Investor Relations | Street Talk | Dix & Eaton

Are you ready for the public?

In honor of Facebook's IPO, I have a simple question for those companies now in the IPO queue or anticipate that you will be in the next 12 to 24 months: are you sure you are ready for the public?

This article gives you six fundamental steps you can take to be sure that you are.

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IR Writing 101

In the spirit of an earlier discussion we had on the importance of content, I thought it would be worthwhile to take a step back and revisit the basic tenets of writing. And what better way to kick off this exercise than to take a peek at this internal memo written by David Oglivy in the 1980s.  Among my favorite bits of advice he offers include:

• "Write the way you talk. Naturally."
• "Use short words, short sentences and short paragraphs."
• "Never use jargon words like reconceptualize, demassification, attitudinally, judgmentally. They are hallmarks of a pretentious ass."

After reading the list several times, I couldn't help but feel that writing is becoming a lost art - in IR specifically and communications in general. As to the former, I'm sure there are plenty of reasons for this... certainly, the undeniable shift in IR towards "IR as a compliance function" has had a lot to do with it. And the fact that so many are coming into the IR ranks that do not have communications backgrounds is also playing a factor. It's sad, though, as our common goal should be to educate, not just supplying grist for the mill.

Am I romanticizing the past? Maybe... but I don't think so. Do you see it differently? What would you add to this list? Anything on the list you'd like to "reconceptualize"?

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Being Public

The good folks at Deloitte recently put out a wonderful whitepaper on "being public" - did you see it? While not directly addressing the communications aspects of the issue, there's a lot of great takeaways for IROs (or those that play them on TV). Among other gems, I really liked: "... proper planning prevents poor performance."  Might have to get that as a tattoo.

It does seem odd to me that so more companies - and/or the law firms, iBankers, auditors that counsel them through this process - still leave IR preparation until the very end of the process (or to chance altogether). As we've discussed here before, IR programs/functions are not built in a day... there is a compliance mechanism to put into place... there is a marketing component that needs to be developed and aligned with the business strategy... there are policies to adopt and embed...  there are people to train... there are protocols to put into place... there are tools to develop... believe me, it's much easier to do (and do well) when you've got the 12 to 24 month window that Deloitte references than the two weeks following the road show.

Thoughts as to why IR is left to the last minute?

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Are the IR tides beginning to turn?

A couple of weeks ago, Citigroup former Chairman Richard Parsons played the "Cool Hand Luke" card to explain why shareholders voted down the company's executive compensation plan.

My question is - is this the tipping point that restores some equilibrium to the investor relations pendulum that has been so heavily tilted towards the compliance aspect of the discipline over the past few years?

In other words, is it time to give IR back to the IRO that is as fluent - if not more fluent - in communications as s/he is in financials?

This is not meant as a slight on the corporate secretary... or the general counsel... or the outside SEC attorneys... or the compensation advisors to the Board... or the Treasurer that also wears the IRO hat... or... well, you get the picture. The point I am trying to make that investor relations is both a compliance and a marketing function. Companies that lose sight of that do so at their own peril (as Citi learned the hard way) and, in many cases, leave significant value on the table.

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“But investors never ask me about sustainability…”

In honor of yesterday's Earth Day celebrations, I thought I'd put a topic on the table that's long been on my mind.

I'm really tired of hearing people say "But investors NEVER ask me about sustainability!" In fact, it's now replaced "Ummm... actually, I can't go to our prom with you because I don't think I'll be in the country that weekend." as my all-time least favorite answer.

For some reason, you can't say the word "sustainability" to [most] IROs without them hearing "oh my gosh, that's so much work... I'll have to completely revise my IR messaging + seek out all new industry conferences + totally revamp my investor targeting efforts..."

Why is that?

Research continues to show the overwhelming impact intangible assets have on valuation. This recent Bloomberg story is spot on when it says "non-financial data is material." When you expand the information you disclose to provide investors with better visibility on the financial contributions of your new products, you don't scrap your ongoing targeting efforts and start over. Similarly, when you begin educating investors on the leverage your brands creates for your pricing model, you don't immediately cancel all of your industry conference commitments. So why would creating better visibility on your sustainable efforts and, where possible, how they enhance financial/operational results cause such an apocolyptic chain of events?

Brothers and sisters - it's time we got our minds right about sustainability as it relates to investor relations. It's time we see it as another differentiating intangible asset and not some mystical concoction that will transform your company into something completely unrecognizable.

Bottom line: if you wait until an investor asks about sustainability, it'll be too late.

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Top five shareholder concerns in 2012

There was an interesting post recently on the TAI blog about the top five shareholder concerns in 2012. The post was inspired by an interview with the iconic Nell Minow in Corporate Secretary magazine.

According to Nell, the top five concerns includes such things as executive compensation ("At most companies, investors don’t seem to care - shareholders approved 98% of the executive pay packages in last year’s say-on-pay votes," countered TAI) and quality of board/individual directors ("... in 2011, 45 directors received less than 50% of the votes cast, out of thousands standing for election," noted TAI). The author of the post also offered that Nell's list should have been:

1. share price appreciation
2. corporate cash balances
3. share price appreciation
4. share price appreciation
5. share price appreciation

A tad extreme but point well taken. I agree that shareholders - like voters - tend to be swayed by their wallets at election time. That said, I can't believe that the list of five really boils down to just those one and a half things. From where I sit, shareholders are paying close attention to Board composition and quality but I would suggest that the focus here is really more on the director selection/succession criteria process than the individuals themselves. I also believe that there is more of a growing interest in sustainability than TAI is acknowledging. That said, my sense is that most investors are more interested in it as another intangible asset like new product innovation, R&D, etc. rather than looking for which company is doing the best in a particular CSR initiative.

What do you think of these lists? Does the answer lie somewhere in between or do you have a completely different list in mind?

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Reaching the individual investor

Thank goodness for Johnson & Johnson.

First of all, they have great baby powder... far and away the best of breed as far as I am concerned. I still use it. Likewise, I'd say their baby oil and baby shampoo are of similar stature (and, let's be honest, there's no better smelling shampoo than the no-more-tears elixir in the classic golden bottle). Also - and perhaps more relevant for this forum - they have made it cool to talk about reaching the individual investor again - a topic that's long been dear to me.

Doug Chia, the company's corporate secretary, recently participated in a NYSE webinar about the upcoming proxy season and talked about how the company rebuilt its proxy statement this year in order to better serve the company's individual investors.

Have you seen the latest proxy statement from J&J? If you haven't you should take a look - it's really well done. Among other things, I think the additions of the "at a glance" content (see pages 5 or 36, for example) enhances the transparency of document by infusing it with some much needed/long-awaited "plain" English. Similarly, I think the expanded director bios starting on page 18 are a must for all companies - whether or not you have a retail base to serve. At the risk of repeating myself, I cannot stress enough how critical it is that companies clearly delineate the specific expertise each individual brings to the board and how that experience correlates the company's growth strategy, particularly in today's unsettled markets. When it comes to corporate governance, investors are dubious, proxy advisory firms are suspicious and activists are ready to pounce. The risk associated with letting them draw their own conclusions is too great.

Be curious how you are approaching this year's proxy statement. Has J&J's approach made you rethink your approach with the retail community?

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Shareholder value starts within

It both surprises me and doesn't surprise me that when discussing the role of employees on shareholder value, most folks immediately think "Well, happy employees make happy customers and happy customers spend more money, which makes for happy investors."

That relationship is certainly true. But there is more to it.

Employees are investors - long term ones at that... and they typically support management so they can represent an important voting block during proxy season (particularly if it is contested). So this adds a meaninful multiplier to the "happy" formula above.

This, then, begs the question: why don't more companies include them when developing their IR program?

Well, institutional investors - who have long dominated the investor relations agenda because of their ability to buy large “blocks” of equity - have become an ever-illusive target. Today, a “long-term” institutional investor is one who holds for multiple quarters rather than multiple years. It takes a lot of time to find them and keep them. Also, they've also become more demanding. The mounting pressure facing portfolio managers to deliver meaningful returns has caused institutional investors of all types to aggressively assert their own “value-creation” agendas upon management and Boards. In other words, it takes a lot of time to keep them happy. In other words, they are the squeaky wheel that gets the grease.

That said, adding your employees to the IR program is not difficult to do and the benefits that come from it more than outweigh the any negatives (perceived or otherwise).

This whitepaper outlines three basic steps to help your IR program reach your employee owners. Are you employing any other strategies to engage this constituency on IR matters?

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7 simple strategies for future public companies

To say there are a lot of deals stuck in the IPO queue might already qualify as one of the great understatements of 2012, right up there with "Republicans seem to disagree on who should be the GOP nominee" and "The European financial market seems a bit strained of late."

To say I have a recommendation for either the GOP or Europe might qualify as one of the great overstatements of all time, I do have a strong recommendation for those companies currently waiting to go public: use this time wisely!

Time after time I have seen management teams view "going public" as the completion of a process rather than the beginning of one (¿Cómo se dice "rude awakening"?).   Believe me... companies that begin preparing for this new reality long before the S-1 is being drafted have a much easier time transitioning and performing after the deal has gone effective. 

To that end, here are seven simple strategies for future public companies to consider in advance of the offering. For those of you who have already walked this (green) mile or are walking it right now, what would you add to the list?

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Avoid the most common (and biggest) earnings conference call mistake

Memo to: Those who prepare managements for earnings conference calls

From: Me

Re: Avoiding the most common (and biggest) earnings conference call mistake

All - effective immediately, earnings conference calls will require a strong closing statement to be used by your CEO following the conclusion of the "Questions and Answers" segment. Allowing this discussion to abruptly end with the senior leader of your organization muttering, "Ummm... okay... thanks for dialing in this morning. We'll talk to you in three months when we next announce earnings" is no longer acceptable for the following reasons:

• After roughly an hour on the phone - and too many questions on topics off in the weeds - management teams need to bring the conversation back to those essential takeaways from the quarterly performance (e.g., pleased with our ability to drive higher operating margins despite flat sales; encouraged by the progress we're making in integrating our latest acquisition; focused on more fully leveraging our market position as economy rebounds... you feeling me on this?). Letting the call end with a brief discussion on expected tax rates is not only a major faux pax but a wasted opportunity to reassert your value proposition for investors.

• It's also a lie... at least I hope it's a lie... please tell me you are talking to your investors in between earnings calls.

Please let me know if you'd like me to convene the group to discuss further - perhaps over a working lunch. In the meantime, I thank you for your prompt attention to this surprisingly wide-spread problem.

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