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Wp ir rising
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Oct 28, 2010
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1. IR rising White Paper ENGAGE OPPORTUNITY EVERYWHERE ............
2Copyright © 2010 PR Newswire Association LLC. All Rights Reserved. IR is rising in strategic importance to corporations and its purview is expanding. Both are the result of shareholders’ need for broader and deeper understanding of a company’s “story” – i.e., the dynamics of its market, and the company’s vision for creating value as those dynamics play out in an uncertain future. If there is one thing that the economic crisis has made abundantly clear, it’s the need for transparency and direct communications between issuers and shareholders. As one analyst put it, “It’s a new paradigm. Trust is a key element in the post-Madoff era.”Indeed when it comes to the markets, shareholders are still skittish and investment horizons are still relatively short-term. Valerie Haertel, Vice President of Investor Relations at healthcare provider Medco, concurs: “Things have been moving so quickly,”she said during the recent PR Newswire webinar “Shareholder Relations: Compliance or Engagement?”“Investors are more nervous now than I’ve ever seen before in my career.” Shareholders want the company’s full story – not just the earnings release. What was ExpressScripts’strategic rationale for acquiring the WellPoint subsidiary NextRx – a type of acquisition not commonly seen within the industry? When petroleum prices were on the rise, shareholders at Continental Airlines demanded to know what the company was doing to hedge against the mounting costs. Investors are no longer waiting until stocks are down to start demanding answers. Over at Occidental Petroleum, for example, five years of rising share prices did not stop investor groups from questioning CEO Ray Irani’s pay package and the company’s succession plan. The stories IROs need to tell are richly detailed and nuanced, and take work and insight to understand. And once understood, investors still must decide for themselves whether the IR rising White Paper Through rich, dynamic and interactive content, companies can create an ongoing and engaging company story to foster an environment of familiarity and trust with their shareholders. ENGAGE OPPORTUNITY EVERYWHERE ............
3Copyright © 2010 PR Newswire Association LLC. All Rights Reserved. particular path to a richer future envisioned by company management represents a vision they share or don’t share – and act accordingly. How are these companies facilitating this deeper, broader storytelling? Through content – dynamic, rich, interactive content – distributed over multiple channels to reach investors wherever they are. As John Viglotti, Vice President of IR Analytics at PR Newswire, put it, “Traditional investor relations communications revolved around .print, and text press releases, and over the past few years we’ve seen the evolution of additional channels such as webcast, interactive annual reports, dynamic investor websites, SlideShare, virtual conferences and video syndicated socially and virally.” Full Disclosure Perhaps it’s first worth talking about the potential payoffs, literally speaking, of effective communication. The crisis, of course, has turned everything on its proverbial head – and, investors say, this includes what they thought they knew about business fundamentals. Recently, advisory firm Corporate Executive Board surveyed several hundred portfolio managers as well as buy- and sell-side analysts and found that most respondents want more information from companies and their IR teams. Only 13 percent of those polled said the passive approach of an IRO simply responding to a question was sufficient. This means it is up to the IRO to start telling bigger, broader company stories. Simply reporting the financials is no longer sufficient. Investors are willing to pay for this education. According to the survey, more than 90 percent of investors said they would be willing to pay more – on average a 17 percent premium in fact – for a stock if the IR team can effectively communicate, and improve their understanding of, how the business model works. It’s not just company-specific information that shareholders are after. As it turns out, more and more investors are making economic drivers a priority. In fact, in a survey of the buy-side conducted by Corbin Perception Group slightly less than 90 percent of respondents reported a growing focus on macroeconomic and microeconomic indicators. Increased education isn’t just good for company value. European researchers have found empirical evidence that it reduces the cost of finance as well. As IR magazine reported in July, an analysis of websites of 267 large companies from Belgium, Germany, the Netherlands, and France found data to suggest that just a 10 percent increase in the amount of intellectual capital disclosure – meaning non-monetary, non-physical assets like innovation or customer satisfaction – resulted in a 0.4 decrease in the cost of equity ENGAGE OPPORTUNITY EVERYWHERE ............ White Paper IR rising Over the past few years we’ve seen the evolving of additional mediums such as webcast, interactive annual reports, dynamic investor websites, SlideShare, virtual conferences and video syndicated socially and virally.” “ ”John Viglotti Vice President of IR Analytics, PR Newswire
4Copyright © 2010 PR Newswire Association LLC. All Rights Reserved. capital. “For a market cap of $100 million, this implies a reduction in the return expected by investors of $400,000,”study co-author and assistant professor of financial accounting at Lessius University College in Antwerp told IR magazine. The Good, the Bad, and the Ugly It’s worth noting that it’s not just the good parts that investors want to hear. They want to be educated on the whole story – whether positive, negative, or neutral. And sometimes the level of disclosure investors ask for may feel borderline personal. A CEO’s health, for example, is something shareholders want to know about. When Apple dismissed chief executive Steve Jobs’health problems as a private matter, the market pummeled the technology giant’s share price. It’s a delicate job – and one that makes the IR role ever more difficult – to determine the appropriate balance between personal and material. Of course stock prices, as most are already aware and as the last few years have made abundantly clear, are often at the mercy of market perception, a force far removed from any company’s purview. Bank of America understands this perhaps all too well. A mere 15 minutes after Bank of America reported good news in its first quarter results, the SEC announced its lawsuit against Goldman Sachs, spooking the community’s already fragile confidence in the banking sector and causing share prices to tumble. Despite its first quarter news, Bank of America took its fair share of hits during the crisis – between receiving a government bailout and the controversy following its acquisition of a troubled Merrill Lynch. Throughout it all, however, the IR team refused to clam up; and although there was often little positive news to report, investors and analysts were grateful for the communication. So while share prices were less than ideal, the bank’s openness was rewarded with a nomination for, among others, grand prix for best overall IR at the IR magazine Awards this past March. As one analyst noted, “Bank of America’s IR was very effective in communicating the story during a very difficult time for the company. The questions about the company’s financial situation were coming in on an hourly basis, and the team did a great job of professionally handling those questions in an honest and effective matter.” Change from Within Stock price aside, the recent slew of legislative and regulatory governance changes is putting renewed emphasis on shareholder relations. It began early in the year with the SEC’s expanded disclosure requirements, which included identifying climate change- related risks and expanded reporting on director qualifications. When the New York Stock Exchange amended rule 452, so brokers could no longer vote on their client’s behalf, it sent shock waves throughout the corporate community that had traditionally relied upon ENGAGE OPPORTUNITY EVERYWHERE ............ White Paper IR rising
5Copyright © 2010 PR Newswire Association LLC. All Rights Reserved. that retail vote. For issuers with large retail bases, the broker vote helped guarantee the passage of management-backed proposals. Then came the so-called Dodd-Frank bill. Investors now get a say on pay, and although the vote may be advisory, the SEC’s move to adopt proxy access – giving shareholders the right to include director nominees on the company proxy – gives the compensation vote some real teeth. Failure to respond to a negative say-on-pay vote could put directors at risk the next proxy season. This means proxy statements and annual reports can no longer do all the governance talking. Activist investors are becoming increasingly common. The changing landscape is shifting in their favor, which makes it all the more important for companies, and the investor relations officer in particular, to ensure their message reaches as many investors as possible. The first of three surveys conducted by the Shareholder Forum, as part of its crusade to determine what investors look to when making voting decisions on executive compensation, showed that investors prefer receiving answers and explanations straight from the companies. Seventy percent of investors in fact rate management responses as critical, while only 29 percent prefer hearing from proxy advisory firms. So What’s an IRO to Do? Content is king, as the new expression goes, and dynamic, rich, interactive content is what will best facilitate broad storytelling. As far as how to share that content with investors, the ideal method, as Viglotti observed, is an integrated approach of face-to-face meetings, traditional methods of news dissemination – press releases, conference calls, website postings – overlaid with exploitation of new technology like virtual meetings, multimedia, and social media outlets. But as Thomas Rice, a partner in the securities practice at the law firm Baker & McKenzie and panelist on the “Shareholder Relations: Compliance or Engagement?”webinar points out, not all companies are ready for it: “While engagement is the most desirable state, you have to walk before you can run.”Companies that have recently gone public, for example, may not have the resources available to devote to a proactive IR strategy nor officers with enough experience to speak directly with investors. Foreign-based issuers as have challenges as well, such as time-zone differences or language barriers, which can make engagement more difficult. In such cases Rice says he counsels clients to aim for the compliance approach until they gain experiences, knowledge, and resources to overcome the hurdles. For those companies that are ready to tackle engagement, it is perhaps most important ENGAGE OPPORTUNITY EVERYWHERE ............ White Paper IR rising While engagement is the most desirable state, you have to walk before you can run. “ ”Thomas Rice Partner, Baker & McKenzieo
6Copyright © 2010 PR Newswire Association LLC. All Rights Reserved. to keep in mind that when it comes to shareholder communication strategies, there is no such thing as one-size-fits-all. As Rice advises, where a company is in the lifecycle is a key factor to consider when designing any investor outreach program. About six years ago, Home Depot, for example, switched-up its communications strategy as the company transitioned from the growth to value phase. This meant first identifying so-called value investors, which the IR team found by analyzing 13F filings, and then changing the company message to emphasize a longer time horizon. Once this was completed Home Depot’s Vice President of Investor Relations reported positive results: “On our next analyst day we reported from a four-year time horizon and those very same [value] investors started buying our stock. Now we have a lot more value than aggressive growth. We targeted those new types of investors and listened to what they needed from us as a company. If there are 10 calls during the day, we prioritize who we speak to.” It’s also crucial to analyze your shareholder base, as the needs and habits of institutional investors are not always the same as those of retail investors. It’s also important not to overlook foreign-based investors. According to Federal Reserve statistics, non-US citizens hold about 20 percent of US equity. Consider these audiences when crafting your content- based communications strategies. Getting the Attention You Deserve The next step is figuring out how to captivate investors’interest with a humanizing company story. A crucial element is ensuring shareholders can put faces to management names. Countless anecdotal evidence and formal surveys have both shown that access to senior-level management is high on the vast majority of investor wish lists. Face-to- face or virtual meetings are of course vital, but another way to bring news to life is by incorporating video into press releases. They say if a picture is worth a thousand words, video is worth a thousand times more. The use of online video is clearly on the rise. YouTube, for example, surpassed 100 million viewers in 2009 and in January 2009 alone, 147 million people watched, on average, 101 videos each. Allowing investors to see and hear from the people who run the company can be a particularly effective method of engagement. It humanizes the company’s story; not to mention that people are more likely to retain information that they have seen and heard. An additional benefit is that, according to BusinessWeek.com findings, videos are 53 times more likely to appear on the first page of search results than text-only pages. Companies like MOSAID Technologies in Canada or InterContinental in the US are even incorporating videos into earnings announcements. In both cases the CFOs spend several ENGAGE OPPORTUNITY EVERYWHERE ............ White Paper IR rising
7Copyright © 2010 PR Newswire Association LLC. All Rights Reserved. minutes discussing the previous quarter’s results, which helps provide shareholders with a greater sense of familiarity, which, in turns, breeds a greater sense of trust. It is difficult to talk about multimedia without mentioning social media. Its usefulness is still up for debate among IR professionals, but many agree that it can be useful in terms of additional channels in which to push out news. At the very least, as Medco’s Haertel mentioned, it’s worth monitoring sentiment. “We do see an increase in chatter during earnings periods,”she said. The new digital age means individuals can become company evangelists and messages have the potential to quickly go viral, so it behooves anyone to take control of what’s being said about them in cyberspace. What the Future Holds The bottom line is shareholder needs are rapidly changing and the need for companies to tell bigger, broader stories leads to an expanding role for the investor relations officer. Indeed the IRO is rising in strategic importance as companies grapple with how to foster shareholder trust through an engaging story – a story that humanizes the company. This renewed focus on the company story means of course that content is crucial. As Viglotti noted, such rich, dynamic, interactive content, “creates an environment of familiarity and trust with the shareholders.” About PR Newswire PR Newswire (www.prnewswire.com) is the premier global provider of multimedia platforms and solutions that enable marketers, corporate communicators, sustainability officers, public affairs and investor relations officers to leverage content to engage with all their key audiences. Having pioneered the commercial news distribution industry 56 years ago, PR Newswire today provides end-to-end solutions to produce, optimize and target content – from rich media to online video to multimedia – and then distribute content and measure results across traditional, digital, social, search and mobile channels. Combining the world’s largest multi-channel, multi-cultural content distribution and optimization network with comprehensive workflow tools and platforms, PR Newswire enables the world’s enterprises to engage opportunity everywhere it exists. PR Newswire serves tens of thousands of clients from offices in the Americas, Europe, Middle East, Africa and the Asia-Pacific region, and is a United Business Media company. ENGAGE OPPORTUNITY EVERYWHERE ............ White Paper IR rising We do see an increase in chatter during earnings periods. “ ”Valerie Haertel Vice President of Investor Relations, Medco
ENGAGE OPPORTUNITY EVERYWHERE ............ (888) 776-0942 www.prnewswire.com Copyright © 2010 PR Newswire Association LLC. All Rights Reserved.