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: 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

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

Party in Omaha

Berky BoxToday, I’m taking a look at the CenturyLink Center in Omaha. Home to basketball and hockey games, rock concerts, a convention center, and yes, Berkshire Hathaway’s annual meeting.  The Arena holds more than 18,000 screaming fans, or, in this case, shareholders. Estimates put visitors to the 2015 annual meeting at about 40,000.

Most annual shareholder meetings amount to nothing more than required legal statements, perhaps a company presentation, and if you’re lucky, refreshments. Berkshire Hathaway takes annual meetings to a whole new level. The opportunity to buy Berkshire-themed trinkets from subsidiaries Heinz, Fruit of the Loom and Oriental Trading (including a set of Warren Buffet and Charlie Munger rubber duckies for $5 and Berky Boxers, which CNN proclaim a long-time best seller)…check. The opportunity to eat a piece of a gigantic ice cream cake created by Dairy Queen in celebration of Warren Buffet’s 50th anniversary of taking control of Berkshire Hathaway…check. The chance to run a 5k among other Berkshire investors…check. There is even a detailed Visitor’s Guide outlining the many activities in and around the shareholder meeting. The guide provides information on “seat saving,” “microphone manners,” and the annual “Newspaper Tossing Challenge” in which Buffet challenges anyone to a 35-foot World-Herald paper tossing contest. If any participant lands a paper closer to the doorstep of the Clayton Home, that participant will receive a Dilly Bar. What’s a Dilly Bar anyway? Sounds more like a party, and why not with thousands of shareholders and a Chairman who calls the annual meeting a “Woodstock for Capitalists.”

Was any actual business conducted at the Berkshire Hathaway annual meeting? Absolutely. Although most investors unequivocally love him, the questions were not the softballs you might expect. Among the things he and Munger were asked, according to MarketWatch, during a nearly six hour Q&A session, included refuting accusations that Berkshire subsidiary Clayton Homes engages in predatory lending practices, whether IBM is a “cigar-butt” stock, referring to a company that is “a good value investment, but with only a couple of puffs left,” and whether Coke’s competitive advantage is narrowing. When talking about changing consumer preferences for food and drink, the 84-year-old Buffet commented, “If I lived my whole life eating broccoli and Brussels sprouts, I probably wouldn’t live as long.”

While I certainly don’t think many, if any, companies should follow Berkshire’s lead when planning their annual meeting, there are a few lessons to be learned. Be shareholder friendly. Communicate in a style that everyone will understand, and make it easy for investors to access your information, attend your meeting and own your stock. Make your annual meeting worthwhile. While tchotchkes are nice and provide shareholders with a fun reminder of their stock ownership, most would likely prefer an open and honest Q&A with management to help them understand a company’s future plan and how they are going to get there. You don’t need to give them six hours, but you should provide a forum for their questions and commentary.

With annual meeting season upon us, let us know if you’ve been to a great meeting, and also if you’ve seen anything that made you cringe (company names are not required). To Warren Buffet, Charlie Munger and Berkshire Hathaway, I say…party on!

— Laurie Berman, lberman@pondel.com

The Good, the Bad, and the Ugly

The Good, the Bad and the Ugly is a periodic feature by PondelWilkinson that turns a critical eye on the way quarterly results are communicated.

The Good

Earnings season is nearing its end, and after all of the Q4 news releases and conference call transcripts have been parsed and picked away at like a bone-in fillet, it’s time to debrief about the good, the bad and the ugly when it comes to communicating results.

Let’s start with the good. More companies are embracing the use of video when conducting earnings calls, and T-Mobile did an excellent job streaming its Q4 results in real time.   Of course, the company delivered record growth, so who knows if the positive energy would still pervade on video if the numbers were worse.

The Bad

Certain adjectives and verbs continue to see the light of day in earnings releases when they should’ve been put to bed a long time ago. Following is a short list: pleased, thrilled, excited, disruptive, highly anticipated, state-of-the-art, cutting edge, and leading.

The Ugly

I was recently invited to speak to MBA students at the University of Southern California about investor relations.  We were discussing conference calls and how analysts and investors queue up during the calls to ask management questions.   Apparently, a fairly prominent short seller had lectured to the same group a few weeks ago and said he poses as a well-known, long-only buyside institution to get into the queue and then when it’s his turn to ask a question, he hammers home his short-sighted agenda.

OK, that’s a wrap for the good, the bad and the ugly for Q4. Until next quarter.

— Evan Pondel, epondel@pondel.com

JPM Post-Mortem

The J.P. Morgan Healthcare Conference in San Francisco is the equivalent of the Super Bowl in the healthcare industry, and last week was no exception, with executives from public and private companies descending on the Bay with such vigor and force that Union Square looked like the trading floor of the AMEX circa 1970.

JPMers taking a break in Union Square.

JPMers taking a break in Union Square.

There are good ways to do “JPM” and bad ways to do “JPM.” I walked more than 14 miles during two days of strategic meetings. Fortunately, I wasn’t wearing new shoes. But that doesn’t mean other JPMers weren’t wearing new shoes, and after witnessing dozens upon dozens of executives resting their sore feet on park benches and even curbside, it got me thinking it might be helpful to pass along a few pieces of advice.

  1. Try to avoid scheduling meetings in lounges. It may sound tempting to sip martinis in a dimly lit basement with red velvet seats and a DJ spinning dubstep, but lounges are exactly what they portend to be, lounges. It is difficult to stay alert when sitting reclined with an alcoholic beverage in hand. If you’re seeking an off-the-beaten-path venue, try a tea house, such as Samovar.
  2. An average hotel room near Union Square will cost north of $500 a night during JPM. Fear not. It’s possible to get a decent room close to the action for $150 a night, which includes a lovely continental breakfast. I’m talking about the Golden Gate Hotel, technically a bed and breakfast, but who cares when you’re saving all that money for your next venture. (Be forewarned, you may have to share a bathroom if your reservation is within a few weeks of the conference.)
  3. Schedule meetings with meals. Between back-to-back strategic meetings and the conference itself, proper nourishment is often lacking. To avoid going comatose, try scheduling breakfast, lunch and dinner meetings.   The Daily Grill and Le Colonial are favorites that serve good food and a wee bit of cache for rubbing shoulders with the who’s who at JPM.
  4. Do not over extend on meetings. Yes, it is tempting to meet with anyone and everyone who wants to meet with you, particularly if you’re at an inflection point with respect to funding, M&A activity or strategic alliances. However, if you stretch yourself too thin, meetings that deserve more attention will soon take on water as attention spans wane. Bottom line: Make sure your schedule takes into account some downtime.
  5. And finally, less is more when it comes to collateral at JPM. Most folks are walking from meeting to meeting every 30 minutes to an hour, which means the less you have to carry, the better. If you are interested in passing along collateral, use it as an opportunity to follow up post-JPM.

— Evan Pondel, epondel@pondel.com

Heard During the Breaks

Often at professional conferences, the stuff one hears during the breaks and at the cocktail hour is more valuable than the content in some of the formal presentations. I’m not talking about gossip, but real trends and ideas that have practical use.

Here are a few random items worth thinking about that I jotted down from corridor and cocktail talk at the recent annual conference of the National Investor Relations Institute’s Senior Roundtable:

  • Cordial intervention with activist investors usually does more good than harm.
  • Certain things in a 10K or 10Q just cannot be easily explained in writing and can best be conveyed by a CEO or CFO at an in-person meeting.
  • Try participating in a reverse road show, where the portfolio managers come to you in small groups, often as sponsored bus tours in bigger cities with several public companies in relatively close proximity. It saves your CEOs and CFOs much time and expense.
  • How investment banks get paid by the institutions for helping to provide corporate access—a function that IR professionals formerly held—is under increasing scrutiny. Many CEOs and IROs do not even know that the banks get paid for this service.
  • Sustainability is gaining steam as a topic that public companies must pay closer attention to, but for which few in the C-suite really want to take responsibility. It could be a function that IR professionals should grab.
  • Watch for board tenure to become among the latest hot governance topics, regardless of whether the directors are doing their jobs well.
  • Activists usually operate in packs. So even if an activist only owns 1% of your shares, pay heed, because behind those shares could be a much bigger percentage from friends.
  • Boards must discuss continuous shareholder value improvement. It’s their job and does not mean they are being promotional.
  • The buy side, unless an index fund, regards access to management as part of doing proper due diligence—whether they are invited to the table by an IR professional, an institutional salesperson or a sell-side analyst.

As with most conferences, this one also had a motivational speaker who was not there because of the subject matter, but rather to re-charge the batteries of the attendees.  Yes, he wrote a book and did a signing. Since the conference was a private affair, however, you’ll have to call me if you want his or his book’s name.  It’s a quick, easy read, and I will take the liberty of ending this post with a thought from the book that I particularly like about the stresses we all endure in our jobs and having the right attitude:  “We are all lucky that we get to go to work each day…rather than we got to go to work.”

–Roger Pondel, rpondel@pondel.com

Listen, Understand, Communicate. (Repeat)

Glass Lewis and ISS recently released new guidelines for the 2015 proxy season, which go into effect for shareholder meetings held on or after January 1, 2015 and February 1, 2015, respectively.

The new guidelines put greater emphasis on protecting shareholders’ rights with respect to bylaw/charter amendments, litigation, and shareholder proposals, as well as increased qualitative and quantitative scrutiny on executive pay and equity plans.

With shareholder activism continuing to rise and Glass Lewis and ISS guidelines increasingly defining how boards should conduct business, what should companies be doing to prepare for next year’s proxy season?

Here are three simple strategies for making sure your company is ahead of the curve:

  1. LISTEN. Do you know how your investors are feeling about the company and its progress…not just after you send out your proxy, but throughout the year? How often does your IR team engage with investors – not just to update them on your story but to also get feedback from them on management, company progress, etc.?There are two types of companies that typically get widespread voter turnout during proxy season: those whose management spend a lot of time listening to their investors…and those who spend virtually none and find themselves in the middle of a proxy fight.
  1. UNDERSTAND. Understanding your investors’ investment goals and philosophy can go a long way in learning how to most effectively communicate your company’s strategy and actions – before, during and after proxy season. Leverage your IR team and proxy advisory firm to help you gain a clear understanding of the investors who own your stock:
    • Breakdown of the types of investors holding your stock (retail, quantitative vs. qualitative buyside)
    • Buyside investors
      — How long does this investor typically hold? What price targets or corporate developments could cause them to exit your stock?
      — Have they been activist in the past? If so, what were their trigger points
      — What is the investment thesis of the firm? What are their typical entry and exit points? What factors led them to making the decision to buy your stock or increase/decrease their position?
      — Who is the decision maker at the firm? How do they prefer to communicate with the company –and how often?
      — Does this investor subscribe to Glass Lewis or ISS for voting recommendations? Who within your buyside investor’s firm is responsible for voting their proxy? (In many cases, it’s not the person who made the decision to invest in your stock.)
    • Glass Lewis and ISS
      — Is your management team and IR team up to date on the latest guidelines?
      — How do your current policies or potential proposals match up with ISS and Glass Lewis’ recommendations?
  2. COMMUNICATE. Strong shareholder relationships start with a commitment to communication. Waiting until proxy season starts again to talk to a dissatisfied shareholder – or any shareholder – is often too late.
    • Communicate with your investors regularly (especially with the ones who are unhappy)
    • Communicate to your board on investor sentiment and feedback quarterly.
    • Be positive and responsive to investors who request talking with your board. The best way to start a proxy fight is to ignore or dismiss a disgruntled shareholder.
    • Be proactive in communicating with Glass Lewis, ISS and shareholders on sensitive proposals

— E.E. Wang, ewang@pondel.com

 

 

 

Book Review: ‘Flash Boys’

flash-boysMuch is bandied about in financial media on high-frequency trading (HFT) and the implications for institutional and individual investors. The overarching thought is that the capital markets are gamed by high-frequency traders, known as flash boys, and there isn’t anything we can do about it, unless, of course, you’re a portfolio manager who decides to trade on an exchange that is devoted to evening out the playing field. That is what IEX is attempting to do, as the first equity-trading venue dedicated to eliminating the predatory practices of HFT. A new book by Michael Lewis entitled “Flash Boys” provides readers with a glimpse of this esoteric world, and PondelWilkinson’s Evan Pondel reviewed the book for IRupdate in this month’s issue.

Diversity Growing in Corporate America

Earlier this week we tweeted about the rise of women in the boardroom. The topic is pretty interesting to me so I figured this was a good place to share some views.

 

CFO recently reported that nearly one out of every three board nominees at Fortune 500 companies is a woman. According to a study from Institutional Shareholder Services, the number of women being tapped for board positions at the country’s largest companies has doubled in the last six years. Further, new board nominees at Russell 3000 companies were 22 percent female in 2014, again, doubling from 2008.

 

With board diversity a hot button among investors, it’s not altogether surprising that some companies are widening their approach to identifying new nominees. The Pax Ellevate Global Women’s Index Fund, which invests in companies with a high percentage of gender equality, names a few: Avon (not surprising), The Procter & Gamble Company (again, not that surprising) and Xerox Corporation (pretty surprising). Many would say, however, that it’s not enough. Several companies have been taken to task by activist investors (CalSTERS and CalPERS, for example) and media for maintaining homogenous boards amidst what seems to be growing support for diversity.

 

What evidence is there that diversity in the boardroom makes a positive difference? A blog post from the Harvard Law School Forum on Corporate Governance and Financial Regulation offers the following thoughts, among others:

 

• “Diverse boards engage in richer and ultimately more effective discussion and debate. People of diverse backgrounds bring different perspectives, experiences, concerns, and sensibilities to the boardroom.”
• “Directors of diverse backgrounds ensure that the perspectives and concerns of often-ignored constituencies are represented in board discussions.”
• “The presence of female and minority directors sends signals to various constituencies about a company’s values. Those constituencies include employees at all levels, customers, communities, regulators and other government actors, and the public.”
• “A company that does not have a diverse board is failing to tap into a significant part of the relevant talent pool, and is therefore likely to be less effective.”

 

For more tangible evidence, Business Insider reports that “Companies with women on the board crush companies that are only men.” Citing an older report by Credit Suisse, companies with market caps of more than $10 billion that have at least one woman on the board of directors, outperformed those with no women 26% from 2005 to 2011. A few years later a Thomson Reuters study revealed that the stocks of companies with mixed-gender boards have outperformed, on average, companies with no women on their boards.

 

Whether the evidence is empirical or anecdotal, I think we’d all agree that diversity – in all walks of life – is a good thing. My advice for any company is to broaden your search parameters, embrace variety and be a leader in effecting change. But, remember, diversity for diversity sake is not the best policy, so choose the best man (or woman) for the job.

 

— Laurie Berman, lberman@pondel.com