IR Magazine Think Tank – West Coast: From big data to big headaches

May 22, 2014
<p>Sound bites from the ninth annual meeting of IROs in Palo Alto</p>

Using big data to understand your shareholders

‘As IR begins to partner more with our general counsel on corporate governance matters, better insight into who’s buying our stock, who’s holding and their current and prior voting patterns has become critical, and it’s even more critical in activist situations.’

‘There’s a lot more pressure from the C-suite and board members wanting information. Combine that with all the buzz around big data and the ability to crunch and mash data allows us to do some really interesting things around the shareholder base, including getting a view of the actual behavior of both institutional and retail shareholders.’

‘We haven’t focused on our retail base in the past mostly because it wouldn’t move the needle but also because it hasn’t been cost-effective. Now technology is making understanding and reaching out to our retail base cost-effective. Our retail base represents a large pool of unvoted shares, enough to make it equivalent to a top shareholder. That could be a big deal in a contested situation.’

‘Companies are thinking of very different use cases, such as looking at retail investors as consumers and sharing voting data with marketing, or using it for corporate responsibility programs. The technology available lets them track and measure response, so without identifying any individual shareholder, they can treat the whole retail base like they would one of their institutional relationships and track the performance of their communication.’

Fight or settle in the era of activism

‘Companies are settling more with activists because these battles are incredibly bruising and can take an emotional and temporal toll on management, with months and months of management being focused way more on the fight than it is on the business.’

‘There are times when settling makes sense because the activist is co-operative and has good ideas. But there are times when the activist is completely wrong and the company should reach out to its shareholders and do what it has to do to protect the company’s interests.’

‘There’s a perception that the institutional investment community is very much behind activists. That can be the case, but not always, and as IROs, you shouldn’t make that assumption. The decision about whether to fight or not should be influenced by how you poll your shareholders, rather than just flipping into capitulation.’

‘If it’s not a question of giving up board control, some long-term shareholders are now more prepared to support an activist coming on as a director as it can provide more discipline to the board in terms of discussion.’

‘We advise every company to go through a vulnerability assessment: have somebody from outside put a black hat on and come at you as if he or she were an activist. Having assessed the holes in your strategy, you can start to prepare the positive and even proactive messages you can use to defend against those attacks.’

Investment pro tribunal

‘Only do an investor day if you have something new. The worst thing for a sell-side analyst is to come out of an investor day and only be able to write a one-page note because there was so little information given out.’

‘As a company, we look at non-deal roadshows as relationship building and education and we don’t go out saying, Here’s why you should invest in us now. Some investors seem to be focusing on the ‘why now? element. But we want them to understand our story so that in good times or bad they’ll know why they should hold us.’

‘At the end of every roadshow I tell analysts, Publish what you want, but publish your opinion, not what management said. Otherwise anything they write could be the smoking gun of a Reg FD violation.’

‘When allocating sell-side access, we don’t think about who’s big or who’s small; we think about who adds a lot of value. For example, we push hard for feedback and it’s surprising how few analysts do that well. It’s the ones who do that we gravitate toward.’

‘The sell-side analyst’s role has changed drastically since the infamous Galleon insider trading case in 2009. Investors don’t want as much ‘channel check’ information. Instead I rely heavily on publicly available data for my mosaic.’

New ideas for benchmarking

‘This is the year social intelligence is being combined with business intelligence. By 2015 it will be just plain old intelligence. Customer service metrics are being combined with sales, social and market intelligence, and executive ‘dashboards’ are tracking correlations between what’s measured internally, in the marketplace and in terms of perception.’

‘Quantifying IR isn’t like measuring same store sales, but it’s important to think strategically about what drives our efforts. Most IROs have key performance indicators or personal goals in addition to corporate goals, but stock price appreciation should not be one of them.’

‘A lot of companies are very good at logging meetings and other reactions, but make sure you go back and reflect on them and pair your program with outcomes. Different activities could have a different value depending on shares held, or opportunities for new investment, or the turnover rate of the investor, for example.’

‘For any investor meeting, you should try to answer the question, Why is that person sitting on the other side of the table? Lately we’ve been focusing on the cost basis of existing investors and how it fits into their portfolio structure: it allows you to see the patterns of an investor’s holdings, which can help a lot in crafting your story and knowing how to handle the meeting.’

‘Short-interest is a good indicator that people are skeptical about something in your company’s story, so if short interest goes up, you need to find out why. Low short-interest means you have a lot of believers.’

Activism checklists

Six current trends
1. Size is no longer a preventive measure – witness Procter & Gamble
2. Rise of the request for activist: mainstream investors are tipping off activists about underperforming companies to go after
3. A growing subculture of small activists may not have as much money or the media’s ear but can attack with a bang and be very nasty
4. More fights for control, with activists gunning for the whole board without paying a control premium
5. Settlement fever
6. Activism in the tech industry, with many situations going on behind the scenes in addition to the high-profile situations of the past year

Attack triggers
1. Underperformance
2. Pattern of entrenchment at board level, such as classified boards or dual-class stock
3. An occurrence like an unplanned CEO change no one saw coming
4. A reputational event with negative implications for the company
5. Series of operational missteps suggesting a lack of board oversight
6. Below-average support for management proposals or above-average support for shareholder proposals in past proxies

Vulnerability assessment
1. Do you have too much cash on your balance sheet, whether or not it’s stuck offshore?
2. Is your operational expenditure bloated and in need of more discipline?
3. Should the company be put up for sale?
4. Are there divisions with no synergies whose value could be unlocked if they were sold off?
5. What’s your shareholder return over the last three years?

IR Magazine Think Tanks are invitation-only events for select groups of corporate IROs. Find out more about upcoming think tanks around the world at www.irmagazine.com/events.

Bank of America Merrill Lynch, Broadridge, Ipreo, Joele Frank and Marketwired sponsored the event

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