Aberdeen Insights

Keeping the Barbarians BEYOND the Gate

by Matt Moyer

With shareholder activism and failing say-on-pay votes increasing again this year, it is as important as ever for CFO’s to have a consistent investor relations strategy and an Investor Relations Officer (IRO) on the leading edge of surveillance, targeting and messaging.

An investor relations strategy needs to be as forward leaning and consistently executed as a company’s internal controls or its IT security. Information is moving faster than ever and the equity markets are reacting (and sometimes overreacting) instantaneously. Without dedicated IR resources and constant monitoring of analysts, shareholders and the equity markets, a company can find its equity subject to increased volatility and/or shareholder activism. Increased volatility can raise a company’s cost of capital and dissident shareholders can be a major distraction (or worse) for management teams. A proactive IRO should be communicating with investors and analysts every day, staying on top of the rumor mill and feeding information back to the executive management team. An iterative loop of communication and information leads to increased management credibility and a strong defense against activism and dissident shareholders.

Consistent and timely tracking of a stock’s trading activity is quickly moving from a luxury to a necessity. IRO’s should choose a reputable surveillance provider that will provide a dedicated analyst with a history and expertise in its industry. While there is as much art as science to stock surveillance, a good analyst can produce a relatively dependable prediction of who is buying or selling stock in the company on at least a weekly basis. Equipped with this information, IRO’s can proactively open positive lines of communication with new shareholders and obtain a first-mover advantage.

An advanced targeting program should incorporate a potential shareholder’s voting history. Certain shareholders, especially when communication lines are open and proactive, have long-term histories of voting with management on proxy issues like compensation and equity plan renewals. These shareholders tend to ignore the generally “dissident friendly” proxy advisory firms and will reward managements that clearly articulate a strategy and stick to it. A forward-thinking IRO will incorporate this data into the annual targeting program along with the more traditional criteria of competitor ownership, buying power and turnover. Building a list of top 20 or 30 shareholders that is abundant with “friendly” shareholders is both a strong offense and defense against shareholder activism.

A corporation’s investor messaging must be born from its strategy and never vice versa. According to many financial media outlets, the average holding period for an equity investment is getting shorter and shorter for both institutional and retail investors. An issuer’s shareholder base is likely to see significant turnover during the course of just a few quarters and therefore the wants and demands of that base will likely change significantly in a relatively short timeframe. Management teams and IROs should incorporate constructive shareholder feedback in the development of their external messaging but also remain steadfast in strategy especially as it relates to cash returns to shareholders and debt levels. A well-developed and articulated strategy doesn’t necessarily need to be executed perfectly for shareholders to remain positively biased.

Due to the increasing speed of trading and information, institutional investors are often resorting to activism to create differentiated returns. It is imperative for CFO’s and management teams to have an advanced IR strategy and the dedicated resources to execute consistently and proactively.

Guest blogger Matt Moyer, Investor Relations Advisor