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

Girl Power

Sequoia Capital made news this week when they hired the firm’s first female investment partner in the United States.  This appears to be a 360 degree turn from last year, when, according to The New York Times, Sequoia’s Chairman said the firm did not have female investors in the United States because it did not want to lower its standards.

Women are rare in the highly competitive and cutthroat field of venture capital. According to The Times, research from Babson College showed the percentage of female venture capitalists at 6 percent, down four percentage points from 1999, at the height of the dot-com craze.  The CrunchBase Women in Venture report found that of 100 venture firms studied, 7 percent of the partners at those firms were women, and that 38 percent of the top 100 firms have at least one female partner.  In February, Bloomberg columnist Barry Ritholtz sought to answer the question: Why aren’t there more women in finance?  A possible answer is that “it may be a legacy of what has not only been a male dominated society, but it probably also reflects an industry that is particularly resistant to change,” or that “there are simply not a lot of women in senior positions in all of business, and finance to a great extent mirrors that reality.”

One would think then that there is a perception that women are not as accomplished as men. According to Ritholtz, several studies (Fordham University and the CFA Institute) have found that women in the actively-managed fund industry tend to outperform their male peers.  If true, why are the numbers still so lopsided?

Perhaps the tide is turning for women in business, however. The Los Angeles Times noted that among the largest U.S. companies, women now fill 20 percent of board seats, up from 15 percent in 2005.  In fact, women have made strides recently in other male-dominated professions.  There are now female referees and coaches in the NFL, female play-by-play announcers for major league baseball and female heads of state.  Great news, for sure, but how is that playing out in corporate America?

A 2012 case against Kleiner Perkins Caufield & Byers showed that women and men don’t always play nicely in the sandbox. That case saw a female partner, Ellen Pao, sue the firm for gender discrimination.  She lost the suit in 2015, but during a press conference Pao was quoted as saying, “If I’ve helped to level the playing field for women and minorities in venture capital, then the battle was worth it.”  Pao recently launched Project Include to assist startups and HR departments with recruiting, hiring and retaining a diverse workforce according to Wired.  Project Include also works with venture capital firms whose business is to help startups develop.

There is a lot of work to be done, but it’s my opinion that embracing diversity in the boardroom, on Wall Street and in business can only help improve the variety of opinions, talents and expertise necessary for us to thrive.

– Laurie Berman, lberman@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.

PW Participates in IR Certification Exam

First it was the CPA certification for accountants, instituted in 1917.

 

Then in 1963 came the CFA credential, administered by the CFA Institute, for finance and investment professionals, particularly in the fields of investment management and financial analysis of stocks, bonds and their derivative assets.

 

One year later, in 1964, the Public Relations Society of America, www.prsa.org, launched the APR designation as a way to recognize PR practitioners who have mastered the knowledge, skills and abilities needed to develop and deliver strategic communications.

 

Soon, investor relations professionals, courtesy of the National Investor Relations Institute (NIRI), www.niri.org, will have a test of their own. The designation has yet to be named, but development of the Body of Knowledge (BOK) is now underway, and the inaugural exam is scheduled for mid-2015.

 

The BOK is the basis for most certification exams, including the CFA. It forms the base of teachings, skills, and research in a given function, along with details on the essential competencies required of a practitioner based on a set number of years of experience.

 

It is with great honor that I am serving as an advisor to the NIRI committee preparing the first BOK for the investor relations profession.  I will be working directly with editor Ted Allen and a distinguished group of 25 investor relations professionals from throughout the nation who will write the definitive book—one that will represent every element of the requisite knowledge that will be tested in the IR certification exam.

 

It’s a big project and a tall order, especially for a profession whose practitioners require a wide range of knowledge, spanning disciplines that include finance, accounting, capital markets, news media, disclosure regulations, public relations practices and virtually all aspects of communications.

 

Canada and the UK currently have IR certification programs, and two U.S. universities—Fordham and the University of San Francisco—offer graduate degrees in investor relations.

 

While validation of competency through an exam or graduate degree may not guarantee practical success, we at PondelWilkinson are proud to have been asked to participate in this milestone endeavor for our industry.  I’ll keep you posted as the program develops, but please do not ask me for any answers to the exam—none of the BOK committee members will have access to it!

 

Roger Pondel, rpondel@pondel.com

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Does it Pay to Go Public?

IPORecently, a client pointed me in the direction of a very interesting Inc. article about the case for staying private. The author is the CEO of a privately held, family-controlled tech business, one that has name cache. He notes that being a public company is expensive and time consuming. He also believes that “the most critical benefit of staying private is the facilitation of a true focus on long-term goals.”

It’s not hard to argue that Wall Street is increasingly focused on short-term results, but does that mean that management teams need to adopt the same mindset? Maybe it’s a naïve belief, but some would say that if the stock market is working as it should, a company’s share price will reflect the company’s true value over the long-term.

The New York Stock Exchange predicts a busy year for IPOs in 2014, with about 150 to 200 new issues expected. Reuters points to first quarter IPO activity of $47.2 billion, a nearly doubling from this time last year and “the strongest annual start for global IPOs since 2010.”

Clearly, there are CEOs who still believe in taking their companies public, many in the technology sector. Perhaps they are in it for a large personal pay day, but perhaps they realize that it could be easier and less expensive to raise capital to realize their growth plans. Or perhaps, their Fortune 500 client base requires audited financials as a condition for doing business together.

The decision to go public is not an easy one, and it’s a decision that every company must weigh very carefully. If you’re contemplating an IPO to become like Hooli, the fictional tech company featured in the new HBO series “Silicon Valley,” it may not be the right move. But if you’re doing it to build something that can have a lasting impact, it might just be. Just make sure you surround yourself with good advisors to ensure a smooth process.

– Laurie Berman, lberman@pondel.com

Beware ‘The Wolf of Wall Street’

Focusing on con artists and greedy hucksters selling dreams that rarely come true, “The Wolf of Wall Street” is an entertaining, well-acted, comedic, and sadly, reasonably accurate film.
 
Although intensely exaggerated, the highly successful Hollywood extravaganza epitomizes the classic bucket shop investment bank, selling mostly worthless penny stocks via high pressure telephone solicitations, principally to unsuspecting individual investors, and tantalizing entrepreneurs who want to take their very small companies public.
 
From Charles Ponzi to Bernie Madoff, there is a long history of questionable behavior on Wall Street. The wolf, or rather wolves, never really left. In fact, the sordid creatures may be creeping back into the hood with the stock market’s stellar performance. According to one law firm, DLA Piper, even though 2013 saw the lowest number of SEC enforcement actions (68) in the past decade, word has it that this year and beyond, the SEC plans to bring record numbers of sanctions using new tools and resources.
 
In a bulletin to its clients and prospects, the law firm noted that whistleblower bounties and tips are on the rise and that the Dodd-Frank whistleblower bounty program is gaining steam, with informants potentially receiving as much as 30 percent of any monetary recoveries. On October 1 last year, the SEC awarded its largest bounty to date, $14 million, which itself may drive the number of tips higher in 2014.
 
Mid last year, the SEC’s enforcement unit announced it had formed the Financial Reporting and Audit Task Force, comprised of lawyers and accountants throughout the United States tasked with identifying issuer violations. This august group has a tool in its arsenal, affectionately known as RoboCop, which allows it to determine whether an issuer’s financial statements stick out from the pack. Other tools are supposedly in the works that will analyze text portions of annual reports for potentially misleading disclosures.
 
According to the bulletin, with the amount of new resources and tools the SEC is devoting to detecting financial reporting violations, an expectation is growing that the agency will bring a greater number of enforcement actions in the future. In June of last year, SEC Chair Mary Jo White said that in certain cases, the SEC will not settle unless the defendants admitted wrongdoing, so more companies, officers and directors may be testing the SEC’s allegations and legal positions by litigating and going to trial.
 
The largest number of enforcement actions in any one year during the past decade was 219 in 2007. We’ll see what happens in 2014. But wolves everywhere, beware.
 
– Roger Pondel, rpondel@pondel.com

Conversation: Potential Perils of Crowdfunding

Mary Jo WhiteThe Securities and Exchange Commission, through December 23, 2013, is seeking public comments on a proposal under Title III of the JOBS Act that would permit crowdfunding in connection with the purchase of securities. Nothing is perfect, and if adopted, investors and issuers alike will need to exercise caution.
 
Following is a tongue-in-cheek dialog between SEC Chair Mary Jo White, with comments taken verbatim from a press release issued by the SEC October 23, and a completely fictitious investor, expressing concerns:
 
Mary Jo:  I’m pleased that we’re in a position to seek public comment on a proposal to permit crowdfunding.
 
Investor:  What is crowdfunding?
 
Mary Jo:  Crowdfunding describes an evolving method of raising capital that has been used outside the securities arena to raise funds through the Internet for a variety of projects ranging from innovative product ideas to artistic endeavors.
 
Investor: Umm…I’m not sure I understand.  What does that have to do with securities?
 
Mary Jo:  Title III of the JOBS Act created an exemption under securities laws so that this type of funding method can be easily used to offer and sell securities as well. Securities purchased in a crowdfunding transaction could not be resold for a period of one year.
 
Investor:  Oh, I get it now.   You mean I soon will be able to take my hard-earned money and buy stocks in small, risky companies I never heard of?  Companies that may be run by rip-off artists.  Companies that have not been vetted by an investment bank. Stocks that will not necessarily trade in the public markets—not even on the OTC Bulletin Board?  And stocks that I may not even be able to easily sell?
 
Mary Jo: The Securities and Exchange Commission voted unanimously to propose rules under the JOBS Act to permit companies to offer and sell securities through crowdfunding.
 
Investor: Huh?  Maybe I don’t get it after all. What are the commissioners thinking?
 
Mary Jo:  The intent of the JOBS Act is to make it easier for startups and small businesses to raise capital from a wide range of potential investors and provide additional investment opportunities for investors.
 
Investor: Opportunities you say?  Aren’t there enough investment opportunities out there already? Do we really need more?  I’m scared. I want my mommy.
 
Mary Jo: We want this market to thrive in a safe manner for investors.
 
Investor:  O.K. I understand that’s what you want.  But President Obama wanted the Affordable Care Act website to work.  Besides, wasn’t the SEC supposed to be watching folks like that Madoff fellow?  He should have been easy to monitor, compared with the thousands of small entrepreneurs who will want to sell securities to unsuspecting investors?
 
Mary Jo:  There is a great deal of excitement in the marketplace about the crowdfunding exemption.
 
Investor:  Did I say I am scared?
 
Roger Pondel, rpondel@pondel.com
 
 

The Empire Strikes Back

As the IPO market heats up with the usual technology, healthcare and consumer company players, an unusual pending deal will impact the New York skyline as well–the Empire State Building.
 
Last week, it was reported that at least 80 percent of the investors of Malkin HoldingsLLC, Peter Malkin’s company that owns the Empire State Building, approved a plan to take the historical New York City skyline tower public.
 
Malkin’s plan involves lumping in the Empire State Building into a newly created real estate investment trust (REIT), the Empire State Realty Trust Inc. The REIT is estimated to be valued at approximately $4.15 billion, more than a billion over the $2.33 billion that the building alone is valued at after debt. Through this plan, investors will be able to cash out, and Malkin will be able to stay in control.

Empire State Building

Empire State Building Photo Credit: wikipedia.com)

 
With its complicated ownership history, the 82-year-old, 102-story Empire State Building certainly will be the centerpiece of the new REIT, which in total will have more than 18 properties.  Should the IPO go through, Malkin’s share is calculated to be worth as much as $714 million. Investors would also see flexibility and have more access to their capital, making this IPO quite attractive.
 
It is very rare that any deal of this magnitude will please all parties. While the advantages of taking the Empire State Building public appear at first glance to outweigh the disadvantages, at least for top investors and the Malkins, it remains to be seen if this deal proves to be more profitable than costly.  How the Malkins approach IR will also be interesting to watch.  Such a high-profile building is likely to attract a significant retail following, and telling the REIT’s story to investors might be the biggest challenge yet for the Malkins, especially when all of Manhattan is already watching your biggest asset.

 

Joanne Sibug, jsibug@pondel.com
 
 
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Help Speed the Information Flow

A lot has changed in the capital markets since the 1970s, particularly relating to the rapid dissemination of information. However, one key piece of information still reaches companies slower than the 405 Freeway on a Friday afternoon–13F reports showing changes in institutional shareholder ownership.
 
Today, 13F reports, the reporting form filed by institutional investment managers, reaches the public 45 days following the end of each quarter, a glacial pace when considering the advances in electronic communications. Now there is an effort underway to encourage the rapid dissemination of such information, changing that filing period to two days following the quarter.
 
NYSE Euronext, along with the Society of Corporate Secretaries and Governance Professionals and the National Investor Relations Institute recently petitioned the SEC to change the 13F reporting period, stating that the delay “hampers public companies’ ability to identify and engage with their shareholders, including their ability to consult with shareholders regarding “say on pay,” proxy access and other key corporate governance issues.”
 
The petition argues the following points: The length of the current 45-day delay period keeps material information from reaching investors and public companies on a timely basis;The objectives underlying section 13(f) support reducing the delay period; The arguments for maintaining a 45-day delay period are unpersuasive;A substantial reduction in the 45-day delay period would align rule 13(f) with public company governance best practices.
 
We certainly agree that this petition makes sense, especially when you consider the timely disclosure requirements under Regulation FD, filing requirements for 8k’s and Form 4′s, combined with management’s need to understand and know its shareholder base. To send a letter to the SEC in support of the petition, please click here.

 

Matt Sheldon – msheldon@pondel.com

The Downside of Social Media

While social media usage continues to grow here in the U.S. and globally, so do opportunities to reach key audiences on the Web, creating an oversaturation of content, we know all too well.

World Wide Web (Photo Credit: wikipedia.com)

 
Countless efficiency studies have been released on managing content, mirrored by just as many reports on tapping key audiences in a cluttered marketplace.  For instance, standing up in a packed movie theater yelling “Fire!” will certainly grab attention, but it’s probably not the kind of exposure that is sustainable over the long term.
 
Facebook and Google’s ad strategy of creating more personalized content based on user preferences may be the future of marketing.  The fact remains, however, that people turn off when the proverbial information flow goes on overload.
 
Walking a delicate balance is the right strategy.  Consider the following five tips when engaging
online audiences:
 

  1. Whether corporate, investor or marketing-related, make your message relevant. Know your audience’s wants and needs and develop messaging that resonates on a deeper level.  For example, time-strapped CEOs may be more inclined to listen to a vendor that understands the pressures of a “bottom line.”
     

  2. Don’t try to speak to the entire world. While having a video or tweet go viral is rare, most times less is more.  Try having more personalized online conversations and work on building deeper relationships with audiences.
     

  3. Start off slow. Don’t bombard your audiences with too many messages at once. Keep it simple. Start a conversation and then slowly move into other topic areas with time.
     

  4. Add value. Make sure you provide your audience with something they can’t get elsewhere. This is paramount.
     

  5. Try the post office.  May sound corny, but a nice follow up letter using old fashioned snail mail with an actual signed signature goes a long way in today’s fast-paced, digitized world. Think about how many personalized letters you receive these days.
     

  6. And finally, remember the old adage of selling the sizzle, not the steak. Keep in mind that there are millions of conversation threads each day. Why should anyone join yours?

 

George Medici, gmedici@pondel.com