Demise of the Sell-Side?

For years now, it has felt as if sell-side analysts were leaving their firms in droves…some moving to the buy-side, others to corporate positions as CFOs or investor relations officers, and still others to destinations unknown. A recent Financial Times (FT) article corroborated this “feeling,” reporting that the number of investment bank research analysts has fallen by one-tenth since 2012.  According to the article, these cuts are expected to continue.  Vontobel Asset Management’s chief investment officer said in the article, “we will have massive cost pressures in an industry that is not ready for it at all…they’ll have to gut things pretty hard.”

Back in the day of the dot.com bubble (when I was director of investor relations for an internet search firm), claims of biased research ran rampant. In fact, an analyst following my company was directly implicated, and I saw first-hand how new rules and regulations were needed to ensure sell-side coverage was not influenced by outside factors.  Next came the financial crisis, when “newly cost-conscious banks started slashing staffing of research departments, because they made little direct contribution to earnings,” said the Financial Times.

Additional changes are underfoot, according to the president and CEO of Westminster Research as told to FlexTrade Systems.  “The emergence of new research products has been largely data driven.”  Whereas in the past, analysts were generally responsible for covering a specific industry and stock, and reporting findings back to its clients, asset managers are now taking the data, “and interpreting it, making their own assumptions and coming up with their own ideas and create alpha.”

Sarah Gordon, business editor at FT, said in a recent article that, “most analysts’ research is not very good.”  She goes on to say that, “if greater transparency has not forced analysts to do a better job, other mechanisms must be tried.  Alternatively, the demise of sell-side research should be quietly celebrated.”  On the other hand, Stuart Kirk, a Deutsche Bank analyst, believes we should “expect a renaissance in research now things are heating up again,” according to a recent FT article.  Kirk says his expectation is based on increased research report readership, meeting requests and phone calls.  He claims that demand for research more than “doubles during periods of uncertainty such as Brexit or Donald Trump’s election victory.”

What does all of this mean for investor relations departments?  Certainly, attracting research coverage has never been easy, with no silver bullet to expand the number of analysts covering your company.  While it does not seem likely to get any easier with fewer analysts working with fewer resources, there remains considerable benefit to having sell-side support for your company.

Laurie Berman, lberman@pondel.com

PondelWilkinson Takes Home Three Awards

Awards

 

 

 

 

 

 

 

 

PondelWilkinson received three awards last week at the Public Relations Society of America, Los Angeles Chapter’s PRISM awards.  The awards recognize outstanding programs and materials created by public relations professionals.

The firm won three awards for the following categories:  Media Relations; Editorials and Op-Ed Columns; and Annual Reports. Pictured above is George Medici and Evan Pondel.

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

 

 

Turning the Tables: An Intern’s Perspective

PondelWilkinson is very lucky to have a fantastic intern on staff. Her name is Yukari, and she recently earned a master’s degree in strategic public relations from USC. Among many other duties, Yukari has been helping enhance PW’s social media presence, and as a result, our Facebook and Twitter pages are now chock full of great content. Since Yukari frequently asks the members of our staff questions to help drive our social media content, I thought I’d turn the tables on her to find out how she feels about working in the real world of strategic communications after finishing her schooling. Below is our interview.

Q: Why did you decide to study communications?

Yukari Nishi during  Career Day at the University of Southern California.

Yukari Nishi during Career Day at the University of Southern California.

A: I started my undergraduate career as a vocal performance major at Berklee College of Music. Then I had the opportunity to study in Tokyo, and that’s where I decided to transfer my major to communications. I’ve always wanted to do something creative, and after I took a PR class, I realized that it would be a good career to pursue. After I completed my studies in Tokyo, I transferred to Rutgers University and got my communications degree. This past May, I got my master’s in strategic public relations from USC.

Q: Do you think your education prepared you for the real world?

A: I definitely think that the program at USC prepared me for the real world. The professors that I learned from have both in-house and agency backgrounds, and the experiences they shared were really interesting and helpful. I wish I’d found PR earlier in my undergraduate career, but I probably wouldn’t be here today if I didn’t take the time to figure out what I really wanted to do.

Q: What qualities do you think are important to succeed in this field?

A: Networking skills are a must in this field. I also think the ability to adapt is really important. Especially at an agency, you have the opportunity to work with all types of professionals in many different fields, and it’s important to know how to deal with, understand and embrace those differences.

Q: Has anything surprised you about the field since you started working here?

A: Not necessarily a surprise, but more of a confirmation. I’ve heard from many professionals and professors that in an agency, no two days are the same.  Working at PondelWilkinson definitely confirmed that, and I’ve enjoyed learning different things every day. I come to the office wondering what type of projects I’ll get to work on that day.

Q: What are some of the more interesting things you’ve worked on since joining us?

A: I really enjoy creating graphics for different events, survey results and giveaways because it allows me to bring out my creative side. It’s important to be able to tell a story using graphics. I also like drafting news releases because during the process I get to learn more about the client and the client’s impact on its industry.

Q: What has been the hardest adjustment?

A: Pitching reporters is not easy. Speaking with journalists was pretty challenging at first, but now I’m getting a feel for how to approach them and better understand what kinds of things they need from me to make a decision on whether to cover our clients. Their time is valuable and you need to get their attention in a very short time frame.

Q: What advice would you give someone wanting to get into the communications field?

A: I would say that working on your writing skills is really important. A lot of writing comes with the job, and you can never get enough practice.  I also think it’s important to keep in touch with the connections you make, because it’s a small world and you never know how those connections might help you in the future.

We’d love to hear from you in the comments below if you have any other great tips to share for those just starting out.

– Laurie Berman, lberman@pondel.com

Saturday Mornings, a Frothy Latte and The Wall Street Journal

Ever since The Wall Street Journal started publishing on Saturdays, I have more-than-ever appreciated the print edition, relaxing unrushed with a latte to read just about every story.

"The Cure for Decision Fatigue,” a Saturday Essay in the WSJ.“

“The Cure for Decision Fatigue,” a Saturday Essay in the WSJ.

Aside from major news, which all of us see from many media, it seems like on Saturdays, the Journal always publishes some interesting pieces that go largely unnoticed by other publications. This past weekend was no exception.

There was a near full-page feature about where to go for the best ice cream sundae in New York City (the Brooklyn Farmacy & Soda Fountain); a story about walking in Los Angeles’ new downtown Arts District; a column about the rise of the “polypill,” an all-in-one capsule that will lower your cholesterol, take down your blood pressure and reduce your blood sugar at the same time; and a practical treatise touting the benefits of wearing seersucker swimming shorts.

With my business hat on, however, the one that caught my eye was the “Intelligent Investor” column by Jason Zweig. I had spoken with Jason during the week as he was researching his column, which focused on how, over the recent years, America’s individual shareholders have essentially disappeared from view.

Jason pointed to an antiquated SEC rule, dating back to 1934, stating that if a company has fewer than 300 shareholders, it can deregister and “go dark,” saving the company certain costs and also eliminating the communications transparency that shareholders, and I and my colleagues as professional corporate communicators, all hold near and dear.

In part because of technology, most investors for many years have been buying shares in electronic form. They hold those shares in brokerage accounts, rather than seeking share certificates from the issuers. The actual record holders in essence have become the brokerages. One record holder possibly could represent thousands of individual investors.

The practicality of the brokerages forwarding to their customers all the news that an issuer distributes is just about nil. Moreover, if a company goes dark, requirements for widely issuing any news is significantly reduced. As is the point of Jason’s column, if an issuer wants to tune out almost completely and deregister, it would be pretty easy. That’s a frightening thought that over time could significantly diminish valuation for all holders.

Fortunately, most of the companies going dark are not main stream, and in our observation, are typically quite small and usually not of the highest investment grade. Perhaps, however, it is time for the SEC to look at this rule and increase that 300 minimum number for the benefit of all shareholders.

Nice piece, Jason. Hopefully you haven’t given any ideas to too many issuers! As to other stories in Saturday’s edition, there also was an interesting one headlined, “The Cure for Decision Fatigue.” Perhaps I should have had a cappuccino instead of a latte?

—Roger Pondel, rpondel@pondel.com

Gearing Up for the IR Community’s Largest Gathering

On Sunday, I’ll be heading to the 2016 NIRI annual conference in San Diego to learn about the latest developments in our industry, hear informative (and I hope entertaining) speakers and meet like-minded people to gather intelligence about what makes a successful IR program.

The sessions I’m most interested in follow:

  • Overview of Key Corporate Governance and Regulatory Issues – And What You Need to Know to Keep Activism at Bay. Those who follow this blog know that we’ve written about activism in the past, including this post about the rising tide of activism. Although it was written nearly eight months ago, the message is still relevant today. A recent Wall Street Journal article reported on the creation of the Council for Investor Rights and Corporate Accountability, or Circa, which is the “first coordinated effort by activists to make their case to lawmakers and the American public that their investment strategy helps, rather than harms, companies and the U.S. economy.” There are some major heavyweights on the Council, including Carl Icahn and Bill Ackman.
  • Breaking through the Noise: Latest Trends in Quarterly Reporting. Without trying to give away my age, I have now been involved in nearly 90 quarterly reporting cycles. If I add the fact that for the majority of that time I’ve been at an agency serving a multitude of clients, I bet I’ve written more than 500 earnings releases and conference call scripts (kind of crazy seeing that in black and white). Oftentimes, it’s hard to get excited about a process that generally lacks creativity in how the news is delivered. Recently, however, we’ve seen video earnings calls from Restoration Hardware, use of social media as a primary disclosure outlet from Netflix and formal remarks being posted on IR websites to allow for Q&A-only calls.
  • Short Attacks: The New ‘Wolf Pack’: Best Practices for Preparing and Defending Against a Short Attack. I’ve been intimately involved in an organized short attack this year, and it’s anything but fun. A recent Supreme Court Ruling, as reported by Bloomberg, could make naked short selling much more difficult for those trying to manipulate the stock market, while Carson Block, an activist short seller, told Business Insider, “I think we’re helping people.”

There will be lots more to see, hear and explore. If you’ll be in San Diego next week, look for me so we can exchange war stories.

– Laurie Berman, lberman@pondel.com

 

Recent News Snippets

newsprintI’ve seen a lot of interesting content over the last few weeks with implications for the investor relations community. So instead of penning new content, I’ve decided to summarize some of what I’ve read.

From ISS Corporate Solutions on non-GAAP metrics: “To date, most institutional investors seem to be comfortable with non-GAAP metrics.  According to the 2015-2016 annual ISS policy survey, only 11 percent of investors (and 1 percent of companies) responded that compensation metrics should only be based on GAAP measures.”  From Compliance Week: “Three-fourths of companies in the S&P 100 reported non-GAAP earnings in 2013, exceeding their reported GAAP earnings by an average of 12 percent points.”

From Canaccord Genuity on activism: “Shareholder activism and unsolicited activity, particularly larger transactions, remain elevated,” and “Activists have also become more sophisticated in identifying their platforms and running their campaigns – often generating significant positive attention from mainstream media.”  From Nasdaq: “Put yourself in the activists’ shoes and look at your company the way they would; assess your vulnerabilities as an activist would, communicate with and listen to shareholders; look for the manner in which questions are asked which may signal concerns that management should be effectively addressing; keep communications open and focused on how the company is managing both internal and external environments; provide regular updates to the Board; remain informed and plugged in with key industry members and peers; and actively monitor trading activity,” among others.

From Heartland Advisors on micro-caps: “In our view, micro-caps often have more in common with private equity investments than other publicly traded stocks.  For example, the biggest payoffs from micro-caps often occur upon the sale or merger of a holding.  Similar to private equity, they also require longer holding periods to fully reap the benefits of the asset class.”

From Sheppard Mullin on raising capital: “Although primarily a transportation bill, the FAST Act also made changes to the federal securities laws,” and “Overall, the FAST Act’s changes to the securities laws will help facilitate raising capital.”  The FAST Act (Fixing America’s Surface Transportation Act) shortens the period of time that an emerging growth company must wait before beginning its road show from 21 days to 15 days after publicly filing its registration statement, and allows emerging growth companies to omit certain financial information in registration statements on Form S-1, among others.

From Forbes on board responsibility: “Two years ago virtually no company had proxy access, now more than 200 companies give shareowners a voice during board elections,” and “Proponents who put in proxy proposals have informed me that there has been a shift in terms of activity in this proxy season.  At this time last year,  they were strategizing with other proponents as to how to maximize votes.  This year, they’re spending more time having rational, reasonable conversations with issuers about the technical details in regard to what type of proxy access the issuer will adopt.”

Have you read anything interesting lately? Please share with us in the comment section below.

– Laurie Berman, lberman@pondel.com

Visualizing IR

Data visualization has received a lot of attention in recent years, helping investors connect the dots on otherwise cryptic numbers by presenting a compelling visual.  The problem is, not everything should be presented as a visualization.  You know what I’m talking about … those “SmartArt”-happy PowerPoint presentations that attempt to demonstrate how everything is like a funnel.

The good news is that more experts are surfacing to help guide management teams to create visualizations that demonstrate a company’s performance.  In certain ways, there is a parallel to be drawn here with a spiritual guru helping a subject ingest a hallucinogenic that leads to salvation.

I’m not suggesting that IROs need to eat Peyote to make a compelling visual. But Arif Ansari, associate professor of clinical data sciences and operations at the University of Southern California’s Marshall School of Business, makes a compelling argument about mind-altering practices that could, in fact, lead to better data visualization.

When I interviewed Ansari for a recent IRupdate story, he told me to close my eyes and think about how I could depict some aspect of my business visually.  He sharpened his point by using the acronym “OPEN MIND,” which stands for identifying an “Opportunity, Pain point or need, Engaging, Nailing down a hypothesis, and Monetizing Insights with New Development.”

The first two times I attempted Ansari’s method, I came up with nothing but a bunch of gobbledygook, and then on my third attempt, all of the stars aligned and my mind presented the perfect visualization.  NOT!

OK, there is no bullet proof method when it comes to visualizing data effectively.  Perhaps seeing it done right is a good place to start.  Following  are a few examples:

  • The Coca-Cola Company’s “Annual Review,” which highlights the company’s achievements for the year, is an example of how to select visual images after narrowing in on a target audience.  In this case, retail investors.
  • Procter & Gamble provides a visual overview of the company on its IR website, including how the company creates value for shareholders, a table that breaks down reportable segments, percent of net sales, percent of net earnings, categories, and brand names, as well as circles that convey parts of a whole for business segments, geographic regions, and market maturity.
  • Colgate-Palmolive’s 2014 annual report utilizes slide shows and videos to highlight the company’s brands, strategies, and growth. The company also provides a visual description of its sustainability practices, in addition to financial charts that are animated when scrolling down the page.

– Evan Pondel, epondel@pondel.com

From the Mouth (Pen) of Warren Buffett

This weekend, Warren Buffett’s highly anticipated Chairman’s letter was published in the Berkshire Hathaway annual report.  Below are some of my favorite quotes from the nearly 30 page missive.  The Wall Street Journal, which notes that the annual letter is “among the most widely read — and most widely discussed — dispatches in the business world” shared a list of their favorites as well.

  • When talking about Berkshire’s acquisitions. “I’ve made some dumb purchases.” You’ve got to love a leader who tells it like it is.
  • When talking about acquisitions in general (attributed to Charlie Munger). “If you want to guarantee yourself a lifetime of misery, be sure to marry someone with the intent of changing their behavior.”
  • When talking about activism. “To be sure, certain hostile offers are justified: Some CEOs forget that it is shareholders for whom they should be working, while other managers are woefully inept. In either case, directors may be blind to the problem or simply reluctant to make the change required.” Buffett goes on to say that Berkshire “will not engage in unfriendly takeovers.”
  • When talking about investments. “Woody Allen once explained that the advantage of being bi-sexual is that it doubles your chance of finding a date on Saturday night. In like manner – well, not exactly like manner – our appetite for either operating businesses or passive investments doubles our chances of finding sensible uses for Berkshire’s endless gusher of cash.”
  • When talking about computers and online activity. “I now spend ten hours a week playing bridge online. And, as I write this letter, “search” is invaluable to me. (I’m not ready for Tinder, however.)” The fact that Warren Buffett even knows what Tinder is, is impressive.
  • When talking about GEICO Insurance. “All the while, our gecko never tires of telling Americans how GEICO can save them important money. I love hearing the little guy deliver his message: ‘15 minutes could save you 15% or more on car insurance.’ (Of course, there’s always a grouch in the crowd. One of my friends says he is glad that only a few animals can talk, since the ones that do speak seem unable to discuss any subject but insurance.)” No real lesson here, just some great humor.
  • When talking about GAAP versus non-GAAP. “I suggest that you ignore a portion of GAAP amortization costs. But it is with some trepidation that I do that, knowing that it has become common for managers to tell their owners to ignore certain expense items that are all too real. ‘Stock-based compensation’ is the most egregious example. The very name says it all: ‘compensation.’ If compensation isn’t an expense, what is it? And, if real and recurring expenses don’t belong in the calculation of earnings, where in the world do they belong?” I’m sure many agree.
  • When discussing poor returns.  “… and we are now paying the price for my misjudgments. At other times, I stumbled in evaluating either the fidelity or the ability of incumbent managers or ones I later appointed. I will commit more errors; you can count on that. If we luck out, they will occur at our smaller operations.” So refreshing for a leader to admit to his mistakes.
  • When discussing the Berkshire annual meeting. “Charlie and I have finally decided to enter the 21st Century. Our annual meeting this year will be webcast worldwide in its entirety.” This is great news for those of us who cannot make it to Omaha (40,000 did last year).
  • When still discussing the Berkshire annual meeting. “Our second reason for initiating a webcast is more important. Charlie is 92, and I am 85. If we were partners with you in a small business, and were charged with running the place, you would want to look in occasionally to make sure we hadn’t drifted off into la-la land. Shareholders, in contrast, should not need to come to Omaha to monitor how we look and sound. (In making your evaluation, be kind: Allow for the fact that we didn’t look that impressive when we were at our best.)” And, “Viewers can also observe our life-prolonging diet. During the meeting, Charlie and I will each consume enough Coke, See’s fudge and See’s peanut brittle to satisfy the weekly caloric needs of an NFL lineman. Long ago we discovered a fundamental truth: There’s nothing like eating carrots and broccoli when you’re really hungry – and want to stay that way.” I think I love this man!

– Laurie Berman, lberman@pondel.com