The challenge for AES is communicating a unique corporate culture
Investor Relations magazine sometimes stumbles unknowingly into the crossfire of turf wars when we approach an IR department famed for its speedy responses - and find ourselves hanging on the phone in corporate communications. There is no such problem with global power company AES Corp, whose slimline headquarters in Arlington on the outskirts of Washington DC is a reproach to the sprawling Federal bureaucracy down the road.
No turf and no turf wars are the result of the lawn-rollered management structure at AES. With a growing global network of power stations worth some $4 bn, the company's managerial network is designed to offer the least bureaucratic resistance to a current of new ideas. Indeed the fewer than 60 staff at the head office, including all the corporate officers, are scarcely numerous enough to restrain the initiative of the rest of the company. 'And we reduced by 17 percent last year,' says senior vice president Ken Woodcock proudly.
The investor relations department is cast in the same mold. 'Investor relations is just one of the many things I do since our chairman Roger Sant announced he would be devoting more time to his personal philanthropy, the World Wildlife Fund,' Woodcock says matter-of-factly. 'Of course AES has no structure. Management is decentralized, and the classic example of this is the informal group of eight or nine people who contribute to our investor relations effort as needed.'
Woodcock's assistant, Sandra Ross, backstops his efforts, while Barbara Roberts, administrative assistant, helps with many routine questions. Meanwhile, finance and accounting experts are also available for investor queries, and the AES planning group creates detailed financial models and reacts to models provided by analysts who follow the company. Then there are the computer people who maintain the company Web site.
Online On Time
With all the personnel involved, how does IR keep its structural integrity? 'We're very task-forcey,' Woodcock states. So, for example, the AES annual report is compiled by the CEO, the chairman, and the whole IR team, with the accountants as the contact group. The result is not the two-headed beast you'd expect from a committee. It's actually quite colorful and readable.
AES is also very proud of its Web presence, befitting a company whose global corporate culture is heavily dependent on constant e-mail communication (www.aesc.com). All press releases are posted on the home page immediately upon release, and the site has a list of all the plants that the company owns. 'Whenever anyone calls, we always refer them to our Web site and highlight our URL address on our press releases,' Woodcock says. 'We still send things by mail on request, but we get the most mileage out of the Web site.'
AES gets a fair amount of mileage out of Woodcock himself. In March, he returned from a successful global roadshow through Tokyo, Hong Kong, Singapore, London, Glasgow and Edinburgh, as well as over a dozen cities in the US. After a quick pit-stop at headquarters, he was on his way back to Hong Kong and China. The tour was to promote the offering of $400 mn in convertible preferred stock to finance further acquisitions abroad.
Real Response
Conventional wisdom says that relations with investors would be fairly tenuous for a company which boldly says profits are not its prime motive and that it has little or no intention of buying back shares or paying dividends in the foreseeable future. 'Our real focus is responding to the world and its need for electricity,' Woodcock says. 'If we do a good job there, then we'll make a good return for our investors - but that return is not the only objective.' On the brighter side for investors, he adds, 'We have 25-30 percent compound growth and we need equity to grow the company.'
Relishing his role as arch heretic, Woodcock declares, 'This is a company whose core values are fun, social responsibility, fairness and integrity, and I'll openly admit that if there's a conflict with making a profit, then I'll put the profit second.'
The origins of this strange beast called AES were in the 1980s, when it was launched by Roger Sant and Dennis Bakke to take advantage of worldwide power business deregulation. The founders - including Ken Woodcock - wanted to create a new style of business in which people had more fun at work than at weekends, and in which every employee took part in managing.
The SEC, for one, was so disturbed by this subversive management philosophy that it insisted the odd culture be listed as a business risk in the company's first prospectus. Now, according to Woodcock, most investors say that they like the AES style - or at least they like the 30 percent growth it has been delivering.
But it has not always been so. In 1992, the markets roughed up AES after it suffered a double whammy: the governor of Florida withdrew the permit for a half constructed $500 mn plant and, in a spirit of openness, the company volunteered that employees in Oklahoma had tampered with waste water samples.
'These incidents were embarrassing, and not handled well from a PR point of view,' Woodcock admits. 'They had a big shock on the stock price and raised questions about our innovative, highly unstructured, and decentralized management style. There were appeals by the outside world to revert to a more hierarchical structure.'
Defying the plummet in the price, the company resisted change, and now presents its unstructured structure as its most important competitive advantage when meeting with investors.
Excellent Adventure
Woodcock cites Bob Waterman, author of In Search of Excellence, about competition between staff and line in traditional organizations and the need to give all the responsibilities to line organizations: 'Well, we took that to extremes. You can certainly avoid tension between staff and line - if you have no staff.' Still, Woodcock has assumed principal responsibility for IR, where the absence of an identifiable leader may have hurt the company during its time of crisis.
Although he did not have any direct investor relations experience when drafted into the job, Woodcock was well prepared to explain the AES strategy and story to investors. He was one of the 'Gang of Four' who founded the company after working together in the executive branch of the Ford and Nixon administrations during the 1974-1975 oil embargo.
An engineer by training, with an MBA to boot, Woodcock is used to dealing with governments and utilities all round the world, threading the company's way through regulatory environments. Now he combines such a development role with his investor relations role, finding the long lead times in government dealings a striking contrast with the investment community - 'since investors want information on what happened three minutes ago.'
Riding Cycles
As Woodcock points out, the power business works on long cycles and appeals to long-term players. 'Investors today are getting the benefits of the plants that started in 1986, and acquisition development efforts begun five to seven years ago.'
For instance, an acquisition like a recent one in Hungary provides returns almost immediately, but AES visited Budapest for six years before clinching the deal. And a 'greenfield' site in Maryland which Woodcock began working on in 1986 will not go commercial for another two years. But with 70 opportunities under scrutiny worldwide, there's a lot of scope - hence the global roadshow.
'Many companies, even those with household names, have only recently begun advancing their companies to investors around the world,' Woodcock notes. 'But as we started calling ourselves a global power company two years ago, we thought it was appropriate to go global for investment too. One of my goals, having started Asian and European roadshows, was to expand the ownership of AES outside the US to match our expansion. Obviously as markets open up for a non-utility company, it makes sense for us to expand the shareholder base in Europe and Asia.'
The AES target is a 10 percent non-US stake, but it has a very long way to go considering the current shareholder base is 99 percent US-based. Woodcock draws hope from the low but steadily growing ownership of US stocks by Japanese investors, and similar low rates in Europe. 'From our point of view that's very good - because the ratio can only go up. Investors around the world are waking up to the revolution that's going on in just how electricity is generated and distributed,' he declares.
Among the shareholders signed up for the resistance to power monopolies so far, Woodcock enumerates, '38 percent of shares are owned by AES employees with our chairman and CEO owning around 25 percent. Around 45 percent of shares are institutionally held.'
Until recently individuals were not very interested: 'But we did get a fair response from retail investors to our last offering, and I would guess it will go up with time.'
Horizontal Advice
With wry humor, Woodcock reports that one of the most important bullets in the current AES presentation is precisely what caused wobbly Wall Street faith five years go: 'It is that we have more people, in more places, spending less money, covering every market in the world. And we can do it because we're lean, decentralized, with people who take ownership and with loads of horizontal advice seeking and giving that really ties us together.'
These reassurances are imparted to analysts and portfolio managers - whenever they call and at the company's annual analysts' conference: 'We have them as guests at a nice resort and their spouses are invited. The last two were in Florida and next year's will be in Palm Springs, where over two days they can meet the officers from here in Arlington as well as the people who really run AES - the eight division directors spread across the world from Beijing to London.'
That same sprawling network also allows AES to avert one of the major fears for investors in a company with 70 different politically sensitive projects on the boil in 29 different countries.
Woodcock's first defence is runaway diversification: 'As we move toward the year 2000, we begin to see 15-20 different contributors to cashflow and earnings. But no single plant will have more than 14 percent of the total. By contrast, in 1992 our earnings were dominated by two US plants.'
The second defence is against political perils, since at first glance AES plants could be subject to nationalization and over-regulation. However, as Woodcock explains, 'When asked by investors if we have a certain percentage of plants in a higher risk category, we shake our heads and tell them no. We have added loads of measures to mitigate the risks where we need to. First, we design the security package and the risk management package for each project on a case-by-case basis, without a uniform approach, and with each project team deciding what's appropriate for them.'
'Every political risk is relative,' Woodcock concludes, adding dryly for the benefit of those scared of the wild and woolly rest of the world: 'Really, Florida is the only government that has essentially expropriated a plant away from us.'
What the Analysts Say
Tim Dodman
UBS Securities
'What we're looking for is information at our finger tips, immediately, and AES is always there with it,' Dodman enthuses. Dodman continues, 'Every company meeting is open to all employees, so information is fairly widespread. And, Ken Woodcock is a fairly senior officer, and makes a point of going to all the meetings and staying in tune with what's going on in different areas of the world.'
The flattened IR department, he reports, 'does work. In the past they had some people that were not so well tuned in, but Ken knows what we want to know and has it ready; he anticipates our needs.'
It was not always this way, as he recalls: 'A while ago, the stock was down low; I guess Wall Street didn't see the results of all this fun the guys at AES were having. But then, analysts began to appreciate the productivity benefits.'
Dodman is impressed with the practical demonstration of AES's methods at the analysts' conferences in Florida: 'They are very casual, but over the weekend, with information and fun together, you get a real feel for what the company is about.'
Paul Parshley
Lehman Brothers
Parshley concurs with the reports of other analysts: 'The stock's performance says AES is doing nothing wrong in its management style,' he says. 'There is substance in their talk about values. On the other hand, 38 percent of the stock is owned by management. So I think they pay a lot of attention to shareholder value since they own so much of it themselves. I think if I were in their position, I'd say the same thing.'
Parshley adds, 'They have changed their approach in an important way in the last 15 months, with the appointment of Ken Woodcock. He was one of the founders and maintains an interest in some of the development work.'
Parshley admits he was at first concerned that Woodcock was trying to do too many things at once and would not be able to offer the instant availability that analysts crave: 'The risks you run into with IR are that someone is too junior to give you an insight into senior management strategy, or that someone is so involved in other parts of the business that they are not available enough. In Woodcock's case, since he was top management, I was confident that he knew his stuff, but I was worried whether he had enough time.'
Happily, Parshley's fears were not substantiated. 'I've found him to be very responsive and accessible. I think he's done a very good job in seeking out meetings with investors. With all its growth in the past 15 months, they had to try to broaden its traditional investor base to look for investors who would not normally have bought into AES.' Woodcock also hasn't been afraid to speak to people who have been unhappy with the company. As Parshley says, 'AES is anxious to seek out such people and allay their fears.'
Ali Agha
Donaldson Lufkin & Jenrette
'On access to information, AES is very good,' says Agha. Since the company set up its IR program, 'they have kept the investment community up to date. While management is decentralized, there's a lot of information flow across the company, and it's all readily available.' Agha notes that there are no barriers to approaching various AES divisions for information.