Best Practices in Investor Relations

Best Practices in Investor RelationsAmid a flow of rules, regulations, and scandals, companies are searching for new guidelines and measures.Kara N ewman, T homson FinancialSeptember 18, 2003As the inves tor relations func tion has grown more s trategic and complex, IR profess ionals are s eeking ways to measure how well they're doing.On one hand, potential yards tic ks abound for meas uring overall I R s uccess: s tock pric e, the s hareholder mix, analys t ratings, and financial metrics s uch as price-to-earnings ratios. But on the other hand, I R professionals often lack meaningful ways to measure how the wide array of individual c orporate practices and processes entrusted to t hem s tack up against other c ompanies' practices."Bes t prac tices for I R has a lot of different dimensions," explains Kurt Fawkes, vic e pres ident of investor relations for Sprint C orp., bas ed in O verland P ark, Kansas. When quantifying bes t prac tices, Fawkes points to two measures: the cos t to operate the investor relations department, and a maximum premium for the s tock. H owever, he maintains that "the res ponsibility of the inves tor relations offic er is to make s ure that the investment c ommunity is fully informed [about] the pluses and the minuses of inves ting in a company's equity. That's an intangible goal that's tough to meas ure." Amy Goodman, a Washington, D.C.-based attorney, offers a legally oriented approach that takes into account the prac ticality of daily operations and realities. "Best practices to me are practices that a large majority of companies use bec ause they are effec tive [in c omplying with the law]," says Goodman, who is of couns el to law firm Gibs on Dunn & C rutc her. "I R is all about interfac ing with your investors. So you want to have an effec tive program that's going to do both."Why is it s o hard to determine how well a c ompany's investor-relations prac tices s tac k up?For s tarters, it's diffic ult to aggregate even broad information about s pecific c orporate practices. Moreover, whatc ons titutes "bes t prac tic es" for one company or group of companies may not work for another with a different market cap, indus try, or s hareholder base."T here's nothing s pec if ic ally publis hed that s ays 'this is the way you s hould do it,' " says Leonard F. Griehs, senior vice pres ident of investor relations for Camden, N ew Jersey-bas ed Campbell Soup C o. "Every c ompany defines [bestprac tices] for themselves, based on the level of commitment of their own management." For example, if a peerc ompany's CEO is present at all investor meetings, that may be a bes t prac tic e, but not every CEO is willing and able to c ommit to s uch a sc hedule. Furthermore, notes Griehs, res ourc es in the form of money, time, and s taff c an make an enormous difference in what a partic ular c ompany can acc omplish.Determining a s et of "bes t prac tic e" prescriptions or guidelines is useful for any company, but is partic ularly c ritical for c ompanies in flux, s uch as c ompanies building an IR func tion for the firs t time, undergoing a radical c hange, or embroiled in c rises."A'best prac tic e' is dic tated by a c ompany's status at any one point in time,' " s ays Campbell's Griehs, who als o is a former c hairman of the N ational I nves tor Relations I ns titute (NIRI). "Let's say you have a major c hange in management bec ause the c ompany s tumbled. Y ou may c hange the practices you use to go to the inves tment c ommunity in a way that you wouldn't do if you had a s table management and earnings growth for the past five ye ars.""Gold Standard" or Merely StandardTo establis h their own inves tor-relations standards, most c ompanies rely on an unsc ientif ic amalgam of talking to other IR professionals, examining s urveys and s tudies issued by trade organizations and c onsulting fi rms, and s olicitingfeedback from ins titutional inves tors and s ell-side analysts. I n the end, many c ompanies walk a fine line between "bes t prac tices" and widely used practices— in other words, between the gold s tandard and the merely s tandard.A worthwhile s tarting point s ugges ted by many experts is to participate in organizations s uc h as the NIRI, Financ ial Exec utives I nternational (FEI), or the I nvestor Relations Assoc iation, whic h can s erve as resourc es for gathering information about other c ompanies' practices. Sprint's Fawkes, however, rec ommends that investor relations officers go s traight to the s ource."We talk to the inves tment c ommunity all the time," he says. "We ask investors, are we giving you the right information to make an informed judgment about [our c ompany's] investment merits?Are we disclos ing the right metrics?Is it timely, and s o forth? We rely on the investment community to drive bes t prac tices for us. They're the c us tomer." Conferenc e c alls are one area where Sprint and Campbell So up have implemented innovative prac tices gleaned from s uc h methods. At Sprint, the IR team rec ently added a "dec k," or s lide presentation, to quarterly c onf erence calls."I nves tors c an s ee graphically what we are describing in words," explains Fawkes. "Tha t was s omething we saw other leading c ompanies doing, and not jus t within our industry."For its part, C ampbell res ponded to requests by ins titutional inves tors to include the c ompany's CEO on c onferenc e c alls. And for webcas ts, C ampbell, too, has added s lides and video to what were onc e audio-only pres entations, becaus e other c ompanies were fas t adopting this as a practice. "It forc ed us all to s ay, you've got to do as c omplete a job as you can," rec alls Griehs.A Snapshot of Current PracticesSo, what prac tic es are on their way to bec oming the gold s tandard for consc ientious investor relations departments? According to a rec ent T homson Financial s urvey of more than 250IR professionals, here's a s naps hot of how investor relations offic ers (IROs) are handling s ome major res pons ibilities assoc iated with reaching out to the buy s ide and the sell side.∙24 perc ent of all I ROs s urveyed said they travel quarterly to meet with inves tors; 36 percent travel monthly.H owever, at mega-cap c ompanies, fully half of IROs travel to meet with inves tors every month.∙M ore than 64 perc ent of IROs said they plan on holding an "analyst day" during the next year. Within that group, 55percent now host a half-day. A whopping 94 percent said attendees inc lude both the buy side and the s ell s ide, but not fixed-inc ome participants. O nly 35 percent of I ROs s aid they sc hedule s mall groupmeetings at analyst days, and 23 percent sc hedule one-on-one meetings. N early 90 percent of res pondents said that Regulation FD has not affec ted the number of one-on-ones that they hold.∙84 percent of IROs said they host group investor meetings (other than a formal analyst day) with management at company headquarters. N early 40 perc ent of res pondents said thes e meetings take placeeac h quarter; almos t 30 percent hos t them onc e a month.∙A majority of res pondents— 68 percent — feel that sell-side conferences are effec tive, although mid-c ap, s mall-cap, and mic ro-c ap c ompanies were most likely to express this sentiment. Fully 78percent of IROs s aid they are purs uing alternatives to s ell-s ide c onferenc es, s uc h as analyst days, road s hows, and trade orindus try c onferences. Fixed-income inves tors are out of luc k, however: More than 74 percent of res pondents said they will not be attending fixed-inc ome conferenc es during the next year.IR M onthly U pdate is produced for CFO.c om by Thoms on Financial. This information is believed to be true and accurat e, and we are not r es ponsible for inaccurate information. I f you have inves tor relations news to s hare, pleas e s end it to Kar a.N ewman@thoms .。