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

When it Bleeds, it Leads

When I started at The Wall Street Journal Online in the 1990s as a wet-behind-the-ears news assistant, I can still recall one of my editors making a crack in the newsroom about “when it bleeds, it leads.” The market had experienced a steep sell off that day and my editor was in the throes of putting a headline on a story about the blood bath stocks had taken.

The recent market volatility harkens back to the all-consuming frenzy that permeated the newsroom when the Dow dropped in a big way, and it got me thinking: Are financial journalists partial to writing stories about negative news, and if so, does that provoke even more irrational fear in the market?

To gain some insight on what people think, I decided to engage Twitter’s polling option, which is free if you tweet the poll to followers.  I wanted to drum up more than five votes, so I paid Twitter to promote the poll.  Following are the results:

 

Even though the question elicited 295 votes, the results were not very conclusive.  Nearly a third of respondents believe that media are more inclined to publish stories about a bear market, and the same goes for a bull market.  At the same time, 44 percent of voters claimed media are indifferent about publishing bull or bear market news, which is where I take issue.  Call me a curmudgeon, but I do believe that media are more inclined to publish negative news, after all who wants to read about positive news unless puppies are involved?

The German word schadenfreude comes to mind, which means to take pleasure in someone else’s misery.  A lot of folks have made a lot of money in the stock market during the last several years, and quite frankly, this recent correction may be validating for all of those other folks who haven’t been able to generate solid returns.   Getting your comeuppance on Wall Street is a sexy story to tell these days, with the hit movie “The Big Short” drawing hordes of crowds, not to mention Martin Shkreli’s rise to fame as the hedge-fund-turned-pharma-exec devil incarnate.

I fully support holding fraudulent companies, executives and anyone else in the capital markets accountable, although finding that balance can certainly be difficult when journalists’ salaries are miniscule relative to what folks make on Wall Street. Perhaps the only way to ensure that financial media are less biased toward writing bludgeoning stories is to get their salaries more in line with the people they cover.  And who knows, that might help ameliorate market volatility and put more money in the hands of everyone.

— Evan Pondel, epondel@pondel.com  

Hello 2016

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

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

2016 Resolution: Don’t Forget the Transparency

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

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

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

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

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

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

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

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

Overused Words in 2015

The year is coming to a close quickly and reflecting on what we’ve learned in the last 12 monthsuni will hopefully set us up for success in 2016.

Much of our work at PondelWilkinson involves writing, and in the world of investor relations and financial communications, certain words are used more frequently than others in the span of a year.

Following is a top-10 list of the most overused words in 2015, along with (tongue-and-cheek) alternatives for the year ahead.

  1. Disruptive/transformeresque
  2. Unicorn/rhinoceros (two horns are better than one)
  3. Leading/simply the best
  4. Revolutionary/other worldly
  5. Activist/Laird Hamilton (one very active guy)
  6. Deep value/there’s treasure buried in them hills
  7. Emerging/turtle head
  8. Strategic alliance/friends with benefits
  9. Merger/friends with benefits (yes, a repeat)
  10. Consolidation/I crush your head

— Evan Pondel, epondel@pondel.com

Remaking Tuesday

EBOTIt’s Tuesday…that day of the week when your lazy Sunday afternoon nap is a distant (but fond) memory and the manic frenzy of Monday has passed, but the rest of the work week still seems like a long stretch of road.

Here at PondelWilkinson, we’ve decided that Tuesday needs a makeover. For too long, Tuesday has been treated like the Jan of the Brady Bunch week – taken for granted, overlooked and underappreciated despite serving as the stepping stone to Hump Day, Throwback Thursday, and Thank God It’s Friday.

In our humble opinion, it’s time we remember and acknowledge why #EverythingsBetterOnTuesday (or #EBOT, for short)

Here’s just the start of a list we’ve come up with:

  • #EverythingsBetterOnTuesday because let’s face it — it isn’t Monday
  • #EverythingsBetterOnTuesday because you can usually find some two-fer deal
  • If you’re in PR, #EverythingsBetterOnTuesday because it’s easier to talk to reporters
  • #EverythingsBetterOnTuesday because you can usually find a radio station that will play two songs in a row from your favorite artist : )
  • If you’re in the stock market, #EverythingsBetterOnTuesday because it’s typically the largest purchase day of the week (Wall Street types don’t call it “Turnaround Tuesday” for nothing)

So after you finish that last sip of your morning coffee, square up those shoulders and take a moment to appreciate the day. Because everything’s better on Tuesday.

Share with us your photos and thoughts on why #EBOT ; ) We’ll share our favorite posts next Tuesday!

–E.E. Wang and George Medici