Last month we unveiled the World Investor Link European IR Survey
What is the prevailing mood of Europe's IR community? What are the key issues facing the profession as it heads into stormy economic waters?
One item topping the agenda is retail investor IR in the wake of Regulation FD in the US and a renewed focus on disclosure in Europe. Last month, we reported the statistical findings of the World Investor Link survey of European IROs (see Measuring Up, from the October 2001 issue). They showed that half of all respondents see their IR web site as the most effective way to communicate with retail investors, indicating that a passive method holds sway. Contrast this with attitudes to institutional investors: 79 percent of the survey's 200 respondents highlight one-on-one meetings as their most effective communications channel. This chasm in IR between retail and institutional investors is further illustrated by the comments gathered. 'There is no point in communicating with private investors at all as they have no money and no support,' says one respondent. 'We don't communicate with private investors so no way is effective,' claims another. Second-class citizens? You'd better believe it.
Retail therapy
Such comments do not reflect the majority view but the level of apathy (even antipathy) toward retail investors is surprising, particularly when nearly a quarter of respondents have 10-19 percent of their shares in retail hands; 17 percent say that proportion is 20-29 percent. And almost a quarter of the IROs surveyed plan to boost retail ownership levels.
Angela Knight, CEO of the Association of Private Client Investment Managers and Stockbrokers in the UK, says retail investors feel they are at the end of the communications chain. Nominee holdings don't help either. 'You don't get full shareholder rights if your stock is held by a nominee.'
Private investor IR, or rather the lack of it, is again highlighted when IROs identify the most important innovation introduced to their activities. 'Having a private investor program,' is one reply. Despite this, Knight is pleased with the growth in information made available to retail shareholders, but she warns, 'Any company must recognize that all investors are important. Investor relations as an issue has risen right to the top of the pile.'
Technology dominates new innovations, with the web as the prime mover. Many of the survey's respondents say they are planning a web site overhaul: 'Improving the IR web site significantly, putting a lot more services online so it feels like a proper utility for investors,' is typical of the responses. Many European IROs plan to start using audio and video webcasting. Grant Woodall, director at World Investor Link, comments that '98 percent of US companies use webcasting and as the technology gets better, companies' fulfillment will get better.'
Woodall points out that webcasting is not limited to the big-budget, large-cap IR departments: 'There's no reason why micro-caps can't do an audio webcast. It's cheaper and more efficient than a conference call and companies can make it interactive.'
Hidden among the numerous 'don't know' replies (it seems European IROs are wary of making forward-looking statements) there are other respondents with more modest aims. Not for them the whiz-bang world of web streaming. Asked what innovation they expect to see, one wag answers, 'As an IR manager. I haven't got one.' Others mutter darkly about budget cuts and 'streamlining'. 'Our IR budgets have been slaughtered so it is going to be hard to introduce anything,' moans one European IRO, and more echo this view.
Language lessons
When it comes to key issues currently facing European IR, several respondents identify linguistic and cultural barriers. 'With a lot of people speaking different languages, we have a distinct communication problem even though people are becoming more multilingual,' comments one. Another (presumably UK) respondent adds, 'It's easy to communicate with other English speakers, but how do you appeal to other language speakers?'
Of course disclosure is a hot topic, with the lack of consistency across Europe a particular worry, despite the EC's attempt to harmonize listing rules among its member states. Elsewhere, a number of IROs remark on the increasing competition for coverage. 'We're fighting for air time, getting our voice heard, as there are so many companies,' says one. Another adds, 'Trying to fight for attention to get your message across. There are so many new markets to invest in, making yourself heard has become quite a major issue.'
Opinions are divided over environmental reporting and ethical investing, though most IROs expect to see a rise in the importance of both. 'There is a need for greater transparency. There should be more environmental communication,' opines one IRO. This attitude contrasts sharply with others. 'Socially responsible investing [SRI] is a complete waste of time,' is one response, while another adds, 'There is already too much time spent on report writing - be it on environmental friendliness or social responsibility.'
Belinda Howell, director at Business in the Environment, a London-based environmental reporting group, believes investors are more interested in such reporting if it is integrated into the corporate story: 'A typical analyst will not be interested if they are presented with environmental reports in isolation. If companies can portray a joined-up picture, an integrated view, both mainstream and SRI investors will be interested.'
There are many gripes. Among them are IR consultants: 'There will be increasing numbers of consulting firms attempting to occupy one's attention and competing for services that someone else already provides.' Another gripe is shareholder activism, with one respondent expecting a 'rise in ill-informed shareholder activism by small, special interest funds.' One respondent has a particularly glum view of IR: 'There are no key issues. I think IR is an awful task.'
Just as interesting are the topics omitted by respondents. Few mention the euro or market integration as key issues facing them, preferring to focus on matters closer to home, such as disclosure and competition for coverage.
Institutionalized
As for changes IROs anticipate in Europe over the next five years, there is an even greater variety of responses. Some believe institutional investors will tighten their grip on European markets as the shift from bonds to equities gathers pace: 'We will be less reliant on brokers and become predominantly institutional-based.' There are expectations that continental European investors will enter the UK markets in greater numbers: 'I'd imagine Europe will continue to open up their interest in buying UK-based equities.' And UK investors are expected to make the opposite leap across to the mainland: 'UK investment houses want to become more pan-European.'
Some IROs expect market regulations to get tighter. However, 87 percent agree that the current rules are 'about right', so it will be interesting to see the reaction from the investor relations community if the regulators get more active. One IRO has come to a firm view already: 'We will see tighter regulations and, for the record, I do not welcome them.'
The specter of Reg FD looms large over Europe's IR community. 'Because of FD going on in the US, regulations will probably filter over here,' comments one. Others report that though not formally bound to follow FD, they are trying to observe it anyway. Another concludes: 'I expect we'll fall into line with US disclosure requirements, and the use of technology to communicate will continue to increase.' In the US, FD has been credited with driving the proliferation of webcasting, and Europe looks set to follow suit.
Very few IROs finger stock market consolidation or the euro as developments to watch in the next five years. But despite the climate of concern over disclosure and depressed markets, there is still optimism. 'IR will carry more weight in five years time compared with now as communication with shareholders has increased in importance,' reasons one IRO. Another adds, 'I think we will have an IR focus in the recruitment of top management. You will have to find top people who work specifically in IR.' More respondents are happy to predict the growth of IR: 'More and more IR teams will be bigger. Budgets will increase.'
On the other hand, there is evidence from the survey that some IR departments are struggling. When an IRO says that instead of introducing innovations the department will 'streamline activities rather than combine with corporate communications,' you know that someone is fighting to hold onto a job.
What IROs say about...
Webcasting
'We started it last year and it was quite successful for contacting the US'
'We may introduce webcasting because everyone else seems to be doing it'
'I believe that with FD we should broadcast our live presentations'
Volatility
'Market cap is very easily off the Richter scale'
'We have scaled back our activities -the stock market is too volatile'
Increased regulation
'This potentially makes it more difficult for us to communicate our company's story'
'Regulation and over-prescription of rules and regulations... It is becoming far too regulated'
Buy-side/sell-side
'I can generate interest in shares but there aren't enough people willing to sell them'
'Just getting to see the right people is a challenge. You can't just see the top 20 in the UK anymore'
'The dividing line between analysts and brokers has been, and will continue to be, disappearing'