When It’s Really Important to Understand and Respond
to Investor Interests
Much can be
learned from the way companies communicate when the stakes are high
enough to justify whatever cost is required to win a vote. In such
high-value decisions, as when management tries to get investors to
support a merger, for example, companies pull all the stops. We have
all seen how they hire lawyers, investment bankers, investor relations
firms, proxy advisers, and even crisis managers. Then they start
suing, going on road shows, meeting investors, and taking out
This is a world
apart from the communications associated with the routine annual
meetings on the E-Meetings
With no high-stakes voting decisions, there was no need for high-value
communications, at least in relation to voting decisions. And that
made us wonder what we might be missing.
Professional’s Ten Tools
Drake, CEO of proxy solicitation firm Georgeson, summarized the
general steps his firm advises clients to consider as the
importance of a proposal increases.
decision-makers at all the institutional investors with voting
direct, face-to-face meetings or conference calls for the CEO,
CFO and, in some cases, a board member to discuss issues with
the investor decision-makers.
professionally articulated explanation of why the proposal
should be supported.
any investor questions and reactions.
shareholders based on the amount of influence over voting
plans for lower cost communications with investors that don’t
justify direct management communication.
ISS and possibly other proxy advisory firms whose voting
recommendations will influence some of the target company’s
to investors who may not vote out of apathy because, as Drake
puts it, “they simply don’t pay attention to the material sent
newspaper ads if needed to clarify voting issues.
forum if it can be controlled to present the issues without
Stop, Wait and
One of the best
examples of a high-value communication is what professionals call a
“Stop, Wait and Listen” letter. Used as an immediate response to a
tender offer, it gives shareholders a quick explanation of why they
should defer their decisions until management has a chance to
thoroughly consider and address investor interests.
So, the all-out
contest starts with a promise to do everything possible to understand
and respond to the information requirements of the company’s
decision-making investors. And that’s exactly what follows.
Lots of old
and new tools
companies use to collect insights and send their messages out are more
varied than ever. Most significantly, the new electronic tools provide
much faster and lower cost means of communications, allowing increased
quantity as well as quality.
are huge,” says Mary Beth Kissane*
of Walek & Associates and a board member of the National Investor
Relations Institute (NIRI). “They are used a lot, and are a quick and
inexpensive way to get the message out.” In addition, some companies
use web-based “deal rooms” or “crisis spots” that can be updated
continually in response to developments. They may also use social
media tools, such as Face Book and Twitter, to alert investors to a
new posting on their web site.
There are still
good reasons to use the old tools, though. The traditional road show,
for example, continues to be a commonly used and effective tool for
medium and large companies, according to Kissane. “Investors still
like to see management get on their hind legs,” she says.
More people to
decisions also involve more people. One reason is that decision-makers
are more likely to consider what others have to say, which also makes
it more likely that professionals – including analysts, proxy
advisors, reporters, etc. – will want to say something. Another reason
is that the escalated volume and frequency of communications in a
high-value situation, especially with modern electronic tools, just
draws more attention.
Dealing with this
audience requires work to understand what needs to be communicated,
and then to put it in simple terms, says Kissane. “You need to persuade
reporters, the ratings agencies, investors, and the influential
financial press of the benefits of your case.” She emphasizes that
these are professionals, and that what you tell them needs to be based
on solid foundations rather than spin. And that means solid research.
So, dealing with
the wide range of professionals and other influencers requires
engaging your own professionals. Some people think this multi-layer
filtering improves the quality of the information and assures broad
access to it. Whether it does or not, it seems to be a necessary part
of high-value communications.
professionals consider the most important thing they learn from their
experience with high-value communication is to reduce the need for it.
of proxy solicitor Laurel Hill Advisory Group observes that
communication during a high-stakes contest can be a lot more effective
and less expensive if the company has established relationships with
investors before the crisis. “Building a relationship can be critical
in just plain getting through,” he says. “I have heard many investors
say, if the phone rings and three companies are calling, I am more
likely to pick up the phone from the one I know.”
similarly thinks companies would be wise to hone their central message
to investors on a continuous basis. Because electronic communication
is fast-moving, a company can hardly afford to wait for a high-stakes
situation to begin formulating its message.
The first thing
that an alert observer of high-value communications is likely to think
about is the possibility that the significant cost efficiencies of
electronic communications could make it practical some time soon, and
maybe even now, to use some of those effective tools for routine
Could it be
justifiable to deliver some kind of electronic “Stop, Look and Listen”
message that directs investor attention to key sections of a company’s
100-page proxy statement for an easily understood explanation of
management’s proposed compensation plan? Or provide a video conference
with managers to answer questions about it?
companies, these communication tools will prove to be more practical
than teaching their CEO to
play the ukulele.
Ms. Kissane is a member of the Forum’s
Program Panel for E-Meetings.