Stories about trends in the U.S. and global economies. The hottest new IPO. A cool product or service intended to change the world. A big earnings gain or miss. Reports about various countries’ fortunes both politically and fiscally all across the world. CEO changes, restructurings and recessions, just to name a few.

Absolute Value is our sounding post where we hope to exchange ideas and commentary on why all of this matters. We believe our point-of-view about events and communications helps our clients matter more in an era of unprecedented global connection.
 

Is it Time for Companies to End Earnings Guidance?
September 19, 2012

Companies have long struggled with – do we, or do we not provide guidance. Throughout the 1990’s and early 2000’s, forecasts were a central aspect of share analysis and investor communications. However critics have long maintained that quarterly EPS forecasts support an unhealthy emphasis on short-term results rather than long-term value. Certainly, valid arguments can be made on both sides of the issue, but we believe that corporate management might do well to visit or re-visit the advisability of providing quarterly earnings guidance – and whether in the long term it best serves their company and stakeholders.

Warren Buffet for one has long been a strong proponent of not providing guidance. In his year 2000 Letter to Shareholders of Berkshire Hathaway, he looked to make his case (or maybe warned us, given events that have followed) stating: “The problem arising from lofty predictions is not just that they spread unwarranted optimism. Even more troublesome is the fact that they corrode CEO behavior….. I have observed many instances in which CEOs engaged in uneconomic operating maneuvers so that they could meet earnings targets they had announced. Worse still, after exhausting all that operating acrobatics would do, they sometimes played a wide variety of accounting games to ‘make the numbers.’ These accounting shenanigans have a way of snowballing: Once a company moves earnings from one period to another, operating shortfalls that occur thereafter require it to engage in further accounting maneuvers that must be even more ‘heroic.’ These can turn fudging into fraud…”

Having worked with publicly traded companies for many years, I have also seen the focus that some companies place on meeting forecasted numbers in line with their analyst consensus. Given this, is it any wonder that some CEOs and CFOs (focused on the short-term) spend a lot of time (that might better be spent in building long-term value) to ensure they make a forecasted target. We have all witnessed a share price drop when a company misses its target, sometimes by no more than a penny or two?

Beyond this, according to a study by Harvard Business School it would appear at least some corporate executives feet have been held to the fire on making those quarterly numbers by their board of directors. The study found that CEOs and CFOs who missed their targets were more likely to be punished with lower bonuses, smaller equity grants – and potential dismissal. In other words, it would appear that some executives are being incentivized to make their quarterly numbers.

Are companies and investors best served by such short-term views? I think not, and would suggest rather that companies and investors would be better served by management’s communicating their focus on growing their company’s value over the long term. Providing a strategic plan and identifying and discussing in detail long-term value drivers for the company on a consistent basis will help to attract long-term investors as opposed to short-term investors or traders. After all, shouldn’t a company be judged on its steady performance and not one quarter’s?

Marilynn Meek is a Vice President at Financial Relations Board and brings over two decades of experience as an officer of Wall Street securities firms and IR agencies. She provides strategic communications programs that include IPOs, M&As, capital raising initiatives, shareholder and analyst communications, and financial crisis communications for micro-cap to Fortune 500 companies.

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Socializing Investor Relations: Why You Should Be Doing It, and How You Can Get Started
September 13, 2012

Have you heard (or made) any of these statements lately?

The Street doesn’t get our story.
Why don’t we get credit for all of our strengths/accomplishment/ideas/successes/strategies?
We get the same questions, from the same few people, every quarter
Our roadshow didn’t get us anywhere.
We are undervalued.
How can we differentiate ourselves from our peer group?

If the answer is yes, then you should be thinking about how to “socialize” your IR and financial communications programs. I could tick off all of the reasons why you haven’t done it yet, beginning with concerns about Reg FD and some recent social mishaps resulting from some ill-conceived CEO commentary.

Those who think that social media is the land of brand promotion, and brand promotion only should recall the cautionary tales of some other channels that were initially shunned by those tasked with financial communications – like live TV. Once the domain of the consumer brand and shunned by CEO’s, live broadcast was too “uncontrolled”, too “scary” and too “dangerous”. Now, CEO’s fight to be on CNBC to reach their investor audience. Sounds very similar to the current perception of social media. When used correctly, social media can be a powerful addition to your financial communications. And using it correctly means using it in complete regulatory compliance.

The conversation is going to happen, with or without you…all of the “social buzz” around Apple’s Q3 earnings miss was just one recent example.

Not sure where to start? Here are a few easy steps to get you socially active:

  • Listening & Insights: Social media can be a powerful “eavesdropping device” – tune in to hear what your individual shareholders are saying, about you, and about your competitors. Twitter recently launched cashtags – $ + your stock ticker. The conversations are happening – and they can inform your messaging and keep you aware of what is being talked about.
  • Earnings 2.0: Your quarterly earnings cycle is one of the most important communications vehicles you have. Similar to a school report card, investors use this time to tell how a company is performing and what the future holds. Social media can serve as an additional layer of distribution to your investors by “live-tweeting” your earnings and providing links to your release, conference call webcast and investor presentation. Social media provides the platform to include and engage individual shareholders, as well as the larger, institutional investors. Some of the more progressive companies like Dell are even taking questions via twitter to be answered on their calls, which can come from any shareholder, not just an analyst or major investor.
  • Start a Dialogue: One of the biggest challenges companies face is continuing the conversation with investors between quarters. Social media provides the platform for you to create an IR “channel” for easily sharing your Company news, releases, reports, presentations and company videos which can serve as the stimulus for true conversation, where you can get feedback in real time. So while pushing content and news is good, engaging in real dialogue is better. Social engagement – from responding to investor inquiries, reacting to online posts, or following the conversation – will give you the ability to respond or react to comments and questions online, gauge the sentiment of the financial community, and assist in building a broad, diversified base of holders by strengthening and building trust among your current and potential investors.
  • Lead the Conversation: Research repeatedly shows that a larger portion of your share price than you may think is attributed to intangibles, with quality of leadership, vision and strategy as major factors. Social media platforms like Twitter, Slideshare and Youtube provide forums where you can tell the “softer side” of your company’s story. And unlike a feature story in major media, you have 100% editorial authority over the content, the timing and the photos. Use social media to help people get to “know” your leadership team, understand your strategy, and follow your news and developments, because a social CEO is perceived as more relevant. Maintain a blog to share thoughts and comments about industry trends and financial news. Get your content out there, build your company’s reputation and become a voice for your industry.

Social media isn’t going to pass. The conversations are happening, with or without you. You can use it as a strategic tool to build trust, relevance and long term shareholder value. Or not. Competition for investment dollars is just that, competition. And the savviest companies will be using every tool at their disposal to attract your investors.

Get social. Or get left behind.

Carreen Winters brings nearly two decades of corporate communications expertise to her position at MWW Group with special emphasis in corporate and executive positioning, reputation management, crisis communications, restructuring and financial transactions, employee communications and labor relations.

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Election Season – An Opportune Time for a Speaker Training Refresher
September 7, 2012

Whatever your political leanings may be, Bill Clinton is universally accepted as one of the greatest orators of our time. He lived up to this reputation this week when he once again captured America’s attention at the 2012 Democratic National Convention. In addition to the resounding applause from convention attendees and favorable bi-partisan reviews, even TLC’s Here Comes Honey Boo Boo’s ratings took a hit Wednesday night when many eyes were on Clinton.

While many executives feel that they would be hard pressed to replicate his speaking skills and charisma, especially when on stage for 50 minutes, we place a great deal of emphasis on getting our IR clients ready for prime time via professional speaker and presentation training. Of course it takes a great deal of practice to master the art of powerful public speaking, but with election season in full swing, this is an opportune time to reiterate a few key tips to capture your audience and keep them engaged:

(1) Treat every appearance as if it is the most important presentation for the company, whether it be an IPO roadshow, an analyst day, or an industry conference.

(2) Pepper your prepared remarks with short, insightful, and memorable nuggets about your company. Just as the media has focused on highlighting Clinton’s most powerful one-liners, it is these statements that investors and analysts also most often remember.

(3) Don’t forget the 7% verbal – 38% vocal – 55% visual rule. Non-verbal elements, including eye contact, posture, hand gestures, facial expressions, well-executed pauses, and intonation are essential to a successful presentation, especially when interacting with Wall Street players who are analyzing every behavioral aspect to gauge credibility, confidence, and investability.

Stacy Feit is a Senior Vice President at Financial Relations Board with over 10 years of investor relations and Wall Street experience. She provides strategic financial communications counsel and helps clients increase their visibility within the financial community. She has guided numerous clients through major milestones, including IPOs, spin-offs, acquisitions and restructurings.

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ECB Unveils New Government Bond-Buying Program – Sparks Capital Markets Rally
September 6, 2012

Today, the European Central Bank (ECB) announced an open-ended sovereign bond purchasing program to keep borrowing costs down for Spain, Italy and other struggling countries. This comes nearly three years after Europe started experiencing a credit crisis that many feared would signal the end of the euro zone. Many are saying that this program has the potential to be a real game changer as reported in today’s Wall Street Journal.

The mechanics of the new program, called Outright Monetary Transactions, are as follows: the ECB will buy unlimited, existing government bonds in the secondary market only, so long as the euro zone government complies with an economic reform program approved by the euro zone. The ECB, in turn, will offset those purchases by taking an equal amount of money out of circulation in a process known as sterilization, keeping its mandate to maintain stable prices.

Although many of the details of today’s announcement were widely anticipated, the news has also sparked a substantial trading rally in U.S. markets, with the Dow Jones Industrial Average up to 13,277.22, +229.74 or 1.76% as of 1:45 p.m. ET in today’s trading. The S&P 500 was up to 1,430.82, an increase of +27.39 or 1.95%.

What does this mean for U.S. investors? Only time will really tell. In the past year alone, we have seen many dips and dives around any news concerning the economic climate in Europe. However, from our team’s perspective, it’s clear that we are living in a truly interconnected world. Most agree that earnings in the U.S. are slumping in no small part due to global economic weakness. Whether or not today’s news will have a material impact on the near-term performance of U.S. companies, it’s clear from today’s market performance that U.S. investors have taken this opportunity to move off the sidelines. Whether short-lived or not, it’s clear that all financial communications should at least take into account what’s happening on a global stage. For many companies, it also begs the question whether or not their investor communications strategies are prepared to do this.

Scott Eckstein is a Director of Account Services at Financial Relations Board and brings over 15 years of experience in financial communications both in agency and corporate roles. Scott has worked with a number of companies developing integrated communications programs as well as developing targeted institutional and retail branding campaigns. He has also provided advisory services for a variety of small- to large-cap companies.

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Beyond the Presidency: Will CEOs Be “Campaigning” for their Jobs?
August 30, 2012

Last night at the Republican National Convention, New Jersey Gov. Chris Christie proclaimed that leadership is not about reacting to poll results, but creating those poll results. I suppose I’ve found one thing that I can agree with Chris Christie about: the importance of presidential leadership. (Though, Michael Douglas also said this while playing a President in one of my all time favorite movies, The American President. Which is neither here nor there.)

But not reacting to polls is easier said than done when a mere four years later, regardless of your party affiliation, you have to run for reelection.

Could this also apply to CEOs? As shareholder activism and influence continues to grow, public company CEOs may find themselves in a similar situation, and not just every four years, but annually. CEOs have always worked for the shareholders, but judgment of their performance was largely governed by the Board of Directors.

With the emergence of Say on Pay, and other shareholder assertiveness, however, a new dynamic is developing. Take, for example, WellPoint’s announcement that the CEO is stepping down largely due to shareholder demands, with no one waiting in the wings to take her place. A CEO’s abrupt departure, without a new CEO already in place to assume control, used to be reserved for situations of malfeasance, misconduct, or personal situations, like illness. Certainly, a smooth and planned transition of power to a new leader is preferable in most situations. But we’re seeing it happen more and more under pressure of investors. While investor pressure has always played a role in leadership changes, rarely have we seen it played out so publicly and transparently.

Does this signal a new era of corporate governance and proxy fights, where CEOs will need to “campaign” for their compensation? Go on investor listening tours, working to shore up support to keep their jobs? Will annual meetings look more like political conventions, with grandstanding surrogates and investors as delegates? Or will an eventual, positive change in the economy let some of the air out of the activist shareholder sails? Would love to hear your thoughts…

Carreen Winters brings nearly two decades of corporate communications expertise to her position at MWW Group with special emphasis in corporate and executive positioning, reputation management, crisis communications, restructuring and financial transactions, employee communications and labor relations.

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Twitter’s Official Foray into the World of Finance
August 9, 2012


Last week, Twitter launched the “cashtag” feature, adding the “$” to its eponymous #hashtag and @reply operators. Similar to its hashtag system and StockTwits’ established $TICKER system, by adding the “$” in front of a ticker symbol, it becomes clickable and aggregates all content in the Twittersphere related to that stock.

While a quick Twitter search of some of the most talked about stocks, including Apple and Facebook, yields an incredible amount of results, usage is presently dominated by news services and retail investors similar to the activity on the StockTwits platform.

We’ll have to wait to see if Twitter can gain traction with this development among the venerable institutional investor community, but in the meantime, it provides another tool for IR departments to add to their social media arsenal to monitor and engage in real-time conversations with their retail investor base.

Stacy Feit is a Senior Vice President at Financial Relations Board with over 10 years of investor relations and Wall Street experience. She provides strategic financial communications counsel and helps clients increase their visibility within the financial community. She has guided numerous clients through major milestones, including IPOs, spin-offs, acquisitions and restructurings.

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Proxy Season Ends with a Dramatic Shift in Shareholder Engagement
August 7, 2012

Proxy season came in like a lion. Remember the media blitz back in April, when investors strongly voted down Citigroup’s proposed $15 million pay package for its Chairman? Following closely behind, across the pond, there were other shareholder revolts at Cairn, Barclays and Prudential over compensation. Indeed, it was a global outcry.

What I find even more interesting and promising, while falling under the radar for the most part, was the fact that several prominent companies, including Umpqua Holdings, Stanley Black & Decker, Beazer Homes and Jacobs Engineering–who were poster children in the 2011 proxy season for their “out-of-touch” executive pay–turned the tables and garnered more than 90% shareholder approval for new pay packages in the 2012 proxy season. Clearly they understood what needed to be done and took actions to work with investors post their 2011 shareholder meetings to make sure their pay plans were acceptable.

Proxy season is now over for the most part and according to a report by Ernst & Young (E&Y) the 2012 season represented a dramatic shift in shareholder engagement.

The report highlights four emerging corporate governance trends, each of which points to engagement having been a significant component of these trends. Companies are using shareholder engagement to respond to investor concerns, secure support for proposals put to shareholder vote and mitigate exposure to investor campaigns.

At the time of the report, voting revealed four developments:

  1. The impact on say-on-pay (SOP) goes beyond compensation. Proxy statements filed by S&P 500 companies that received less than 70% approval on their 2011 SOP proposals show nearly all made changes in their shareholder outreach.
  2. Shareholder proposal topics are shifting and agreements for withdrawal are being reached. Board-focused and environmental social proposals each represent 35% of the total proposals. At least 15% of the more than 800 shareholders’ reports tracked by E&Y were withdrawn following dialogue between companies and shareholders, with both sides reaching agreement on how to best achieve governance and responsibility goals.
  3. Board accountability measures continue to strengthen. Companies have increasingly acted to implement annual board elections, adopt majority vote standards for director elections and appoint independent board leaders in response to long-standing investor support for shareholder proposals on these topics. Investors continue to press for these reforms.
  4. Director opposition votes show changes in voting practices. While 2012 has seen an increase in attention to “vote no” campaigns, overall director opposition votes remain low and, as a result of SOP proposals, compensation is no longer a primary driver of opposition votes.

With one proxy season over, another begins and compensation committees are already starting the 2013 process. We believe that headway is being made between corporations and investors in actively engaging one another. As said before, and it bears repeating, it is never too early or too late to begin a dialogue or further strengthen this engagement. Or, as one compensation committee chair said, “It is important for committees (and boards in general) to remember that they represent and serve the interests of shareholders.” We agree.

Marilynn Meek is a Vice President at Financial Relations Board and brings over two decades of experience as an officer of Wall Street securities firms and IR agencies. She provides strategic communications programs that include IPOs, M&As, capital raising initiatives, shareholder and analyst communications, and financial crisis communications for micro-cap to Fortune 500 companies.

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SEC’s Decimalization Report: Unexpected Take of the Sell-Side and Impact on Small-Cap IR Programs
July 25, 2012

Last week, as mandated by Section 106(b) of JOBS Act, an SEC Commission delivered a report regarding the effect decimalization – or trading and quoting securities in one penny increments – has had on IPOs and trading volumes for small- and mid-cap companies.

Since being implemented in 2001, decimalization has faced steeped criticism and was actually cited as a “death star” by auditory firm Grant Thornton, and has played a contributing role in the decline of the U.S. IPO.

Despite this negative legacy, the Commission’s report, while an interesting conversation piece, did not offer any practical conclusions. It notes lower spreads may have negatively impacted capital formation, but it’s one of several factors that could have, and current data cannot isolate the effects of decimalization alone. The report also discusses how equity markets have changed over the past decade.

The final preparers’ recommendation is to not proceed with specific rulemaking to increase tick sizes at this time, but additional research may be needed to determine whether rulemaking should be undertaken in the future.

Small-Cap, Sell-Side Research
However, what we find extremely interesting was insight as to how decimalization has “put the economic sustainability of sell-side research departments under stress.”

The report highlights that independent equity analyst coverage has significantly shifted away from smaller capitalization stocks towards highly liquid, larger capitalization stocks. This report further suggests that analyst coverage of smaller public companies has become unprofitable both because of the Global Analyst Research Settlement in 2003, prohibiting direct compensation of analysts through investment banking revenue, and decimalization itself, which reduced spreads that formerly helped fund analyst coverage. The conclusion is that less analyst coverage of smaller capitalization companies means that less information on these stocks is generated, which, in turn, reduces market interest in these stocks.

This is a sad state of affairs and something that every investor relations professional can relate to. In the past few years, we’ve increasingly seen sell-side research departments consolidating staff and reducing coverage to compensate for reduced resources. So, it becomes increasingly incumbent on smaller companies to find ways to proactively tell their story. Some tips we can offer include:

  • Be proactive, get out there and meet with investors:

Yes, the days of large group broker lunches are dwindling, but one-on-ones remain one of the best ways to meet with your shareholders and prospects.

  • At industry conferences, focus on your buy-side meetings:

Consider consolidating sell-side meetings into a group event, as sell-side analysts on the whole are more receptive to this venue than buy-side individuals.

  • Become an industry resource for your sector’s sell-side analysts:

As a former corporate practitioner, I’m proud to say that while a former company was only covered by five analysts, I regularly spoke with most of those covering my industry and got frequent calls for information, to schedule calls with management, etc. That’s how that number went to five from originally two analysts in only a year and a half.

  • Establish a presence at retail/broker investor events
  • Utilize social media – Twitter, Stock Twits – to broaden proactive outreach to the investment community.

Make no mistake – the competition for investor dollars has and will always be fierce. As sell-side research becomes more competitive to obtain, it makes it that much harder for investor relations professionals to help our companies achieve that essential “mind share” that differentiates an “interesting prospect” from a “company that I want to own.”

Scott Eckstein is a Director of Account Services at Financial Relations Board and brings over 15 years of experience in financial communications both in agency and corporate roles. Scott has worked with a number of companies developing integrated communications programs as well as developing targeted institutional and retail branding campaigns. He has also provided advisory services for a variety of small- to large-cap companies.

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NAREIT’s REITWeek Conference – Notes and Takeaways
June 20, 2012

Last week I attended NAREIT’s Annual Investor Forum in New York: REITWeek. It was an educational and rewarding opportunity to meet with many of the 1,000+ attendees representing REIT industry management teams, institutional investors and sell-side analysts. NAREIT is the worldwide representative voice for REITs and listed real estate companies with an interest in U.S. real estate and capital markets.

Jim Cramer, host of CNBC’s “Mad Money,” started the festivities at NAREIT’s Investor Forum by addressing attendees at a luncheon on June 12th. Cramer gave his own perspective on how REITs have performed during the downturn. Unlike other industries, Cramer said REITs have taken a number of steps to successfully manage through the financial crisis in “shareholder-friendly ways,” such as refinancing and issuing equity. Cramer emphasized the importance of investors having a diversified portfolio that includes REITs.


NAREIT organized presentations with over 100 REIT management teams led by some of the industry’s top influencers. While I could not see them all, I left with many significant takeaways that our team wants to share with you here at Absolute Value:

  • Management teams’ remarks were optimistic, and most anticipate further industry improvement going forward, although this is expected to remain gradual due to slow economic growth.
  • In general, REITs are focusing on improving their balance sheets as well as the quality of their portfolios.
  • In New York City and other major markets, the office outlook is steadily improving. Some technology-driven markets like San Jose and San Francisco have reported strong performance.
  • Despite mixed reports on consumer confidence, retail is performing very well, with exceptional progress among regional malls. Reflecting their renewed confidence in the market, retailers want to expand in good locations and are becoming more receptive to longer-term leases.
  • Lodging conditions continue to improve as lack of new supply has helped the market; recovery to date is modest as most believe we are still in the early stages in this cycle.
  • Investors expressed a certain level of concern about the impact that government legislation and budgets may have on healthcareREITs.

Next year’s REITWeek is taking place in Chicago. If your schedule allows, I highly recommend attending as there’s no substitute for the in-person experience. If you have any interest in the real estate markets, you’re sure to have a very valuable experience.

Scott Eckstein is a Director of Account Services at Financial Relations Board and brings over 15 years of experience in financial communications both in agency and corporate roles. Scott has worked with a number of companies developing integrated communications programs as well as developing targeted institutional and retail branding campaigns. He has also provided advisory services for a variety of small- to large-cap companies.

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Executive Compensation Plans Continue To Be Shot Down
June 11, 2012

The failure of Citi to have its executive compensation plan approved for the first time in 200 years garnered tremendous media coverage at the beginning of this year’s proxy season. At that time, we questioned how many other executive comp plans might meet the same fate. Well, the tally at June 4 was 39 companies, including two companies that once again failed to have their plans approved in 2011 – Hercules Offshore, where a lawsuit was subsequently filed, and Kilroy Realty. Could they have been betting on “it can’t happen again?” In contrast to this, 16 companies (as of May 15) whose plans were shot down in 2011 were rewarded with a yes vote for their improved 2012 executive comp plans. They clearly got the message, with approximately two-thirds of these companies placing a greater emphasis on pay for performance, undertaking significant shareholder outreach and eliminating problematic practices as defined by their proxy advisors.

It appears that investors are becoming more comfortable in voicing their say on pay and it is likely that the number of failures in 2012 will surpass 2011, where approximately 40 plans failed. Given this trend, the number could be even higher in 2013.

It is never too soon or too late to establish a dialogue, and it bears repeating: It is imperative that companies engage their shareholders, those who vote their shares and the ever influential proxy firms, to confirm that management and its board care about shareholders’ opinions and value their input to make sure an executive plan is worthy of a yes vote. The companies cited above would certainly agree it was well worth the effort.

Marilynn Meek is a Vice President at Financial Relations Board and brings over two decades of experience as an officer of Wall Street securities firms and IR agencies. She provides strategic communications programs that include IPOs, M&As, capital raising initiatives, shareholder and analyst communications, and financial crisis communications for micro-cap to Fortune 500 companies.

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