THE WALL STREET
THEORY & PRACTICE
| Updated November 27, 2012, 7:40 p.m. ET
Demand CEO Face Time
Bosses Must Juggle More Meetings With Investors,
Leaving Less Time to Run Their Companies
What's the value of a
meeting with a chief executive?
For investors pondering
large stakes in a company, a few minutes of a CEO's time can be worth
millions of dollars, giving them deeper insight into a firm's strategy
Big mutual funds have long
insisted on meeting a company's top boss before taking a stake in the
firm, but the uncertain economy has led more investors to demand face
time with CEOs—an obligation, bosses say, that is leaving them with
less time to run their companies.
Jason Henry for The Wall Street
Marketo CEO Phil
And it's unlikely the
requests will let up any time soon, as new research suggests that
those with direct access to a company's C-suite tend to make better
decisions timing stock purchases.
Since taking his post in
GameStop Corp. CEO Paul Raines says investors and analysts take up
an ever-larger chunk of his schedule.
He estimates he now spends
25% to 30% of his time preparing for or attending meetings at the
company's Grapevine, Texas, headquarters or investor hubs like New
York, Boston, Chicago and San Francisco.
Many investors want insight
on the company's expansion into digital gaming, says Mr. Raines, while
he aims to educate the skeptics who are shorting the company's stock.
He also weighs feedback.
Repeated requests from investors, he says, led the company to
implement a dividend earlier this year.
It's not easy to improve
productivity internally while serving as the company's
salesman-in-chief. Supporting employees, customers and investors is "a
24-hour balancing act," Mr. Raines says.
Phil Fernandez, CEO of
Marketo Inc., a marketing automation software firm based in Silicon
Valley that is gearing up for an initial public offering, is getting a
taste of how demanding investors can be. He estimates he now spends
roughly 20% of his time meeting with investors, either in "roadshows"—where
he might meet with 50 investors in rapid succession—or in private
half-hour sessions with large firms like Fidelity and
T. Rowe Price.
In better economic times,
public-company CEOs met with most investors at big conferences, where
the quick, numerous conversations often resembled speed-dating. For
longer sit-downs, shareholders were generally content to commune with
a company's investor-relations team.
Globally, the number of
private investor meetings at companies has fallen slightly over the
past year, as have IR head counts and budgets, according to a recent
survey of more than 1,400 investor-relations officers by IR Magazine.
However, senior managers are attending a bigger share of meetings than
C-level executives in North
America topped the list, attending 70% of private investor meetings
over the past year, up from 64% a year earlier. On average, CEOs and
finance chiefs devoted 14 days and 17 days, respectively, to these
Most CEOs today cannot
afford to decline a meeting request.
Many investment funds now
have policies—both explicit and unspoken—that they won't take a stake
in a company before meeting with the CEO, says Chris Hodges, founder
of Alpha IR Group, a Chicago firm that advises companies on investor
"If they don't play Wall
Street's game, it really does have an ultimate impact on their
valuation," says Mr. Hodges, who instructs his clients, mostly small-
to mid-cap public companies, to devote at least one or two days a
month to investor meetings.
however, doesn't guarantee their loyalty.
Companies used to meet
mainly with mutual funds and other long-term investors, but the rise
of hedge funds has forced executives to also talk with investors who
operate on a shorter time frame—and in some cases, may even short the
company's stock, Mr. Hodges says.
The middlemen in the
process, investment bankers, push for these meetings partly to show
their investor clients—like hedge funds—that they can broker access to
Analysts at SunTrust
Robinson Humphrey Inc., a San Francisco-based investment bank, are
increasingly evaluated on how many confabs they arrange between
management and investors, says Andrew Jeffrey, a SunTrust managing
director. A good number for each analyst, he says, is about 25 days of
meetings a year.
In theory, investors should
gain little from a face-to-face encounter with an executive.
Securities law requires companies to share material information with
all investors at the same time, via public filings.
Gamestop CEO Paul
Raines says he spends 25% to 30% of his time on meetings with
But in a
yet-to-be-published study that is in peer review, Harvard Business
School assistant professor Eugene Soltes suggests meeting with a CEO
may give some investors an edge. Mr. Soltes, who co-wrote the study,
examined the meeting records from 2004 to 2010 of a mid-cap firm
traded on the New York Stock Exchange.
While most investors met
with firm executives only once during the six-year period, several
hedge fund managers and large stakeholders scored meetings several
times a year.
Those who had more frequent
meetings tended to make better investments, Mr. Soltes found,
increasing their positions ahead of rises in the share price and
paring back as shares fell. (The study controlled for characteristics
that might give some investors a perceived edge in securing time on a
CEO's calendar, including firm size, type, asset size, stock turnover
and past performance.)
Mr. Soltes has no evidence
that anything untoward happened in these meetings, but wonders whether
they undermine fairness in the market. Companies might take
precautions to follow the letter of the law, he says, but "that
doesn't mean the playing field is level by any means."
Brian Hogan, president of
the equity and high-yield business at Fidelity Investments, the
largest active mutual fund company, says meeting a CEO can yield
"nuances" about a company that don't come across in earnings
transcripts, and help him "put the entire mosaic together."
Willy Walker, CEO of
Walker & Dunlop Inc., a Maryland-based real-estate financing firm,
says investors probe him for confidential information about his
company or competitors "all the time."
"They'll say, 'I'm sure you
can't say, but I want to put this out there,'" says Mr. Walker, adding
that he always brings an investor-relations representative with him to
meetings and has a practiced poker face, since even small gestures or
expressions could tip off a buyer. "They're hunting."
David Melcher, who became
CEO of aerospace and defense company
Exelis Inc. last year, says he has had to commit more time to
investors than his predecessor did, spending roughly three to four
days each month on such meetings.
He recently returned from a
two-day whirlwind trip to Los Angeles, San Francisco and Denver, where
he met with eight investors—only one of them a current shareholder. In
these sessions, he says he is "selling the management team," and
demonstrating he's accountable.
It's unclear whether
investor meetings affect firm performance. A 2011 study of 94 Italian
public and private-company CEOs found that firms whose bosses spent
more time with "insiders" instead of "outsiders"—such as investors,
suppliers and consultants—recorded higher profits and productivity,
measured in sales per employee, according to Harvard Business School
assistant professor Raffaella Sadun, one of the study's authors.
Marketo's Mr. Fernandez
says analysts' and investors' requests for meetings have grown so
constant that he walked into his finance chief's office recently and
declared he was setting some limits. "I need time to run the company,"
he said he told the finance chief.
Still, saying no to
investors is easier said than done, he admits. "It's all about money,
and if you don't have money, you don't have a company."
Leslie Kwoh at
A version of this article appeared Nov. 27, 2012, on page B1 in some
U.S. editions of The Wall Street Journal, with the headline: Investors
Demand CEO Face Time.
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