Whose Line is it Anyway?

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I was quite surprised by a new set up at LAX when traveling to New York for a meeting last week.  Signs at the security checkpoint asked me to choose a line depending on my travel status.  Was I an expert traveler, a casual traveler or a traveler with a family?
 
Clearly, as it was 5 a.m. and my family was still at home tucked in bed, I could tick off family traveler.  But, since I was going to New York for both a business meeting and for a personal commitment, I had trouble deciding which “label” fit best.
 
A recent Wall Street Journal article confirmed that I am not alone in my confusion.  Many people find the signs unclear and are not sure if choosing the correct line is mandatory or voluntary.  However, the Transportation Security Administration says the program is working better than originally anticipated and that traveler aggravation is being minimized.  Many people like the new system and believe they are getting through security quicker and with less hassle.
 
According to the TSA, the “Black Diamond” program, named for the ski-resort term for expert trails, is aimed at improving security by creating a less stressful experience.  The program, which is currently in operation in a handful of airports today, is slated for expansion to additional airports in the near future.
 
So, which line did I ultimately choose?  Given my familiarity with security procedures and having mastered the art of taking my jacket and shoes off while removing my laptop, I decided I was indeed an expert traveler.  It didn’t speed my wait time any, but I suppose during peak travel hours it’s a plan that just might work.

 

— Laurie Berman, Senior Vice President, lberman@pondel.com
 
 

the great mIgRation

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IR folks come from all walks of life.  From CPAs to CFAs to MVPs, IROs come in all different shapes and sizes.  It appears the most recent IRO migration derives from the sell side.  Bedraggled by long hours and marketing trips, sell side folks are finding their way to IR like divining rods in search of a water source. With beads of sweat building up on their brow, they seek solace in the halcyon world of IR.
 
The question is whether they are merely seeking a mirage or a practical career change.  Quite frankly, I don’t know.  But what I do know is that the more diversified an IR agency’s skill set, the better off the agency is in facilitating clients’ needs.
 
To encourage diversification in our field, the following is a top ten list of occupations that I believe serve as the most appropriate preludes prior to joining an IR firm or serving as an internal IRO.
 

10. Psychic
9.  Linebacker
8.  Buoy
7. Anchor
6. Quantum Theorist
5.  Existentialist
4.  Lion Tamer
3.  Anesthesiologist
2.  Masseuse
1.  The little stuffed rabbit that dogs chase at the track

 

— Evan Pondel, Vice President, epondel@pondel.com
 
 

Tacos and Beer

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I don’t drink that much beer, but I do enjoy an occasional light brew when tacos are present. It’s a very nice complement, kind of like mondel bread and coffee.
 
The media is shedding light on a different kind of complement these days. I am referring to blogs and PR. The Wall Street Journal recently devoted more than 20 inches of copy to a beer blog that Miller Brewing Co. recently launched.
 
The blog is written by a former Advertising Age staffer who channels his sudsy muse into an analysis of the beer industry. Of course, I suspect the blog doesn’t break news about the very brewer that pays for its existence. But to Miller’s credit, the company is completely transparent about its relationship with the blog.
 
As more companies attempt to ride the wave of blah-blah-blogging (ours included), I find Miller’s approach refreshing and full bodied. They are taking the foam out of foam. They are tapping the proverbial keg and making themselves look smart, as opposed to drunk and stupid.
 
So, here’s to Miller Brewing Co. for drumming up a savvy PR program. The question is whether a similar program could be applied to a publicly-traded company.
 
My advice is to proceed with caution. Don’t get me wrong, I think blogs can be valuable for public companies. However, public companies must not forget that they are blogging on behalf of shareholders, too.

 

— Evan Pondel, Senior Associate, epondel@pondel.com
 
 

WPM

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Executive bios are a dime a dozen. Like instant cake mix, you add a couple of ingredients, some water, and stir until the lumps (or time lapses between jobs) fade into a silky smooth consistency. But I recently stumbled upon an ingredient I haven’t seen for a long time called “WPM.”
 
No, I’m not talking about weapons of plausible meaningless. I’m talking about words per minute. When was the last time you saw a resume with “50+ WPM” listed as a special skill? I reckon it’s been a long time.
 
I’m pretty sure that most corporate executives can type at a clip of at least 50+ WPM. But does it really matter? Should the C-suite disclose special skills like WPM in their bios? Perhaps, but only if they’re typing at Guinness-book levels.
&Nbsp;
I do think it’s OK to disclose interesting factoids.  For example, if a CEO plays cello, has a knack for fine art, or is a connoisseur of kishke, I say go ahead, add a little color to perk up those staid, old bios. But WPM is a different story. Unless you’re measuring the Width of your Profit Margins.

 

— Evan Pondel, Senior Associate, epondel@pondel.com
 
 

To Buy or Not to Buy, That is the Question

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At a time when many stocks are languishing (the Dow is down 3.7% over the last 12 months, the Nasdaq Composite is down 6.9% over the same period and the S&P 500 has lost 8.2%), many investors are asking companies to put their cash to work and initiate stock buyback programs.
 
Is a buyback a good idea?  In 2007, many companies thought so.  According to the Wall Street Journal, companies in the S&P 500 repurchased a record $589 billion of their own stock in 2007, up 36% from the prior year.
 
Buybacks reduce a company’s number of shares outstanding, which in turn helps increase earnings per share.  Company’s stocks often advance on the news of a buy-back, but the effect is generally short-term.  According to a May 2007 article in Forbes, the increase in EPS as the result of a buyback gives only a temporary, one-time, artificial boost to earnings, while causing companies without the proper cash position to increase debt, leaving them vulnerable to a downturn in the economy.  Additionally, a study by Birinyi Associates and cited in the Forbes article showed that of 375 S&P 500 companies that bought back their shares in the six years through December 2006, the companies’ median stock return post-buyback was 56%, versus 72% at companies that did not repurchase their shares. The average return post-buyback was 102%, compared with 131% at companies that did not repurchase.
 
So what’s a company to do now that the economy has turned sour?  Buybacks fell 18% in the 2007 fourth quarter, the biggest quarter-to-quarter drop in more than five years, says the Journal, and given the current credit crunch and fall of the large financials, buybacks are unlikely to reverse this trend in the near-future.
 
If your company’s stock represents a great investment, you have idle cash in the bank and your business can self-fund its growth, a buyback can be a fantastic statement of your future confidence.  However, if you’re considering buying back stock to please a group of critical investors, think hard about whether the cash outlay will introduce unnecessary risk to the business.

 

— Laurie Berman, Senior Vice President, lberman@pondel.com
 
 

PondelWilkinson Turns 40

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Firm Spreads Insight with Formal Launch of Blog
 
In 1968, when Mel Rifkind launched his then eponymous specialty public relations firm on April fool’s day, some of his friends looked askance.
 
Mel may have been a bit nervous that day, but he was no fool. He opened his doors in a small office on mid-Wilshire, with a goal of building a firm that would stick to several guiding principles:  operate with the highest degree of integrity; provide thoughtful counsel; hire smart people; take on quality clients slowly and selectively; and always deliver results—guidelines that the firm continues steadfastly to follow today.
 
More than half of the current staff, including Principals Roger Pondel and Rob Whetstone, were students when Mel founded the company—Roger was in high school, Rob was finishing kindergarten. The other half were either in diapers or not yet born. One of Mel’s first clients, Bell Industries, is still active with us today.
 
In commemoration of the firm’s anniversary, we are launching pwinsight.com, our new blog that will focus on items of relevance for those who are employed by, and advise, publicly traded companies. We hope you find some of the items useful in the months to come and that you will click on the Subscribe button to automatically receive new postings.
 
To all of our clients and friends, thank you.  We deeply appreciate your business, are grateful for your friendship and support, and will continue to work diligently to maintain your loyalty and trust.

 

— Roger Pondel and the entire team at PondelWilkinson
 
 

Know Your NAICS/SIC Code

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You may not be aware that in 1997, the North American Industry Classification System (NAICS) was adopted as the standard for classifying business establishments.  Developed jointly by the United States, Canada, and Mexico, NAICS provides new comparability in statistics about business activity across North America.  NAICS replaced the old Standard Industrial Classification (SIC) system.
 
Each company’s code is determined by that company’s primary business activity – the one that generates the most revenue for the company.  This code is then used by various government agencies to collect, tabulate, analyze, and disseminate statistical data describing the economy of the United States. Generally, a company’s code is derived from information that the company has provided on administrative, survey or census reports.
 
This methodology can be somewhat challenging if your business model and revenue generating activities change, as your company will likely continue to be classified according to old data provided to the Census Bureau.
 
While there is currently no official procedure for having a company’s SIC or NAICS code changed, if you strongly disagree with your company’s classification, you can contact the agency that has assigned your code.  Various government agencies maintain their own lists of business establishments and assign classification codes based on their own programmatic needs.

 

— Laurie Berman, Senior Vice President, lberman@pondel.com
 
 

Auditor Changes – More Common Than You Think

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Since 2002, more than 6,500 public companies have changed auditors.  Of these, 79 percent were public companies with a market cap under $75.0 million.  The CPA Journal recently revealed a study that looked at the impact of these changes to determine whether the historical stigma surrounding them has disappeared.
 
Over the past two years, more than 1,000 companies who changed auditors did not disclose a reason for the change (the SEC does not mandate disclosure for this type of event).  The two most common reasons cited, when companies did disclose the reason for the change, were audit firms’ mergers and the public company’s change in control.
 
Not surprisingly, it was found that the biggest switch has been to smaller accounting firms, given their lower cost and often better fit with the issuer.  However, it was also discovered that in 2006, companies audited by smaller firms had a restatement rate of 13 percent versus 9 percent for those audited by the Big Four.
 
What does this all mean for investors?  Changing auditors can provide investors with a fresh look at the company by a new set of eyes.  In 2006, 27 percent of the issuers that changed auditors restated their financials within one year, compared with 10 percent of all public companies that restated their financial results.
 
Whatever the reason or outcome, transparency should be the ultimate goal of all public companies.  So, when changing auditors, consider telling investors why you made the switch.

 

— Laurie Berman, Senior Vice President, lberman@pondel.com
 
 

Spritzer, anyone?

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The stock market is up and perhaps rightly so as a colleague pointed out that the Federal Reserve announced plans to expand its securities-lending program to $200 billion.  But I think the stock market is up for a different reason.
 
I think “Client 9” has something to do with it.
 
Could it be that the folly of one of the most feared critics of corporate America has spurred a modest rally in one of the worst markets in months?  Could it be that the man responsible for holding swashbuckling research firms accountable and issuing more than $1 billion in fines is finally on the fritz?  And could it be that the grass is finally greener for Dick Grasso now that his nemesis looks cheaper than a scantily clad Chia Pet?
 
Sadly, it looks like Superman has lost his cape, and all of Wall Street’s Lex Luthers are rejoicing and drinking spritzers, raising their glasses to Spitzer.  Oh, what a pitzer.
 
The truth is, Eliot Spitzer did a heck of a lot more for investors than a paltry rally in mid-March. In many respects, he reformed the way Wall Street does business, and by doing so, he saved myriads of investors from losing the very crystal they are raising today to celebrate Spitzer’s demise.
 
It’s a sad day for Wall Street.  It’s a sad day for New York.  But for every supposed great man who has philandered with id instead of super-ego, their legacies, in many cases, are still alive and well.  The problem is, their ability to pave a yellow-brick road to righteousness is forever lost.

 

— Evan Pondel, Senior Associate, epondel@pondel.com
 
 

Quarterly Earnings Release Practices

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The National Investor Relations Institute (NIRI) recently completed a survey on quarterly release practices among publicly traded companies and shared the results with the SEC Advisory Committee of Improvements to Financial Reporting (CIFiR).  The committee was convened by the SEC in June 2007 with the goal of reducing unnecessary complexity and making information more useful and understandable for investors.  Based on its findings and presentation to the CIFiR, NIRI is currently preparing best practice guidelines for quarterly earnings releases.
 
According to NIRI:
 

  • Added disclosure in quarterly earnings releases has resulted from investor demand and management team philosophy, among others.
     
  • While companies of all sizes use non-GAAP measures in their earnings releases, small cap companies tend to do so less often (31% for companies with a market cap below $100 million versus 70-74% of companies with a market cap in excess of $500).
     
  • Quiet periods surrounding a company’s earnings release average four weeks or more.
     
  • 96% of survey respondents include an income statement as part of their quarterly earnings release and 91% include a balance sheet.  The percentages are much lower for cash flow statements (58%) and segment financial information (61%).

 
In my opinion, the best quarterly earnings releases are those that report a company’s financial results in a clear and concise manner, while providing investors with the color necessary to make an informed investment decision.  I’m betting that NIRI’s best practice guidelines will mirror that thought.

 

— Laurie Berman, Senior Vice President, lberman@pondel.com