Yes, it’s Another Post about Activism

I’ve written about activism before, but a recent blog by Bloomberg Business caught my attention and spurred me to write again.

Though probably not a surprise to anyone, activism is on the rise, at least according to a survey conducted by law firm Gibson Dunn. Halfway through 2015, there were nearly as many activist campaigns afoot than for all of 2014. Further, the number of funds engaging in activist activities was higher for the first six month of 2015 than for the full year last year … 42 versus 35, respectively. According to the study, the most common reason for activist involvement so far this year has been board representation, followed by M&A, with return of capital a distant third. The New York Times recently noted that activist hedge funds now manage more than $129 billion in assets, compared with $29 billion just 10 years ago.

What does all of this activity mean? Is activism good for companies? Does it bring about positive change? A recent Wall Street Journal article asked the question: “Are Activist Investors Helping or Undermining American Companies?” After a comprehensive look at how activism has impacted large U.S. companies (greater than $5 billion in market cap), the resounding answer was maybe. According to the Journal, “Activism often improves a company’s operational results—and nearly as often doesn’t.” So, what’s the point?

As Wendell Willkie, II, visiting fellow at the American Enterprise Institute and of counsel at Steptoe, wrote for Fortune, activism has gone overboard, stating, “In their quest for quick returns, activists make the mistake of forgetting that it takes time and patience to position any company for success.”

A survey conducted by the National Association of Corporate Directors (NACD) reported in Accounting Today, showed that more than 20 percent of corporate board directors said their boards have been approached by activist investors during the past year. However, 46 percent of those polled do not have a plan in place for responding to activist challenges.

What should companies do when faced with activism? Or perhaps the better question is what should companies do before being faced with activism? Warren Buffet believes that “The best way to keep activists away is to perform reasonably well in your business and also to communicate well with your shareholders,” as noted during a speech at Fortune’s Most Powerful Women Summit in Washington.

Willkie says companies should plan for the emergence of an activist by taking proactive steps to increase shareholder value including share repurchases and cost reductions. But what if you can’t head them off at the pass? The Wall Street Journal recommends the growing popular belief that companies should not shun an activist or completely agree to all demands. The NACD survey pointed out that most frequently, boards have expanded compensation explanations in their proxy statements, revised executive compensation plans or implemented (or changed) their dividend and/or stock buyback policies in response to shareholder demands.

In my experience, when an activist comes knocking, most CEOs take it personally and dig their heels in to mount a defense. While that may be the proper response in certain cases, there is no one-size-fits-all solution. Know your shareholder base, treat each investor with respect (activist or not) and carefully evaluate any proposals that are sent to the board to ensure that whatever route you take will ultimately result in a win for the company’s shareholders.

— Laurie Berman, lberman@pondel.com

Join us in Orange County

Some big names in the world of public companies have agreed to share their insights at two fall conferences at which PondelWilkinson is among the sponsors: UCI’s Audit Committee 2015 Summit and the Orange County Public Company Forum.

UCI Audit Committee Summit 2015, October 23

James Schnurr, SEC Chief Accountant, will be flying in from Washington, D.C. to discuss the confluence of significant changes being contemplated or enacted by the SEC and other regulatory bodies that significantly impact audit committee responsibilities. Following Schnurr’s keynote address will be two interactive panel discussions.

The event will take place Friday, October 23, 8 a.m. to noon, at the Pacific Club in Newport Beach, 4110 MacArthur Boulevard. To register, visit merage.uci.edu/RegisterEvent/2015Audit.

Orange County Public Company Forum, November 18

David E. I. Pyott, former Chairman of the Board and Chief Executive Officer of Allergan, will provide his insight into the world of M&A, gained in part, from one of the highest profile M&A deals of the year, when Actavis acquired Allergan, and then changed its corporate name to Allergan. Pyott’s keynote address will be followed by an expert panel from all walks of the M&A spectrum.

The Forum will take place Wednesday, November 18, 7:30 a.m. to 9:45 a.m. at the Westin South Coast Plaza Hotel, 686 Anton Boulevard, in Costa Mesa. To register, please follow this link.

— Roger Pondel, rpondel@pondel.com

If David Letterman was an IR Guy

Perhaps even more unlikely than injuring yourself while playing Mahjong is the sliver of possibility that David Letterman will be leaving his new retirement life to become … wait for it … an investor relations professional. I can’t even imagine what the probability of something like that might look like as a percentage: .00000000000001%?

Source: Mass Communication Specialist 1st Class Chad J. McNeeley

Source: Mass Communication Specialist 1st Class Chad J. McNeeley/Released

What is possible, however, is coming up with one of Letterman’s famed top-10 lists to define key concepts of IR, especially for management teams that are new to life at the helm of a publicly traded company. Following is our initial list, and we encourage you to add to it on Twitter at #LettermanDoesIR.

1. Under promise and over deliver

2. Treat your shareholders with dignity, even if they’re seething with disdain

3. Love (or at least do not fear) thy activist

4. Show investors, don’t tell

5. Strategize, execute, perform, communicate
or
Strategize, communicate, execute, communicate, perform, communicate

6. Transparency wins

7. The numbers will tell

8. Perform, not promote

9. Do not bury the lead

10. The story is the business, not the stock price

— Evan Pondel, epondel@pondel.com

Tales from Wall Street: Dealing with the Angry Investor

It’s been a very rough last few days on Wall Street. After nearly 20 years of doing investor relations, I’ve learned to weather the storm when it comes to crashes, corrections and the impact of what the Fed says (or doesn’t say) on any given day.

That said, investing is not just an intellectual exercise, but an emotional one, too. Whether it’s the Dow dropping 600 points, or less than stellar earnings results, chances are that if you are a public company CEO, CFO or investor relations professional, you’ve dealt with an upset investor.

Following are my dos and don’ts for dealing with an angry or upset investor:

Do actively listen. The best way to do this is to take good notes on what the investor is saying.

Do show empathy. Acknowledge what the investor is saying (and respectfully ask for clarification when needed). Treat every investor with genuine respect.

Do be calm, matter of fact and professional. Dealing with a professional or personal investor’s investments can be highly emotional. Be conscious of your body language and tone of voice. If an investor is profane or abusive, don’t respond in kind. Instead, remove yourself from the situation if you feel tempted to “fight back.”

Do correct misinformation and take the emotion out of the exchange. Avoid attacking the investor’s emotions or feelings about a stock when addressing any misinformation they’ve brought up. Your job is not to change their mind about how they feel about a stock – but to present them with factual information.

Don’t respond with sarcasm. While it may be OK in context among friends, it has the potential to be misinterpreted in a written conference call transcript or when an investor posts what you said on a message board.

Don’t get defensive or try to “solve” the issue right away. Wait for the cue or ask the investor for permission to ask questions or respond.

Don’t say “The stock is turning around or it’s going to go up soon.”

Don’t, under any circumstances, try to advise the investor on whether or not they should keep or sell a stock. If the investor asks you, “What would you do?” the appropriate response is “It would be inappropriate for me to advise you on whether you should buy or sell your stock.”

Do talk about your company’s “investor” story. Each company has its own unique investor thesis. Emphasize the fundamentals of your company’s story.

Do be proactive in your response, but don’t promise anything you can’t deliver. If you don’t know the answer, don’t make one up. There is nothing wrong with saying “When is a good time for me to get back to you on this issue?”

Do keep your answers short and to the point. It can be tempting to try to add additional assurances or information to your response, but when dealing with public company information issues – the best response is to stick with information already public.

– E.E. Wang, ewang@pondel.com

Tales from Wall Street: Surviving Earnings Season

If a non-deal road show is a planned marathon made up of many, many sprints – earnings season is like a sprint that feels like a very long marathon.

At the risk of sounding a bit like a New Age-y Californian, here are the tips for how I survive earnings season:

  1. Stay Fueled. For you, it may be a Starbucks triple espresso, but for me, it’s my morning smoothie. My personal favorite recipe has 2 cups of kale or spinach, ½ a red grapefruit, ½ an orange, 3-4 strawberries, a few slices of Persian cucumber, a handful of raspberries, 1-2 tsps of raw maca powder (for extra pep in my step) and one tablespoon of chia seeds for protein.
  2. Find your Earnings Season touchstone to maintain your mojo. The most frustrating part of any earnings season is the “middle.” It could be the script’s not done, your team’s onto the XXth revision, you just found out that Yahoo’s printed the wrong analyst estimate, or you’re simply wondering how you will get everything done by Earnings Day.

Maintaining your mojo can be hard but incorporating fun little rituals and having a touchstone activity, can help refocus and reinvigorate your Earnings Season ninja skills. For me, it can be as simple as taking a moment to call or text my hubby* with a quick hello or performing freeway karaoke to my favorite IR songs to remind me that there is life outside of earnings season.

  1. Get Some Good Sleep. It can be hard getting a full night’s sleep when your mind is filled with anticipation for that upcoming earnings call. But as anyone will tell you, a good night’s sleep can do wonders for making sure you are feeling your best and on top of your game come Earnings Day. Research shows that it’s not about the hours you get, but the quality and depth.  Here’s my favorite sweet treat recipe for getting a good night’s sleep the evening before Earnings Day:

1 cup almond milk

1/2 a frozen banana

2/3 cup frozen bing cherries (pitted)

1/4 tsp nutmeg

1/2 tbsp. of raw cacao nibs

1 tbsp honey

Toss all ingredients in blender. Mix until smooth.

  1. Put Together a Fun Earnings Day Ritual. It might be having your team wear a certain color on earnings day or going out for a quick bite at a favorite local hangout, but I always find that sharing a simple ritual or tradition before the conference call is a fun way to make sure that your team gets some fresh energy before tackling that last stretch of your Earnings “sprint.”

You’ve researched, written, edited, rehearsed and planned for this day. Now your investors get to hear about your results for the first time. Good luck!

*(My hubby has been my rock through nearly 50 earnings seasons to date and despite his own busy work schedule, still has managed to send me a quick “good luck and I love you!” text just before each earnings call. Thanks hon! This one’s for you – and all of the understanding spouses and significant others who support the CEOs, CFOs and IR professionals during and outside of earnings season.)

– E.E. Wang, ewang@pondel.com

Silicon Valley – The HBO Show (not the place)

SiliconWhile binge watching HBO’s Silicon Valley last weekend, I was thinking about whether the show actually mirrors reality, or if it’s mostly a work of fiction. Since I’ve never started up a tech company, I don’t have an opinion on how real that aspect of the show is, but since I do spend my days in the worlds of finance and communications, and I did work for a tech company that was incubated, I believe that the show’s conversations about venture capital, fund raising and public perception are pretty on the money (pun intended).

So, I thought a blog about Silicon Valley (the show) and its ties to business and celebrity of Silicon Valley (the place) might be interesting. But when I sat down to actually write something, I couldn’t quite figure out how to relate what I’ve seen on the small screen to my life in investor relations. That got me pulling up a search engine (one based in Silicon Valley, of course) on the off chance there might be something that would help stir my creative side. Much to my surprise, when I typed “HBO’s Silicon Valley and business” into the search bar, I got 421,000 results. Titles like, “3 Management Lessons from HBO’s Silicon Valley,” “Business Lessons from HBO’s Silicon Valley” and “INCUBATE THIS: Trade Secrets Lessons from HBO’s Silicon Valley” made me realize that this is a topic that has been done before.

At the risk of being somewhat of a copycat, here’s a quick summary of the lessons a lot of bloggers and journalists want to you take away from the show:

  • From Hivewyre: Have a work/life balance. “By taking the occasional break (or, gasp— even a vacation) you’re doing yourself and the company some good. Doing so means recharging your batteries, clearing your head, and coming back ready to kill it!”
  • From InsideCounsel: Protect your IP. “It is important for these companies to invest in protecting its own IP so that it can use that IP to defend itself if necessary.”
  • From WeberShandwick: Clear messaging is essential. “Especially in deep tech, it’s easy to get caught up in the specs and techs of a product. Our challenge is to elevate the messaging to something meaningful, but not generic. Instead of “making the world a better place,” can you get more specific?”
  • From Forbes: Do your homework. “Startups need to have the basics buttoned up long before raising money.”
  • From The Business Journals: Assembling a board is not an easy task. “Good board members can help young companies gain credibility and open doors. Board seats are valued rewards for key investors and personnel. But they also carry tremendous responsibility. Board members must place the company’s interests ahead of their own. And for every new board seat created, the value of every other board seat is diminished. The lesson: board positions matter and should be given out very carefully.”

If you haven’t given the show a chance, check it out. It’s politically incorrect and foul-mouthed, but an incredibly funny look at the culture of tech start-ups, and a fountain of good information…for what NOT to do!

— Laurie Berman, lberman@pondel.com

Sell-Side Insights and Wisdom

Recently, our firm sat down with the director of research of a boutique investment bank that provides high-quality research primarily on small-cap stocks. Throughout the course of our conversation, Mr. X (name redacted to protect the innocent!) provided several words of wisdom for investor relations professionals and public companies, so I thought I’d share them here. My thoughts are noted in italics.

  • Don’t add an analyst/portfolio manager/investment professional to your email distribution list unless said analyst/portfolio manager/investment professional has asked to be added. Nobody likes spam.
  • Respond to inbound inquiries in a timely manner. This may seem like “no duh” advice, but you’d be surprised at how many people don’t follow it. The rule of thumb seems to be 24 hours, but I try to respond before the end of the same business day.
  • Keep analysts updated with information that management has shared during investor conferences and non-deal roadshows, even if your team travels with an analyst from another firm. It goes without saying (although I’m going to say it anyway) that you should never keep analysts, or anyone else for that matter, updated on previously undisclosed material information.
  • Guidance is helpful in that it provides a framework for reported results. Anything is fine, including expected ranges in dollars, anticipated growth rates and ongoing trends. We didn’t discuss annual versus quarterly guidance, but a bit of research will show that there is little consensus (pun intended) on guidance practices.
  • Many investment professionals have compliance restrictions on how they interact with social media. While this may be true at the office, investment professionals are people too, and can access social media to their heart’s content at home. So don’t stop using social media as a vehicle for dissemination, but understand that you likely need to keep using more traditional channels as well.
  • Don’t respond via press release to Seeking Alpha articles. We all know that content on Seeking Alpha has the power to move a stock in either direction, but Mr. X believes responding publicly via press release looks defensive. Each situation is different, but in general, I tend to agree.

— Laurie Berman, lberman@pondel.com

Tales from Wall Street: The NDR Warrior’s Toolkit

handbag

The mystery behind what’s in an IR practitioner’s workbag is revealed.

Anyone who has ever been on a non-deal road show or done an investor conference will tell you…it’s not for the faint of heart. I describe it as a planned marathon made up of many, many sprints. Meetings with existing investors, new investors, sell-side analysts, investment bankers – a typical day can start as early as 7 a.m. and run as late as 9 or 10 p.m. (depending upon when you wrap up that last dinner).

My job on these trips is to make sure that my management is on top of their game throughout the day: from making sure they have the right background information on the people they’re meeting with to making introductions and helping facilitate the discussion, and finally, helping them stay on schedule and as energetic about their story at 4 p.m. as they were at 8 a.m.

Just as a builder wouldn’t go to a construction site without his toolbox, my handbag is my silent partner in making sure the day is a success. It’s more than just a place to hold my wallet, ID, business cards, lipstick and cell phone – it’s my NDR toolkit.

So what’s in it?

  • My Surface Pro 3 – it can be a prop-up tablet for when we do a 1×1 (or 1×2 or 1×3) meeting or a fully functioning laptop that management and I can use to do work in between meetings
  • Hard copy of our schedule with background info on our meetings
  • Hard copy of last conference call transcript/earnings release
  • A bound hard copy of the investor presentation
  • Notebook, pen and mechanical pencil
  • Must have apps on my phone:
    o   Google Maps
    o   Waze (much better for managing through traffic)
    o   Starbucks (so I can make sure that my management team is ready to go for that 8 a.m. meeting or re-energized at midafternoon)
    o   Yelp! (to find good eats on the fly)
  • Electronics mini bag contents:
    o   Two UBS flash drives with copies of the investor presentation (just in case that AV guy at the conference walks away with one)
    o   Chargers for my Surface Pro 3 and cell phone
    o   Back up battery charger (just in case an outlet is nowhere to be found)
    o   Screen cleaner and microfiber cloth
  • Small Ziplock bag with:
    o   Altoid mints, Orbit peppermint gum – for eliminating coffee or post-lunch breath
    o   Lozenges – to make sure my CEO or CFO’s throat stays strong throughout the day
    o   A few energy bars (just in case we miss lunch and need to eat on the run)
  • Metro card (when traffic’s tied up, there’s no better way to travel in NYC). In San Francisco, it’s a BART card.
  • Antibacterial soap, hand lotion
  • Colgate Wisps
  • Hairbands (perfect for keeping my long hair tamed but also for organizing all the business cards I’ve collected)
  • My iPod – so when I’m winding down the day, I can kick back with a chill tune

— E.E. Wang, Wang@pondel.com

Time to Get Your NIRI On

NIRIThe film industry has Sundance, technology has the Consumer Electronics Show, and the world of investor relations has the NIRI Annual Conference.  More than 1,000 IR practitioners attend what is considered the preeminent IR event of the year, and 2015 will be no exception with a dynamic lineup of panelists, myriad stimulating topics, and the rare opportunity to sing “Kumbaya” with fellow IR folks.

PondelWilkinson will be at the conference not only as an attendee, but as an active participant.  Evan Pondel will serve as a panelist for the workshop session entitled “Social media: Friend or Foe for Reaching Target Audiences?”  Joining him is Beth Blankespoor, professor of accounting at Stanford University, Nils Paellmann, head of investor relations at T-Mobile, and Serena Ehrlich, director of social and evolving media at BusinessWire.

Evan will also be moderating a panel entitled “Engaging Financial Media, Trade Publications, and Bloggers to Enhance an Investor Relations Program.”  Joining Evan is Peter Frost, business reporter from Crain’s, Paul Hart, editor of Midstream Business magazine, and Guy Cohen, director at Seeking Alpha.

The conference runs June 14 to June 17 at the Hyatt Regency in Chicago.  For more information, please visit www.niri.org.

Observations of a Knock-out Investor Conference

Three people got punched in the face and knocked out at the 16th Annual B. Riley & Co. Investor Conference, held last week at a Hollywood hotel, directly next door to where the final episode of American Idol was being recorded at the same time.

It was not the kind of night-time brawl to which investors are accustomed. And fortunately, it was not investors who felt the sting of those punches.

Rather, in partnership with the Sugar Ray Leonard Foundation, B. Riley hosted the 6th Annual “Big Fighters, Big Cause” charity boxing night in conjunction with the conference. The event supports the Foundation’s mission to raise funds for research and awareness to cure Type 1 diabetes and to help children live healthier lives.

For an organization that is part of a fraternity generally known more for greed and making money for itself and its clients, it was refreshingly cool to be part of this invitation-only charity event, that featured food by Wolfgang Puck, an open bar, a world class auction of iconic memorabilia, and a rich environment for business networking.

As for the day-time part of the conference…it was pretty cool as well. More than 200 emerging and middle market companies from a wide range of industries presented to packed rooms of institutional investors, who journeyed to Hollywood from all parts of the United States.

Attendees were treated to chair massages with short lines, fun tchotchkes from sponsors— including a wide array of pens, flashlights, chocolate, ginger candy, key chains, cute little footballs and many glass bowls in which to deposit business cards, with chances to win even bigger items. As well, there was the option of skipping a presentation or two and sashaying down Hollywood Boulevard to gaze at the stars.

There were more men wearing ties than one would expect. There were more people showing off their new Apple watches than one would expect. And just as one would expect, there were many great presentations, and, of course, some boring ones.

It was a classy conference…one could say a knock-out conference in all respects, in which the presenting companies, the investors, the sponsors, and best of all, kids with Type 1 diabetes, all benefitted.

– Roger Pondel, rpondel@pondel.com