Trump’s Effect on IR

There has been a heap of stories written about President-elect Donald J. Trump’s effect on trade relations and health care, but nary a peep about how his presidency is going to affect our world, meaning investor relations.

Granted, it would be unusual for media to report on how our country’s new chief executive officer will influence investor relations because, um, IR isn’t necessarily something bandied about in the Oval Office.

But consider this: The American people are like investors, and how you treat them in good times and bad will affect the valuation of the country. And depending on how Trump executes his policies, many publicly traded companies and their investors will have to adapt to changing market conditions.

Following is a prognosticator of sorts on how Trump will affect the world of investor relations from an industry perspective. The analysis is based on discussions with the Street and analyst notes.

  • Consumer – Investor relations executives in this sector may experience an increase in inbound calls based on exposure to manufacturing overseas, particularly in China. Trade issues may thwart valuations and likely raise a lot of questions if a company has manufacturing exposure in foreign countries.
  • Construction – Generally, investors should have optimism regarding this sector’s near-term future.  At the same time, more dollars flowing to infrastructure could prompt greater scrutiny of infrastructure companies that aren’t performing.
  • Renewables – This sector has received bipartisan support in recent years, and there is no reason to expect otherwise during the next presidential term. The biggest conundrum for IROs in this space is selling the value proposition of renewable technologies and how soon they can be realized under the incoming administration.
  • Healthcare – With a lot of questions surrounding the future of the Affordable Care Act, many investors and investor relations professionals are likely unsure of where certain business models will stand under the new administration.
  • Technology/media – Hard to say what challenges may surface in this sector. Social media companies may come under fire for alleged fake news practices, as well as influencing the presidential outcome, which could certainly keep IR pros on their toes.
  • Banking – Investors are expecting interest rates to rise, which could bode well for the bottom line in this sector. Loosening up on regulations could also help move more financial services stocks into the black. IR executives will likely have to speak to how banks will enhance their net interest margins once the new administration is in full swing.
  • Aerospace/Defense – With a lot of suppliers in foreign countries, there could be a backlash with respect to manufacturing costs. Even though a Republican administration generally bodes well for this sector, optimism may soon fade if trade relations continue to slide.

– Evan Pondel, epondel@pondel.com

Keeping Clients Happy

We’re in a competitive business. Not only do corporate communications and investor relations professionals have to overcome the challenges associated with building awareness for our clients, whether it’s on Main Street or Wall Street, but it’s also about keeping clients happy.

It’s never about drinking the proverbial Kool Aid. That’s just bad, and advisors should never be “yes” people; and saying no to clients at times is good, but only if tangible options are presented.

Happy-face-clip-art-smiley-face-clipart-3-clipartcowWith IPOs at historic lows, and today’s dynamics in corporate spending, sustaining or adding new business becomes an even greater challenge.

At the end of the day, it’s all about adding value. Consider these simple hints:

Know thy client. It’s essential to learn everything, from the product or service they offer, to their internal structure and competitive landscape.

Stay ahead of the game. Finding the “next big thing” or even something smaller that will impact a client’s organization before they do helps position outside agencies as insiders, a mainstay for maintaining long-standing relationships.

It’s OK to say no. Clients pay for strategic counsel. It would be a disservice if, as advisors, we only followed blindly without asking the question, “What if?” Make sure the counter argument is sound and solution-based.

Think outside the box. Although cliché and maybe risky, reaching key audiences, including customers, investors, employees and others in today’s cluttered media landscape takes bold new ideas that generate traction and results.

Demonstrate value. This has been one of the most fundamental challenges for PR and IR firms. We don’t “make” anything per se, but we do offer products and services designed to build awareness and loyalty among a client’s key audiences. Educating clients on message impact beyond earned media or stock price is paramount.

We’re in a tough and difficult business. Consider the fact that being a public relations executive is one of the top stressful jobs of 2016, according to Careercast.com.

Be that as it may, we continue to do the work which at times can seem to be a thankless vocation. The new and ever-changing paradigm shift in corporate communications and investor relations only adds to the list of client challenges. Nevertheless, staying informed and thinking like an insider will ultimately help generate real results and keep clients happy.

– George Medici, gmedici@pondel.com

 

 

On the IR Front…What’s a Penny Here and There, Anyway?

While a penny can be a pretty big deal as far as earnings per share performance goes, when it comes to trading stocks, the National Market System (NMS) thinks and hopes the lowly cent, actually five cents, can potentially make a really big difference when trading stocks.

Starting by the end of this month, as a way to increase the attractiveness of trading and research in smaller cap stocks and to make going public more attractive, the NMS will implement its “Tick Size Pilot Program,” effectively widening the minimum quoting and trading increment by raising the tick size to a nickel from a penny.

By definition, a “tick” is a measure of the minimum upward or downward movement in the price of a security. If a stock has a tick value of one cent, each tick, or price movement is in one-cent increments per trade. As part of the test, each tick will be equal to five cents per trade.

As a by-product of the 2012 Jobs Act, the program is set to last for two years, following which a determination will be made if increasing the tick size increment will improve the liquidity, trading and market quality of stocks with market capitalizations of $3 billion or less; average daily trading volume of one million shares or less; and volume-weighted average price of at least $2.00 for each trading day. The test will be implemented on 1,200 stocks.

The NMS is the national system for trading equities in the United States, and includes all the facilities and entities which are used by broker-dealers to fulfill trade orders for securities, principally including the New York Stock exchange and Nasdaq.

While it is difficult to foresee what the impact of the test will be, the hope is that will allow for a bigger list of stocks that are accessible to quality institutional investors.

Roger Pondel, rpondel@pondel.com

Let Your Voice Be Heard

With little fanfare or media coverage, the U.S. Securities and Exchange Commission last week said that for the next 60 days it is seeking public comment on disclosure requirements relating to a host of management, security holders and corporate governance matters.

SEC Chair Mary Jo White is leading a charge to address outdated and redundant disclosure requirements for the benefit of the nearly half of all Americans, who in some form, own stock in publicly traded companies—from direct ownership of individual securities, to ownership through 401-K and pension plans, IRAs, mutual funds and ETFs.

As part of the SEC’s “Disclosure Effectiveness Initiative”, the Commission wants to be certain that information disclosed by public companies and relied upon by investors to buy, sell, or hold, is as clear, accurate and comprehensible as possible, conveyed in a manner that is timely, and delivered making best use of today’s technology.

Amendments being considered address outdated and redundant disclosure requirements, and providing investors with what they need to make informed decisions.

Granted, for most Americans, revamping public company disclosure practices may not be one of the most important issues facing the world today. But if you are reading this blogpost, you likely are reasonably close to the heart of this matter, so let your voice be heard. You have until the end of October to do so.

Roger Pondel, rpondel@pondel.com

Nudge, Nudge…Wink, Wink

Once upon a time I was an idealistic investor relations professional who assumed that when Reg FD (Regulation Fair Disclosure) was enacted in 2000, all public companies would follow the SEC’s initiative to the letter of the law.  No speaking to one before speaking to all, at least where material, previously undisclosed information was involved.

Did Reg FD have the impact the SEC was hoping for – a more level playing field? In 2001, CFO magazine quoted Boris Feldman, a securities attorney at Wilson Sonsini Goodrich & Rosati as saying, “Is the market better informed?  Of course not.  There’s more transparency, but less meaningful information.”  The article went on to say that in that year’s fourth quarter there were nearly 800 pre-announcements because “analysts are less likely to be told on the QT to shade their estimates.”  The Pepperdine Law Review in 2002 surmised that “the only thing that has changed is the amount of securities regulation operating on American markets.  The investors are no better off; the analysts are no worse off; the lawyers are the only ones who may have benefited.”

Although I could not find many examples of how Reg FD has benefited corporate disclosure or the investment community at large, there are many examples of the SEC’s enforcement of the rule. To name a few, in 2007 the SEC contended that Office Depot’s then CEO and CFO selectively disclosed to analysts and investors that the company would not meet analysts’ earnings estimates.  Office Depot paid a $1 million fine to settle the allegations.  In 2013, the SEC charged the former head of investor relations for an Arizona-based company for giving certain analysts and investors a heads up about an upcoming major development.  He paid a $50,000 fine.  Last year Bloomberg reported that since Reg FD’s beginnings, the SEC has brought 14 enforcement actions.

Today, the practice of meeting one-on-one with investors appears as robust as ever. In addition to non-deal roadshows, companies routinely present at broker-sponsored conferences with individual meetings sprinkled throughout the day, while one-on-one phone conversations between companies and their investors happen multiple times a day, every day.  What’s being said during these conversations?  According to a new article in the Wall Street Journal, Barry Diller, chairman of Expedia and IAC/InterActiveCorp, “analysts and investor-relations executives work together to keep estimates low.  ‘It is a rigged race,’ he says.”  The supposition is that companies send signals to analysts to ensure the companies meet or beat quarterly Wall Street expectations.  An analysis by the paper found that after the end of a quarter, earnings estimates often decline steadily.  The Journal looked at daily changes in analysts’ estimates at S&P 500 companies since the start of 2013 and compared them with what the companies actually reported for each period.  In nearly 2,000 instances, companies “would have missed the average earnings estimate if analysts hadn’t changed their numbers in the 40 trading days before the company’s quarterly earnings report.”

To avoid the potential of selectively disclosing material information, in this case where revenues and EPS will land in any given quarter, many companies have adopted stricter quiet periods and formalized processes related to analyst and investor communication. The idealist in me wants to believe that more companies than not adhere to the rules and don’t give some an unfair advantage over others.  However, while I in no way condone running afoul of securities law, the hardened realist in me thinks there will always likely be some nudge, nudge…wink, wink.

– Laurie Berman, lberman@pondel.com

IR 101 for Private Markets

CrowdWith the first quarter of 2016 the slowest period for initial public offerings since 2009, market watchers are wondering if the trend will continue in the year ahead. So, where might investors look for new opportunities? Try private markets, or specifically, companies utilizing crowdfunding as a financing method.

Starting May 16, the general public will have the opportunity to participate in the early capital raising activities of start-up and development-stage companies through crowdfunding. You can read all about it on the Securities and Exchange Commission’s website.

What isn’t discussed on the SEC’s site is how these companies will communicate effectively with their investors. Many of these companies are likely on tight operating budgets, and the idea of allocating funds toward investor relations is not exactly a priority.

However, now that the general public has the ability to participate in a stage of investing usually reserved for institutions, management teams need to ensure these new investors are communicated with regularly, as well as treated with the same dignity and respect as a Fortune 500 investor.

Following is a top-10 list of IR advice for companies going the crowdfunding route:

  1. Initiate some form of periodic communication with your investors, perhaps in the form of a quarterly update letter, podcast or even blog post.
  2. Select a representative from the company or an outside consultant to handle incoming inquiries from investors.
  3. Utilize presentations, fact sheets, video and social media to help investors understand the company.
  4. Consider hosting an investor call on a periodic basis to foster transparency and an open line of communication.
  5. Develop an investor relations page on your website to keep investors posted on recent news and the company’s progress.
  6. Consider hosting an annual meeting that investors will actually attend. The event could generate more support, as well as more funding for your company.
  7. Keep investors in the know about relevant industry news, so they, too, can become experts.
  8. Under promise and over deliver. Managing investors’ expectations is key, especially for early stage companies.
  9. Stay away from divulging too much information about your company’s future financial performance. Again, this harkens back to under promise over deliver.
  10. Treat investors as owners not strangers.

Bottom line: Professionally crafted communications form a foundation to attract and retain investors, regardless of an issuer’s size, but even more so for early stage companies, as they go to market for the first time and build their organizations.

– Evan Pondel, epondel@pondel.com

PW’s CEO to Serve as Panelist at Forum for Corporate Directors on February 23

R Pondel small

A focus on board involvement with investors. Roger Pondel of PondelWilkinson will be participating on a panel discussion at the Forum for Corporate Directors exploring the dynamic between board members and investors.

In today’s volatile stock market and increasingly activist investor environment, it is vital that board members fully understand the unfiltered views of investors as they govern theirrespective companies. James Moloney, partner with Gibson, Dunn & Crutcher, will moderate a panel on this critical topic February 23, at the 7 a.m. breakfast meeting of the Forum for Corporate Directors, at the Pacific Club, 4110 MacArthur Blvd, Newport Beach.

Directors who are aware of their investors’ perceptions and expectations are far better equipped to clarify, remedy and reinforce their companies’ messages. The panel will feature Glenn Welling, Founder and CIO of Engaged Capital; Glenn Schafer, Chairman of the Board of Janus Capital Group and Lead Director of Genesis HealthCare; and Roger Pondel, CEO of investor relations consultancy PondelWilkinson.

For more information and reservations, email michelle@fcdoc.org or visit http://fcdoc.org.

 

 

 

 

 

 

Hello 2016

We’re excited to usher in 2016 and looking forward to keeping you informed on this blog about all things relevant to investor relations, strategic public relations and Julia Child’s secret recipes.  Now that your ears are perked, following are a couple of interesting tidbits from PondelWilkinson.

  • Evan Pondel recently wrote the cover story for IRupdate magazine on how to think like an activist.   He interviewed Chris Kiper, founder of activist firm Legion Partners, for a rare look at his playbook.  Check out the story on page six of the issue.
  • PondelWilkinson volunteered a couple of weeks ago at Working Dreams’ Holiday Toy Event, where PW helped foster children select presents that were donated to the organization.  Following is a picture of the team.Working Dreams
  • And last but certainly not least, Roger Pondel wrote the following New Year’s resolution on transparency.

2016 Resolution: Don’t Forget the Transparency

At the risk saying, “We told you so,” 2015 proved to be a year when companies that failed to heed our mantra, Transparency Adds Value, took it on the chin.

Whether privately owned or publicly traded, in times of crisis or when all is going well, transparency always pays off…period. And the lack thereof, almost always backfires bigtime.

Probably the year’s biggest lack-of-transparency story was Volkswagen’s emission-cheating scandal that actually began more than 10 years ago, long before the news broke. I guess it’s hard to keep those kinds of secrets forever. Want to buy a VW today? How ‘bout an Audi?

In our business, people sometimes have the misimpression that it’s all about spin. (I hate that word, except when it’s part of an exercise class and done to a Latin jazz beat.)

No, it’s not about spin. It’s about journalistic fact finding, developing a communications and messaging strategy, perhaps biting some bullets a la corporate castor oil style…then telling the truth to mitigate the damage and maintain reputation.

And it’s not all about crises. Just look at what happened in 2015 to the valuations of many once-considered-hot, pre-public tech companies that lost billions in combined valuation because of lack of transparency.

Lack of transparency hurts customers, employees and investors alike. And while no one is happy to hear less than stellar corporate news, the market rewards transparency. Companies that do not practice it would do well to heed our mantra in 2016 and beyond.

Here’s to a transparent 2016 that brings peace and prosperity to all!

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

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