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Nov 30, 1997

Visions of Sugar Plums

Shareholder perks

Every holiday season, some of the world's IROs play Santa Claus, dishing out plums to shareholders in the form of discounts, small gifts and unusual offerings. With these perks, companies reward their shareholders and cement bonds with affinity groups. 'If you think about it, shareholders are the owners of the company,' says Charles Carlson, author of Free Lunch on Wall Street: Perks, Freebies and Giveaways for Investors. 'And if you're going to give anyone a break, it should be the owners.'

Shareholder gifts come in all kinds of wrappers. For instance, each December since 1934, Wm Wrigley Jr Co has sent its registered shareholders - regardless of how many shares they own - 20 packs of chewing gum, interrupting the program only once from 1942 to 1945, when World War II created a supply shortage.

Last year, Wrigley sent out 38,000 boxes of Doublemint, according to Mary Jo Foss, stockholder relations manager for the Chicago-based company. 'It's our way,' says Foss, 'of thanking our shareholders and letting them know we appreciate their support.'

While Wrigley distributes free samples, other companies dole out discount coupons or price breaks, and a handful of companies boast one-of-a-kind offerings, like Chalone Wine Group's vineyard tours. 3M and Kimberly-Clark give shareholders the chance to buy holiday gift boxes, chock-full of the company's trademark products.

Even dividend reinvestment programs (Drips) and direct investment plans can be viewed as perks since they grant individuals relief from the normal brokerage-fee burden associated with investing.

PR with IR

Debbie Emery, Chalone's IRO, says one of the greatest benefits her company reaps from its stockholder perks program is the attractive PR. Wine aficionados are likely to buy and value Chalone stock for the one-of-a-kind access to the company's vineyards they then enjoy. Chalone even admits shareholders to some vineyards that aren't ordinarily open to the general public, such as Chateau Lafite-Rothschild in France, says Emery.

Such generosity pays off. 'The shareholders help to promote the company,' says Emery. 'They go into restaurants and ask for Chalone's wine. If it's not on the menu, they say they are shareholders and ask for the wine to be included.'

Emery also points out that when shareholders tour the company's facilities, they frequently bring along friends or family members who sometimes become interested in the company and invest themselves.

Alex Clay, investment manager for UK-based Premier Fund Managers, emphasizes the lift a company's image can get from a valued giveaway program. Perks are, he says, a way companies can burnish their 'caring-sharing profile.'

Clay points out that coupons and discounts make a nice little extra to boast about on a Web site or in an annual report.

The right perk can also help a company capture the attention of a specific market. Wrigley's holiday gift box has made the stock a darling among parents and grandparents who want to launch their kids on a lifetime of investing. Chewing gum is 'a product children can relate to,' says Foss. In the US, at least. She wouldn't reveal this year's flavor 'We don't want to ruin the surprise', other than to say that the company rotates its classics annually.

Once established, though, perk programs can become an entrenched holiday tradition that can't easily be cancelled during hard times. Kimberly-Clark, which has offered a shareholder gift box for 40 years, only appreciated the popularity of the program when the company tried to end it in 1990. To Kimberly-Clark's surprise, there was a large outcry from individual investors, recalls spokesperson Angie McCoy, who adds, 'We brought it back the next year because shareholders really missed it.'

Perky Pull

Everyone agrees that a handful of companies with exceptional offers do attract investors on the strength of their freebies. For instance, London-based P&O's shareholder discounts are so extraordinary that investors bequeath its concessionary shares to their heirs, according to Michael Owen, deputy company secretary.

Owen explains that anyone who holds 600 concessionary shares in P&O gets to ride the company's Dover-to-Calais cross-channel ferries at half price. For investors who regularly shuttle back and forth between England and France, the ú750 or so it takes to purchase the requisite 600 shares could be fully recouped in travel savings if they were to cross the Channel just three or four times in peak season with a carload of guests.

The 50 percent discount on channel crossings is a marketing gimmick that dates back to 1960, when P&O didn't have many shareholders. Today, the perk is a formal right that can't be abolished. Because no new concessionary shares are being issued, opportunities to invest are rare, occurring only when 'people die, get disillusioned, or are too old to travel anymore,' says Owen. Were shares readily available, Owen is convinced that more investors would hop aboard for the perk.

Buyers & Cellars

Shareholders in Napa, California-based Chalone enjoy the privilege of entering the company's caves and tasting wine directly from the barrels. Connoisseurs can also stock their own private cellars at a discount since Chalone produces five special shareholder catalogs a year, with up to 25 percent off the full retail price of its wares. In addition, Chalone has escorted shareholders who pay their own way on vineyard tours, allowing them to visit Australia, South Africa, Portugal, and the Bordeaux region of France.

A liberal perk program like Chalone's imposes stiff requirement precisely to discourage one-share stockholders hungering for the proverbial free lunch. Emery stresses that investors have to ante up nearly $1,200 for 100 shares to qualify for its sweeping benefits.

P&O's and Chalone's marquee programs are exceptions to the rule, according to Peter Hargreaves, CEO of Hargreaves Lansdown in Bristol, UK, who maintains that the typical company attracts only a marginal number of new investors with giveaways. All things being equal, an appetizing perk might sometimes clinch the deal, according to many IROs, but perks are unlikely to be the sole reason for investing.

Phil Lynch, director of corporate communications for consumer-products giant Brown-Forman, is convinced that investors don't invest in his company exclusively for the perks. His evidence? Even though his company often offers deep holiday discounts on its Lenox china and Hartmann luggage, 'there are very few shareholders who own just one share,' says Lynch.

From an investor's perspective, it makes sense that perks aren't tempting bait. 'I don't think anyone should invest in a company on the strength of the perks. That's a mug's game,' says Premier Fund's Clay. 'To buy something because it gives you 10 percent off a holiday, doesn't mean the company is in good financial shape. It might mean just the opposite.'

Slaves to Fashion

Perks seem to behave like any other trend or fad - they're either in or out, depending on the vagaries of the marketplace. In the US, greater attention to the bottom line has negatively affected perks. 'There has definitely been an increased cost consciousness in corporate America over the last five to ten years,' says Carlson. Consequently, he believes that the popularity and number of US shareholder perks have declined.

Although perks may have lost a step with American IROs, they're on the upswing in Australia, where the concept is relatively new.

John McLean, group historian and shareholder contact for Pacific Dunlop, describes shareholder perks as 'a growing industry in IR in Australia.' Pacific Dunlop, for example, began giving shareholders a discount on automotive parts in 1989, and thereby boosted product sales.

David Ward, general manager of investor relations for Australia and New Zealand Banking Group in Melbourne, suggests that perhaps a dozen of the top 100 Australian companies now boast perks - his company included. The bank gives shareholders commission-free travelers checks and discounts on loans and brokerage fees.

In the UK, the practice of giving gifts to shareholders is hampered by a market-wide constraint: individual names don't appear on UK custody accounts, which means that many perks never find their way to the proper recipients, according to Guy Knight, marketing director for ShareLink in Birmingham. Knight suggests that shareholder-friendly companies should take it upon themselves to ask brokerages for the names of investors and then mail those to shareholders perks directly. As it is, perks can sometimes be more of a nuisance than a blessing for individuals and brokerages, he says.

Knight also criticizes the current crop of UK freebies for failing to be sufficiently enticing for prospective individual shareholders. 'The majority of perks are not that generous,' he says, adding that 'they have lots of small print with them.' Knight also faults some companies for offering better deals to the average Joe than to their own shareholders. The Party's Over

One of the more memorable perks of yesteryear was the opulent annual meeting with free-flowing drinks and a gourmet spread. Michael Watras, president and CEO of New York's Straightline International, recalls that in the 1980s some American companies hosted fancy luncheons, where all comers would be handed a keepsake. 'That's somehow gone out of fashion,' he says. Watras applauds the new corporate restraint in this area: 'I think it's a mistake to make an annual meeting a festivity,' he adds. 'It's the wrong venue to feed people or give gifts.'

IROs in Australia and the UK also report that today's annual meeting is no tea party. What passes for a shareholder meal in Australia is quite modest, says Ward, who notes that hospitality at his company's annual meeting extends no farther than 'a cup of tea and sandwiches.'

David Skinner, IRO for the Asian region for Rio Tinto in Melbourne, tells the same story: 'People may elect to get one share to raise a question, but not to get a lunch.' Anyway, as Ward explains, prohibitively high brokerage fees in Australia - the minimum is around $100 - all but rule out the possibility that someone would buy a single share for a complimentary meal.

The closest Australian shareholders might come to a bash is the annual meeting for Normans Wines shareholders, who are usually invited to sample the company's wares, according to CFO Robert Horlin-Smith. 'It is the wine industry and most people like to know what you're producing,' he says. Still, Horlin-Smith scoffs at the suggestion that anyone would invest in his company in order to attend such a modest event.

Some companies do sponsor ritzy affairs for shareholders, but these events are distinct from the annual meeting. Transportation powerhouse CSX, for instance, hosts three shareholder house parties a year at the Greenbrier (its luxury resort in Sulphur Springs, West Virginia), according to IR director Joseph Wilkinson. For the price of a single share, investors enjoy discounted rates for the parties, as well as one annual visit to the luxury hotel at a 10 percent discount.

Chalone also sponsors an annual May celebration with a buffet lunch under a big-top tent, says Emery. Attendees pay $65 apiece. One year, as many as 1,500 of Chalone's 12,000 shareholders took part in the festivities.

What the Future Holds

Perks don't have to be expensive to please shareholders. In fact, some pay for themselves. Kimberly-Clark says that its gift boxes are a break-even proposition. To spend less but still maintain worthwhile perk programs, companies should be creative, urges Straightline's Watras. 'Even if you're in the banking industry, why not get a shareholder to bank with you and give free checking?' he asks.

Modest give-aways do cost companies money, but so do the free samples and coupons that rain down during any other marketing campaign. More importantly, extras buy goodwill. Wilkinson describes CSX's discounts at the Greenbrier as 'a charming little perk for shareholders.' For this reason, he says that it isn't regarded as an unnecessary cost. 'No-one ever says Let's do away with that darn thing. It's costing us too much,' says Wilkinson.

In the end, Watras encourages more companies to embrace perks. He suspects that the popularity of shareholder giveaways and discounts in the US has waned because they're perceived as 'a little down-market or a little too cute.' But he believes freebies and discounts do serve an important purpose. 'No-one is going to buy the stock because they're going to get some coupon or perk,' he says. 'But perks put a human face on the company. The shareholder goes around and touts the stock and becomes an ambassador.'

Perks Across the World

Here are examples of shareholder perks from three continents.

British Airways: A shareholder holding 200 ordinary shares of BA stock since April 11, 1996 is entitled to 10 percent off many leisure flights for themselves and for three additional family members.

Tandy Corp, Fort Worth, Texas: Tandy sends discount coupons on products with its quarterly reports. In June, the company gave shareholders $30 off Radio Shack purchases of $200 or more, and 10 percent off the purchase of any telephone from Computer City.

Bank of Scotland, Edinburgh, Scotland: For shareholders who have held 1,200 ordinary shares for one year, the enrollment fee and annual subscription are waived on the company's premier Visa card, as are commission charges on Visa travelers checks. Also, travel insurance premiums and the bank's PEP management charges are discounted.

Coles Myer, Tooronga, Australia: Anyone with 500 ordinary shares receives a discount card for two with a range of markdowns at stores like Kmart, Target, Liquorland, Myer and Grace Bros.

3M, St Paul, Minnesota: For $9.50, 3M investors can give friends or family members a holiday gift box with a dozen 3M staples, such as Post-It notes and a Scotch-Brite power sponge. The program is popular. In a recent year, 3M, which has 133,000 shareholders, mailed out 45,000 gift boxes.