Cashtag Blues

Last summer, with relatively little fanfare, Twitter added clickable stock symbols to its tweets.
This is how it works: Add a “$” in front of a ticker symbol in Twitter’s search box and you’ll be able to engage in conversations about a particular company, similar to what would happen with a hashtag “#” followed by the name of your favorite pop star.

twitter
In social media circles, introducing the “cashtag” is yet another way to stimulate chatter among people
who are interested in a particular topic, such as public companies. But like all seemingly helpful social media tools, the cashtag may, in fact, send your stock tumbling down in 140 characters or less.  We recently observed such a scenario.

Shortly after market open on an otherwise average trading day, an anonymous tweet began surfacing about an FBI raid on a certain public company.  Soon the company’s trading volume began rising and its shares began
dropping, so much so that, as IR representatives for the company, Bloomberg called us to find out if the rumors on Twitter were true.  We confirmed that the rumors were false, and soon the stock corrected itself.

We later learned that the SEC opened an investigation on the tweeter for a possible “10b-5” infraction, which is when someone makes fraudulent claims in connection with the purchase or the
sale of a security.

Rumors surrounding public companies have been swirling about the Internet long before the cashtag, but this example serves as an important reminder that new information channels, carrying potentially market moving information, are reaching influential audiences at light speed.  And that means the onus will increasingly fall on investor relations professionals to ensure chirping birds are not making fraudulent claims.

 

Evan Pondel, epondel@pondel.com

Iran Sanctions Affect Public Companies

It’s a little disconcerting when you think about it, but interesting nonetheless how politics and the world order is infiltrating corporate life.

Iran Elections

Iran Elections (Photo Credit: Flickr: bioxid)

 
This month, public companies must begin reporting–in quarterly and annual reports to the SEC– transactions that they or any of their affiliates have with Iran.  In turn, if such a report is filed, a federal investigation will be triggered.
 
The new mandatory reporting requirement stems from passage last year of the Iran Threat Reduction and Syria Human Rights Act of 2012, signed into law in August by President Obama.  The website www.govtrack.us called the Act a strengthening of Iran sanctions “for the purpose of compelling Iran to abandon its pursuit of nuclear weapons and other threatening activities.”
 
Previously, the SEC’s Office of Global Security Risk was charged with monitoring public companies’ activities that could relate to any of four countries–Iran, Syria, Sudan and Cuba–designated by the State Department as “sponsors of terrorism.”  Now, issuers are required to make active disclosures relative to Iran, rather than merely respond to SEC inquiries.
 
The major news outlets haven’t said too much about the new Act, which, granted, will impact only a relatively small percentage of the thousands of public companies–mostly shippers, financial institutions,
insurers and reinsurers. Nevertheless, how such companies ultimately communicate their Iranian transactions and the ramifications on their stock prices and customer reactions will be fascinating to watch.

 

Roger Pondel, rpondel@pondel.com

To Guide or Not to Guide

Should companies provide financial guidance to the investment community?  That is the age old question, at least in investor relations circles.  Ask 10 CFOs and you’ll probably get 10 different answers. Add 10 IROs to the mix and now you’ll likely have 20 different answers.  As usual, there is no one size fits all solution.
 
A Skadden, Arps alert debated the pros and cons.
 
Pros:
 

  • Gives analysts reliable data points from which to assess their own projections.
     

  • Reduces investor uncertainty.
     

  • Potentially averts trading volatility.

 
Cons:
 

  • Encourages short-term thinking.
     

  • Creates disclosure issues.
     

  • Distorts investors’ perceptions.

 
Chad Stone, CFO of Renewable Energy Group, told CFO Magazine that “Offering an indication of our expected performance creates an opportunity for investors and analysts trying to understand and model our business.”  He believes that the absence of quarterly guidance would make it difficult for the investment community to understand how his company will perform.
 
Stone is not alone.  A survey by the National Investor Relations Institute found that more than three quarters of those who responded continue to provide
financial guidance.  Of those, 37 percent give quarterly earnings guidance and 39 percent give quarterly revenue guidance.
 
On the other side of the debate, Diane Morefield, CFO of Strategic Hotels & Resorts, believes that quarterly guidance is too short-term focused.  “I would simply hate being boxed in by guidance every three months,” Morefield told CFO Magazine.
 
Many NIRI members agree.  The number of companies providing some type of financial guidance has fallen from 81 percent in 2010 and 85 percent the year before.
 
As a big proponent of transparency, and making it as easy as possible for the investment community to understand your business and financial expectations (especially true for micro-cap companies), I am firmly in the guidance camp.  Whether it’s a revenue range for the quarter or year, point guidance for EPS, or a qualitative discussion of the trends likely to impact future performance, some information is better than none in getting stakeholders on the same page and managing expectations.

 

Laurie Berman, lberman@pondel.com

Herbalife: Ackman vs. Icahn

 
As an investor relations professional, there is nothing more interesting going on now than the public drama surrounding the activist attack on Herbalife.  To remind you, Pershing Square Capital Management’s Bill Ackman conducted a highly public attack against Herbalife with a 300-plus page slide presentation, going short nearly a billion dollars. Management then countered with a three-hour long investor meeting to rebut and explain the company’s side of the story.
 
Meanwhile, activist investor Dan Loeb goes long, purchasing nearly 8% of the company.  And If the battle of activist titans could not get any more interesting, I recently listened to Carl Icahn and Bill Ackman bickering for nearly 30 minutes on CNBC, with Herabilife as a backdrop.
 
Perhaps the candid nature and public name calling took the reporter back a little, because he was reduced to a bystander, but Icahn never let on if he was long or short Herbalife – not that he would.

 

Matt Sheldon, msheldon@pondel.com

The Ski Season and the Fiscal Cliff: Happy Holidays

Skiing and the fiscal cliff have never before been written about in PW Insight and I suppose are rarely uttered in the same breath. But both are topical, actually have lots in common and are certainly part of this year’s holiday rhetoric.

Snow Summit

Snow Summit in Big Bear, California
(Photo Credit: Flickr: Cary N)

 
I learned to ski relatively late in life — at 40 — when my wife could still say she was 30-something, my daughter just turned 10, and my son was nine.  Some friends took the family to Big Bear, a Southern California resort that is just so-so as far as skiing is concerned, but an easy drive from most parts of Los Angeles.
 
My pal, Tod Paris, a CFO by day and sadistic amateur ski instructor when on the slopes with adult beginners on the weekend, started me out on what he said was the least daunting hill.  “Pizza, pizza,” Tod screamed.  Skiers know that pizza has nothing to do with food.  I fell, bruised my ribs, hurt my right ankle. I was frightened and swore that I would never ski again.
 
My family, however, did well.  So my swearing aside, to keep up with them, I eventually engaged several real instructors, each of whom instilled their own styles and methods to keep me standing and allay my fears.
 
Fast forward 20+ years.  The ski season is about to get under way, and I am excited. When I look back, what seemed like the steepest, scariest slopes then do not look so bad today at all.
 
Likewise, could it be that all the fears about the looming fiscal cliff — metaphorically a double black diamond that is being talked about non-stop — also will dissipate?  Los Angeles Times journalist Doyle McManus in an editorial last week called the fiscal cliff merely a slope that in reality “may not be as alarming as it sounds.”
 
With the holidays just around the corner, some progress is being made, although few believe a final resolution will be reached before the end of the year.  Both sides of the political spectrum are offering their ideas, perhaps akin to ski instructors espousing various teaching methods, and both sides are talking about meeting “somewhere in the middle.”  (How ’bout at the Mid-Chalet Café?)
 
Let’s also not forget that the tax increases set for the first of the year can be delayed by Congress, or as McManus wrote, “… by a stroke of Timothy F. Geithner’s pen.” Federal spending cuts can be slowed down as well.
 
So while there will likely be some pain ahead, just as there is on those first runs every season even for experienced skiers, let’s keep our wits and our faith that those Washingtonians in charge will lead us down the path in the least hurtful way.
 
Happy Holidays.

 

— Roger Pondel, rpondel@pondel.com
 
 

Special Dividends in Vogue as Fiscal Cliff Looms

Many companies these days seem to be declaring special year-end dividends.  And the list of businesses doing so is growing like wildfire.
 
Ahead of an expected tax increase in 2013, public companies are doling out early holiday gifts to their shareholders.  The current 15 percent tax rate on dividends could increase to more than 43 percent next year for top wage earners, making special dividends especially attractive to companies and their shareholders.
 
Among the latest on the dividend bandwagon are Disney, which increased its usual year-end dividend by 25 percent, Las Vegas Sands Corp., which nearly doubled its usual year-end dividend, and Costco Wholesale Corp., which declared a $3 billion payout to shareholders.
 
According to Bloomberg, more than 70 companies in the Russell 3000 stock index have announced a one-time cash payment to shareholders since September.  This is up from only 15 businesses in the prior-year quarter.  More than a dozen of the 70 companies the wire service highlighted pegged their actions to pending tax increases, but it’s a good bet that many of the others had similar reasoning.  Investor’s Business Daily reported that as of November 28, 173 companies had announced special dividends in the month of November.  More payouts are expected to occur as we inch closer to the end of 2012.
 
And it’s not just new dividends that are being declared.  Wal-Mart moved the payment of its fourth-quarter dividend from January 2 to December 27, while H.J. Heinz Co. accelerated its payment as well.
 
Some believe these dividend payments could boost holiday retail sales.  Jason Ader, head of Ader Investment Management and a former Wall Street analyst, believes that dividend payments arriving prior to Christmas “may very well help Christmas sales, along with having a multiplier effect in terms of credit and borrowing.”
 
At least one investor, however, does not agree with the recent spate of announcements.  During a recent interview with NPR, Jim Paulsen of Wells Capital Management said that companies should be looking for ways to increase their growth prospects rather than “handing out gifts to shareholders.
 
As companies continue to jump on the proverbial bandwagon and contemplate whether to declare a special dividend, it’s important to remember that each organization’s circumstances are different, and not everyone may benefit from taking the leap.
 
In the interim, maybe we all can take a lesson from Wile E. Coyote.

 

 

Laurie Berman, lberman@pondel.com
 
 

Video: The Next New Thing in Earnings

 
We can’t stress enough the importance of video and its pervasive use in today’s media landscape.
 
Aside from the sharing benefits and vast potential online media pickup, video creates stronger bonds with key audiences.  It’s why we love movies so much.  There’s no other medium that produces the same visceral effect.
 
Publicly traded companies are starting to realize this trend.  Early adopters are using this medium to complement quarterly earnings, embedding video links in press releases as we did for our client (see above), Kirkland-based Market Leader, Inc. (Nasdaq: LEDR).  Done right, videos that accompany press releases of all kinds should be news driven versus corporate slick, delivering more authenticity that is designed for viral uptick.  Other companies that have used video for earnings include DellCitiBASF, and InterContinental Hotels.
 
Leveraging video to communicate financial results can be quite daunting however, especially since these platforms are relatively new to investor audiences.   While the SEC’s Office of Compliance Inspections and Examinations offers guidance on the use of social media for investment advisers, the bottom line boils down to best company judgment, and of course, input from counsel.
 
Professional investors are watching too.  According to a study, 58 percent of institutional investors and sell-side analysts in the U.S. and Europe believe new media will become more important in helping them make investment decisions.
 
There’s no doubt that using social media to communicate to investors remains a fairly prickly topic among CEOs and the investment community.  The reality is that more Fortune 500 companies are blogging, tweeting and utilizing new media platforms to communicate to key audiences in ways never before.  Moreover, engaging in video builds social capital, a valuable network that ultimately enhances reputation, and we believe shareholder value, too.

 

George Medici, gmedici@pondel.com
 
 

IR in Politics

 
Business folks usually don’t talk about politics, but politicians love to beat up on business.  During the debates, Romney took Obama to task on unemployment, and Obama ribbed Romney about his tax rate.  And yet, we haven’t seen any business leaders lambast the two candidates about the gobs of money they’ve spent to win the hearts of voters.
 
So far, Obama has raised approximately $934 million, versus Romney’s $881.8 million, according to the New York Times.   Between the two of them, we’re talking close to $2 billion, and that doesn’t include a whole bunch of money spent in support or against the candidates by committees, nonprofit groups and other super PACs.
 
In PondelWilkinson’s world, investors are constantly holding executives from public companies accountable for expenses and how well they can manage their income statements and balance sheets.   Votes in favor of a company’s financial performance usually result in rising shares.  The opposite is true for lackluster performance.
 
While racking up campaign expenses isn’t directly analogous to a company’s handling of SG&A, it strikes me as hypocritical when presidential candidates spend hundreds of millions of dollars to harness an asset (our country) that is ailing from the very same spendthrift ways that contribute to our nation’s growing deficit.

 

Evan Pondel, epondel@pondel.com
 
 

Is Aligning Executive Pay with Stock Performance A Good Thing?

According to a recent article in the Wall Street Journal, “CEO pay during 2011 was more firmly correlated to how well companies fared in the stock market, a change from 2010, when pay and performance were not directly related.”

New York Stock Exchange

The New York Stock Exchange, the world’s largest stock exchange by market capitalization (Photo credit: wikipedia.com)

 
Indeed, the 2010 Dodd-Frank financial-reform law, which gave shareholders an advisory vote on executive-pay plans, caused many companies to alter how, and how much, they pay CEOs.  One would think this is good news to investors, who have long clamored for the interests of senior management to be aligned with shareholders.
 
However, Lynn A. Stout, a Cornell Law School professor and author of “The Shareholder Value Myth,” believes this has inadvertently empowered hedge funds that push for short term solutions. She notes that the average holding period of stock was eight years in 1960; today, it is four months.  Ms. Stout argues that the directive to “Maximize Shareholder Value” has led to an epidemic of accounting fraud, short term thinking by management and myopic trading strategies by investors.
 
Because of the pressure exerted by hedge funds to push stock prices higher, which often comes at the expense of the organization’s long term value, Ms. Stout advocates limiting the role of investors so that executives and boards of directors are freed up to think about customers and employees, allowing them to invest in the company’s future and act socially responsible.
 
Ms. Stout and corporate governance advocates appear to have diametrically opposed beliefs on how corporations are best managed.  Perhaps a blending of the two views is appropriate: empower shareholders to safeguard their investments by actively preventing manager conflicts of interest and self-dealing, and lock investors into their investments so they do not push for short-term strategies.

 

PondelWilkinson, investor@pondel.com
 
 

It’s 10 p.m. Do you know where your IR program is?

Investor Relations

Investor Relations (source)

I’m not really asking where your IR program is in the geographic sense of the word.  I’m asking where your IR program is in terms of effectiveness.  Every once in a while, it’s good to take a step back and evaluate whether your strategies and tactics are still productive.
 
A recent webcast, based on a survey conducted by Thomson Reuters, demonstrated that in today’s world of “risk aversion, macro dominance, reduced focus on active equity and equity fund outflows,” getting your story heard can be very challenging.  An article in CFO Magazine echoed the sentiment that “the rockiness of the equity markets and the prevalence of high-frequency trading and exchange-traded funds make cultivating the investor base tougher than ever.”
 
Are you doing the right things to be appropriately noticed by the investment community?  Respondents from the Thomson Reuters survey noted that knowledge of the business and ability to answer questions, responsiveness and timelines, and financial guidance are among the most important facets of a good investor relations program.  Interestingly, however, a separate survey conducted by the National Investor Relations Institute showed that the number of companies providing financial guidance has steadily declined over the last several years, with 76 percent of companies providing financial guidance in 2012, compared with 81 percent in 2010 and 85 percent in 2009.
 
While there will never be full agreement between the investment community and listed companies on providing guidance, and while every investor relations program is unique, there are a few things that all IROs should consider:
 

  • Build trust with the investment community through consistency, transparency and willingness to engage.
  • Take an individualized, targeted and precise approach to identifying appropriate investors.  Spend time with these prospective investors through one-on-one meetings, at conferences or by hosting site visits and investor days.  Stress quality over quantity.
  • Ensure your messages help the investment community understand your growth path and its trajectory.
  • Use business and financial press as an additional communications vehicle.  Include video in press releases and on your IR website to generate better engagement by making your story come to life.
  • Be aware of what’s being said about your company via social media, and strategically use social media to deliver your messages.
  • While any worthwhile activity generally requires time and patience, the long-term result should be enhanced shareholder value.

 

Laurie Berman, lberman@pondel.com