn got to discuss pressing issues with their peers – including the changing face of shareholder activism, the role of geopolitical shifts in telling an investment story and how to target and survey your investor base – gleaning best practice nuggets and networking all the while.

Insight from the buy side 

As might be expected in the run-up to a US presidential election, geopolitical issues and their potential impact on your stock and corporate story were given due consideration at both events. In Canada, this was the central focus of the day’s first session, with the potential impact of either candidate ascending to the White House on Canada’s – and the world’s – capital markets assessed in terms of what investors think. A Trump win would translate into an expectation of far more volatility; Clinton was seen as the safer choice but still representing uncertainty.

Recent downturns in the Canadian market, particularly among natural resource firms, were also examined, with many IROs sharing their tips for communicating in such an environment. Building strong relationships and tailoring your story for different types of investors was paramount, said one, while a buy-sider outlined what she thought was crucial for management teams in a tricky period.

‘They need to be forthright, communicative and proactive,’ she explained. ‘Investors are not necessarily looking for you to get it right all the time.’

In Palo Alto, a session entitled ‘Making Wall Street work for you in a changing environment’ looked at the same issues from a buy-side perspective. Analysts and portfolio managers divulged how they use the sell side and how they like to work with IROs. Investor conferences came under scrutiny: though they provide valuable networking opportunities and can deliver some focused discussion, some on the panel considered them a potential waste of time. One buy-sider posited the idea of changing how meetings are organized so that investors of a similar type or disposition could be grouped together, describing such meetings he had attended as the ‘Holy Grail’.

Another tip for IROs was to bring business leaders ‘other than the CFO’ along to meetings, particularly in a time of market volatility, as a little extra insight or a memorable exchange could tip an analyst’s judgment from hold to buy.

Finally, an IRO at a company facing some activist attention relayed a story of buy-siders reaching out to her colleagues via LinkedIn and other social media sites. Though the practice was criticized by panelists and fellow IROs alike, the warning was clear: make sure company employees are briefed not to spill the beans online.

Activist war stories

A session at each event honed in on the impact of and appropriate responses to activists, a perennial topic at recent think tanks as the impact and reach of such investors becomes ever-larger. The West Coast event focused on the aims of activist campaigns, which one panelist explored with data in some depth. The key takeaway was that activists are increasingly steering away from proxy fights to force management changes or demands to sell, and toward ‘peaceful’ resolutions that are more strategic and long term.

Two expert consultants cast their eyes over the past proxy season and highlighted how activist attention is not always clearly signposted: IROs need to pay careful attention to calls from investors that ask, for example, unexpected questions that may signal activist-style activity. Knowing exactly who the activist is, however, is difficult because such questions can come from established names like T Rowe Price or BlackRock, or previously unknown investors.

Also on this panel was an IRO with experience of sparring with an activist, though the interaction did not escalate to a proxy war. He advised that, pre- engagement, IROs should ‘think of your stock like an investor would’ and identify weaknesses and vulnerabilities on a regular basis. ‘Your investors have all spoken to each other,’ he warned. Once engagement has begun, IROs were advised to be co- ordinated, both internally and with friendly investors in the marketplace.

Deactivating activists

In Canada, attendees debated how to avoid an activist situation in the first place. A spirited discussion between several consultants and an IRO who had first-hand experience of dealing with activists set out the case for both talking to relevant buy-side and sell-side participants early and also withdrawing from engagement with activists should the situation call for it. ‘Companies know where they are vulnerable but their instinct is not to talk,’ suggested one panelist. ‘It can be the wrong decision.’

The IRO on the panel described the situation she faced when an M&A transaction proposed by an activist carried through to completion. In that instance, a disconnect in share valuation was the first sign and a catalyst for activist interest in the company, so a powerful response was to lay out a strategy for creating value at an analyst day and investor event. ‘The market responded well,’ she explained, while the activist recognized the ideas put forward and gave the firm wiggle room to carry them out. ‘Managing your story is important but it’s better not to wait for the activist,’ the IRO continued. ‘Put your best face on your narrative and get it out there.’

On the subject of early activist warnings, the disciplines of shareholder targeting and surveillance were also debated on both sides of the border. In Palo Alto, the importance of deep-dive intelligence was explored, particularly by one panelist through a case study of an activist that acquired its stake through a swap position.

Discussion ensued over the merits of techniques such as investor perception studies and targeting platforms. One vice president at a nearby technology company, in reference to perception studies, said it’s important to get C-suite buy-in. ‘If management isn’t on board, that method isn’t worth it,’ he said.

The Toronto session focused more on reaching out to new investors, particularly those in the US, and being aware of where investors’ money is currently flowing. Toronto – and Canada more generally – is becoming an increasingly international hub: the capital is now a top 10 location for managers with global mandates.

Continuing the activist trend, another Canadian IRO who had steered his company through a period of significant change explored how he kept up with a shifting shareholder base. He found it beneficial to hit the conference circuit hard and produce an investor fact book to get newbies up to speed.

But not all stories were of success: one IRO recounted how he had tried, in vain, to directly engage with sovereign wealth funds. ‘They are hard to target, or even contact in the first place,’ he noted.

IR Magazine Global Top 50 presentations

Each year, IR Magazine combines the data from its regional awards research – covering the US, Canada, Brazil, Europe, Greater China and South East Asia – to determine which companies and individuals really shine at IR among their global peers. At the IR Magazine Think Tanks in Palo Alto and Toronto, the US and Canadian companies that made this year’s Global Top 50 list were honored. In alphabetical order, they are:
 

This article appeared in the winter 2016 issue of IR Magazine