C: Often I hold your site up as a best practice example for other companies but the response I get from some IROs is, “We don’t have the same size team as a company like Potash – we don’t have that kind of budget.” What’s your response to that?

T: People think we have a much bigger team than we actually do. We have only just recently hired someone specifically for the web and we’ve been a two-person department up to that point.

The reality is that you can have a good site, regardless of your budget by addressing some of the things we talked about before: navigation, architecture, usability and a good story. These things are not expensive, they just require thinking and strategy – it’s a necessary investment of time upfront in ‘thinking’.

PotashCorp makes it easy for analysts to immediately access data they would normally have to spend hours building models in order to view using the datatool as shown below:

With our site the majority of the cost was in the backend development, but 70% of the effort went into the thinking, planning and strategy.

The big question is, “Have you thought about your story? Have you thought about how to communicate it and the assets you already have in terms of telling the story (photos, presentations etc.)?”

If you do the proper strategic planning to ensure that you achieve your communications objectives and then build the site so it’s easier and more cost effective to maintain and evolve, the time and money you spend will give you a significant payback.

C: Potash tends to put more content on its site than most organizations do about the company, market opportunity, investment proposition – information that provides a broader context. Where did the idea come from to do this? Did you find that investors were asking questions about this kind of information?

T: Absolutely. We struggled for many years because we are in an industry that not many people are familiar with. If nobody understands your business, it’s not going to be easy to get people to invest. So we’ve focused a lot of energy on how we tell our story and how we’ve evolved it.

Potash provides good context and background on their company, their markets and their investment proposition via the “Why Invest” as shown below:

C: Your story is really tight now – it’s very compelling.

T: And it continues to evolve and improve. That’s the great thing about the web. If you go out to a conference and you’re telling the story and you feel that something is not quite where it should be, you can go back and tweak it. It’s easy to evolve your story online – you don’t have to wait for the next annual report to come out in order to do this.

C: Prior to doing the things you’re doing now, before investors understood your story, did you find that conversations were taking place at a much more basic level? Were the calls more repetitive than they are now? In other words, do you find that now your conversations with investors are more enhanced, because they understand your company better based on the information they are able to access on your website?

T: Absolutely. This is the payback. We have a very small team relative to other companies. We had two people, so when the interest in agriculture exploded in 2007, (and with it the interest in PotashCorp as a major play), we were under water with the demands for information. And approximately 70% of the questions we were being asked were all the same. So if you build your site in such a way that the information users are looking for is easy to access, people are willing to do their own work to find it. So by the time we’re talking with them, much of the basic information has already been dealt with – and if these same questions do come up, you can direct them to your site.

C: We have a client who used to get 50 calls a week from individuals in the early stage of the investor life cycle, who asked the same questions in call after call. After structuring the website to better tell their story, the number of repetitive 101-type calls reduced to just 2 per week. Now the calls she is getting are with investors who already have a basic understanding of their company and value proposition.

T: That again speaks to the payback. People make excuses as to why they can’t do a more effective job of the web – but look what they’re missing!

C: I like the way that you don’t try to cover everything in an FAQ. Instead, you thoughtfully layer your story so the user gets more and more information as they move through the site. It’s very engaging and it makes a big difference to the experience.

T: That’s what we set out to do. One of the biggest changes we made with the new site was not to cut and paste content from documents like the annual report, but instead to specifically write content for the web. Doing this allows us to layer the information more effectively and in a way that makes it easier for users to digest the information.

C: What about your analytics – are they telling you that site users are looking at the context you provide around your organization? Or are they just looking at the filings and press releases?

T: We use Google analytics and it shows us that people are doing their research – they’re reading the background on the company and the industry. Of course people that come back time and time again are mostly looking for the new updates. That comes back to addressing all phases of the investor life cycle. Overall we get a broad use of content across our site.

C: Is there anything that you think companies consistently miss in planning the strategy for their website?

T: Most companies don’t take enough time to think about their stakeholder groups in terms of ‘what do they want?’ and importantly, ‘what do you want from them?

C: It’s interesting that you should say this. I’ve been saying this a lot lately, especially in consideration of the template providers. It’s not just about making it easy to find things, it’s also about, what does your company want to say? What content do you want your users to see? And how do you present that information to move your users through your priority content?

T: Not addressing that aspect is a fundamental flaw. Companies have a communications opportunity and if they don’t use it, that’s a missed opportunity. Companies have to think about the web that way – it’s a part of a communications strategy. You have people coming to your site, but you’re also outreaching and you have to be telling your story, you have to reflect your brand. There are CEOs and CFOs that don’t understand that there is a payback for doing this right and doing it well happens over time.

You can’t establish the web channel quickly. You have to make the website a good experience – so users don’t have to think that hard and so they regularly come back for more information. This helps establish your channel.

Our strategy really worked for us in the BHP situation. Our stakeholders were already used to going to our website for information and so it made it easier for us to address this situation. We had the ‘go’ (issues) website up and ready in no time. We had the story. We had video of our CEO discussing the takeover on YouTube, and we had a good experience already established. The web was essential to addressing BHP’s acquisition efforts. That’s the type of payback that you get – when a crisis hits, you’re ready.

C: What are the top 4 things a company should do to have a great website?

1. Understand your stakeholder needs and your organizational objectives.
2. Start with an overall communications strategy to ensure consistent messaging across all communications and therefore, a better understanding of your story.
3. Build the site in a way that is easy to use – don’t make users have to think to find things.
4. Ensure that your site is easy to maintain and can evolve to keep pace with new advances in the way the web is being used.

C: My feeling is that a website is never finished – so how do you plan for continuous improvements?

T: You’re right – it’s the story that never ends. There’s two things that we do, one hard and one soft:

1. The hard one being the technology side – you need to use programming that can evolve. And we rely on Zu quite a bit for their advice on this. You don’t want to corner yourself with technology that doesn’t evolve.
2. In terms of the soft side – the content and the thinking behind what we do – we conduct research and we rely on our vendors in terms of what they see: Creative Fire, who handled the redesign and were the primary driver for assisting on the communication strategy; and Zu, who were essential in planning and technical  execution (bringing together the big outside box ideas). We talk to Q4 and read your information, we’re involved in the CICA, we’re involved in CIRI etc. The research aspect is about being out there and having your finger on the pulse and looking at what’s going on in the web world – and not just in the corporate world, because ultimately what’s happening beyond ‘corporate’ ends up leaking down. It’s looking at ideas that are working well in other areas (such as B2B and B2C) and then applying these in the corporate environment.

C: Anything else you’d want to add?

T: Just keep up the good work – the research you’re doing, the evolution of your product, it’s very important.

Related posts:

1. PotashCorp: The Makings of a Best Practice IR Website – Part 1 Through my involvement over the past 10 years as a...
2. New Rivel Research: Buy-side Perspectives on Best Practice IR Websites Rivel Research is well-known for their ability to gather, analyze...
3. Case Study: Pacific Drilling – Best practice IR website Pacific Drilling (NYSE:PACD) is an ultra-deepwater offshore drilling company that went...

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Recently I interviewed Tim Herrod, Director, Treasury (C.A.) and former Manager, Investor Relations with PotashCorp, who was instrumental in helping to plan both the award-winning former site and current redesign, which was launched in January of 2010.

Having had 18 months since the re-launch to gather feedback and metrics as well as surviving the high-profile hostile takeover by BHP Bilton, I caught up with Tim to find out more about their approach to web communications and the impact this has had on their IR program.

I have excerpted segments of our interview in a two-part series, beginning today:

C: When I heard you speak a few years ago at a CIRI conference, you said, “Potash views its website as being its primary communications channel. How did you come to that conclusion and why do you view the website as being so important?”

T: Very simply, the web is how people get information. We have a large institutional following, but investors are not institutions – they are individuals within the institutions. These individuals may be at very different points in the investor life-cycle and as such, may have very different information requirements. Whether it’s up front where they have to spend a tremendous amount of time modeling, learning the business, learning about the management team and asking questions – everything that’s involved in making that first ‘invest or not’ decision – those investors have to be covered off at that particular stage of their life-cycle.

Once they have that base knowledge established, they then go into another stage of the life-cycle, which is ‘keeping up’. At this stage, they need certain types of information to help them maintain their view and understand the things that are happening at the company – things that are driving our business, our earnings and therefore, the value of the company.

We have to consider that everywhere around the world, we have individuals who are at different stages in this life-cycle. And we have to be prepared to address their information requirements, wherever they are and whenever they need it. The web allows you to do this 24/7.

There is a place for various forms of communication: speaking at conferences, producing an annual report once a year etc., but when you look at how people are getting information today, it’s clear that the web can consistently deliver what they need, when they need it and in a very dynamic way. This makes for a simple value proposition to take to management to say that we need to build out this channel. And that’s what we did. It was a no-brainer.

PotashCorp Communicates transparency right from the homepage (as shown below) where site visitors are invited to ask the COO a question:

C: When you set out to redesign your new site, what were your top objectives?

T: We did a creative brief and set our goals upfront. They were:

1.   To align the site with our organizational goals and key messages. We have a broader communications program – the web is just one part of that, although it certainly is the main component for our investor stakeholders. From a consistency standpoint – so that users understand our organizational goals across all our communications – we wanted to make sure that the website was aligned with everything else.
2.  To update the technology of the site to align with current best practices and better prepare us to evolve with advances in technology. Although nobody knows where technology is going to take us over the next few years, we didn’t want to be held back, as we were with the old site. We are now better prepared for evolution than we were before.
3.  To update the design on a number of levels. We reduced the number of sections to better relate to our primary users. For example, we felt that corporate governance and sustainability were core values “about” PotashCorp and relevant/critical to all our stakeholders, not stand alone main navigational items, so we moved these into the ‘About’ section. We also wanted to make sure that the application of the brand and the look and feel was consistent across the site. The former site had sections that were bolted on and so the user experience was inconsistent as they moved through the site. We wanted to improve that experience across the site and ensure consistency of the brand. Although the IR department drives the site at Potash, we involved other groups in the project, such as HR, and this really helped to build out the content and ensure a good experience for all users.
4.  To simplify the stakeholder experience by eliminating repetition, tightening up the navigation and making it easy for users to access content (without having to think). We accomplished this through things like relational links, the library, the data tool etc. To prepare for our redesign we did a user survey on the old site, where we asked a concise set of questions such as: why they came to the site and what they were looking for – this helped guide our planning. Another key aspect of the simplification was writing specifically for the web, which is something we hadn’t done before. Previously we were copying and pasting from other documents. Writing for the web causes you to think about how you’re going to layer content to take advantage of web tools and make your information more accessible and interactive.
5.  And finally, we wanted to respond to stakeholder needs to provide more relevant and frequent updates. If you look at the ‘News’ section on our site in comparison to other sites, we have it organized by topic, by keyword, by date. And it’s not just for investors – it addresses all our stakeholders. We have industry information, career, community and financial news. Being successful with this approach is about having tentacles that reach out to all areas within the company and saying, “What’s going on?” and then having a content development process for this information. People across the company are constantly thinking ‘this information might be something that our stakeholders would be interested in’ and then the technology has been set up to accommodate the flow of information.

PotashCorp integrates news for all stakeholders and allows information to be accessed by date, topic or searched by keywords (as shown in the image below):

Another example of how we responded to stakeholder needs is in the creation of our financial data tool. We went from having 7 analysts in 2006 to having 32 analysts now. This is just on the sell-side, and if you think of the buy-side and the people around the world who are building their own models, that’s a lot of effort going into something that you could make easier for them. Instead of leaving them to do that work, we built a data tool and populated it with the information that people are looking for. Then we can say, “Go to the website.”

C: Your site has already won some prestigious awards. What kind of feedback have you received from your stakeholders?

T: The feedback we get from investors is very positive in terms of how well we address their needs.  The bankers tell us that when people have questions about the company or the industry… they say, “Go to the Potash website – it’s the best website in the world.” You know you’ve hit the mark if you get feedback that the early stage investors get the information they need.

C: I think that if you design a website properly – and by design I mean look & feel, structure, navigation, content – it almost acts like a conversation.

T: Yes, and if you put a face to it, then you know who the conversation is occurring with. That’s why you see so many photographs on our site of our people and management team. You can’t meet with all people face-to-face but our approach shows that we are trying to connect with people – we are trying to let them see the whites of our eyes.

You can’t just focus on the actual content – the words only – because how it’s presented is so much more important. If you can’t deliver it successfully, the web just doesn’t work.

C: I agree. When I look at investor sites, particularly in the U.S. where templated IR websites are so dominant, they are often little more than repositories of regulatory filings and data feeds. If you want more context about a company and its investment proposition, you really have to dig for it. And frequently that information is just not there, so the site is doing nothing more than addressing compliance requirements. Do the companies who have these filing cabinet sites just not understand the web or have they just not prioritized it?

T: It seems that they just don’t recognize the opportunity they have with the web or the impact that a good site can have on their IR program. I just gave a presentation a couple of months ago to the CICA with Tony Zuck from Zu and Kelly Freeman, Manager Investor Relations at PotashCorp – the person responsible for our website now. As we prepared for this presentation, Tony spoke of numerous examples of companies who had great stories that were buried deep within their website or in a PDF tucked away in a library. Most users would never see this great information. This is just a lost opportunity.

For any publicly traded company, the number one concern of investors is “what’s the big bogeyman that is hiding out there – that I don’t expect – that’s going to get me.” The way you communicate on the web can show that you are transparent, that you’re putting the information out there and investors can see the whites of your eyes. It helps to build trust. That’s a very important thought process that you have to go through in planning your website.

The web is not just a document repository; it’s a communications opportunity, a management opportunity, a strategic opportunity. The companies that do the best job of brand and brand governance, not surprisingly, also typically do a good job in their web strategy and their stakeholder outreach. These companies are thinking about brand governance when they are creating their communications strategy for the web.

C: With the recent market volatility, I have feedback from some IROs who have been charged with cutting communications budgets, including reducing their spend on web communications. It seems strange to be cutting back on communications at a time of heightened investor uncertainty and concern. What do you think?

T: I absolutely agree with you. We did not pull back budgets, although I’m not sure it’s a budget question only. It’s more important to communicate in a crisis (of any kind). You may get sucked into an economic crisis by no fault of your own, but the business has to have a strategy for facing these challenges and investors and other stakeholders need to understand your strategy, and hear from you often. Uncertainty adds risk, risk reduces valuation, and transparency can help to offset that. There are newer, more innovative and less expensive ways to communicate MORE. So if facing budget pressure, be more innovative – and the web/social media provide great opportunities.

We’ll be issuing part 2 in this series soon – stay tuned!

Related posts:

1. PotashCorp: The Makings of a Best Practice IR Website – Part 2 This is the second part of an interview I conducted...
2. New Rivel Research: Buy-side Perspectives on Best Practice IR Websites Rivel Research is well-known for their ability to gather, analyze...
3. Case Study: Pacific Drilling – Best practice IR website Pacific Drilling (NYSE:PACD) is an ultra-deepwater offshore drilling company that went...

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The Buy Side works for institutional stock owners and manages trillions of dollars for every type of investor (individual, pension, corporate, government, museum, hospital, charity etc). Their clients are as global, as is the investment universe and there are many ‘flavors of the buy side (value vs. growth; quant vs. fundamentalists; long only vs. hedge; ‘People’ people vs. ‘Numbers’’ people; ‘deep’ value vs. ‘intrinsic’ value vs. ‘momentum’ players; high frequency traders etc.)

The objective of the buy side is the same as the sell side: to make money for their clients by analyzing information to make informed decisions. The sell side’s client is primarily the buy side. The buy-side’s client is your company’s OWNER.

Victor began his presentation by making a couple of points that really resonated with me.

• He asked the question, “Do you want shareholders or shareowners?” The difference between the two is that a shareholder is not as ‘involved’ with your company. They don’t understand your organization at the same meaningful level and therefore, are not as intellectually/emotionally invested, and will move off your stock more easily when times are not good. A shareowner, on the other hand, is someone who is deeply involved with your company in understanding its unique investment proposition – its strategy to increase shareholder value, the strengths of your management team etc. This type of investor has a longer-term view and is more likely to steer the course during down times.
• He then made the point to “Run your businesses well and investors will own your stock.” (Then of course, the IROs job is to effectively communicate how well their company is being run. They can assist the buy-side by assembling the right information and by providing analytical techniques.)

IROs are faced with somewhat of a conundrum in terms of who they listen and attend to:

• The Buy-side – the people who actually buy your company’s stock
• The Sell-side – the people who influence your company’s stock price (using coded language rivaling the NSA’s, according to Victor)

At the end of the day, companies must make sure that they are providing the right information to both sides in order to facilitate a better understanding of their organization and investment proposition.

Working Well with the Buy Side

Victor had a few tips that I have lifted from his presentation:

1. Return phone calls and emails on time
2. Provide accurate and meaningful financial statements that are the best possible snapshot of reality at a given time
3. Clearly communicate management’s game plan and why it’s different/better than your competitors strategies
4. Define the relevant benchmarks (it’s not all about GAAP). Tell us how you think about your business, your competitors and your industry
5. Help us understand corporate esprit de corps, enduring strengths and weaknesses, and what is important to you
6. Provide access to senior management and give insight into what makes them tick
7. Provide general industry information. Don’t assume that we understand your business.
8. Be accessible and knowledgeable

Throughout the years I have had numerous IROs tell me that Institutional investors are interested in the numbers – the key metrics. Victor’s recommendations make it clear that the buy-side is also interested in much greater context about your organization and its unique strengths, your industry, your management etc. So it’s not just about providing ‘Our Industry 101’ to unsophisticated retail investors – anything you can communicate to facilitate a better understanding of your company and its unique proposition is worth doing for all audiences.

Getting to the Buy Side

In terms of targeting, learning more about who owns your competition and contacting them is well advised. Institutional investors often like to focus on a specific sector/type of business.

Importantly, Victor said that if companies focus on providing the right information and producing the numbers, buy side analysts will ‘find you’.

He said that it’s also important to get management on the road to do one-on-ones and to attend a limited number of industry conferences. (He said that a CEO should be prepared to spend about 2 hours per week in investor-related meetings/conversations. A CFO should be prepared to spend about 8 hours per week. In terms of conferences, a CEO should attend 2-4 conferences per year and a CFO should attend about 8.)

A Few Other Tips

Victor’s presentation was filled with valuable tips that impact the day-to-day role of the IRO. A few other words of wisdom included:

• Get away from focusing on EPS 100%… stress Economic Value Added, ROIC etc.
• Focus on investors first, the sell-side a close second and everyone else a distant third. It’s important not to ignore the bread and butter investor.
• Don’t assume that the buy-side listens to the sell side, because many don’t.
• Provide more clarity around options/compensation structure because this is a chief and growing area of concern for investors.
• Don’t rely solely on an investment banker or outside IR firm to find and develop shareholder relationships.
• Ensure that all types of transcripts are available on major services.
• Don’t go out of your way to ring the bell and chat with the CNBC anchor – although it’s a ‘feel good’ event, that’s not what will impact the buy side.
• Beware of private equity – buy side analysts are wary of them too!

Summary

I was very impressed by Victor’s succinct presentation. He offered a lot of good advice – a ‘play book’ to help IROs better deal with the buy side.

As a final point, Victor felt that consistency in how you communicate is very important.

And making information easy to access, readily available is key as well. He said to consider other channels to help push information out further and faster, such as Twitter, which gets your information out in real time (as an adjunct to any material information you release through traditional channels).

Finally, make it easy for investors to sign up for communications, events, but don’t overwhelm with too many email alerts or your audiences will stop paying attention.

Related posts:

1. NIRI Fundamentals re-cap: Understanding the work of the Sell-Side Analyst Last Friday I returned from NIRI’s ‘Fundamentals of Investor Relations’...
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The program served as a boot camp for new IROs to familiarize them with all things IR: corporate disclosure issues and best practices; corporate governance; investor targeting & IR marketing; media & communications; understanding equity markets; planning and executing analyst days and non-deal road shows; understanding sell-side and buy-side analysts; financial analysis & best practices in using financial info to tell your story; global IR, and developing an IR plan. The program was loaded with great information. Attendees ranged from those new to investor relations to more seasoned IROs interested in brushing up and learning about new best practices.

This same program is held twice annually – September in Boston and January in Santa Monica. I would highly recommend it.

Although I found a great deal of the content interesting, I particularly liked the sessions that addressed how to deal with sell-side and buy-side analysts.  So I thought I’d focus a couple of blog posts on the topic – with this first one dedicated to the sell-side.

Understanding the Work of Analysts: The Sell Side

This session was presented by larger than life Michael Pachter, Managing Director, Equity Research at Wedbush Securities Inc. – the most quoted sell-side analyst on Wall Street. A highly engaging speaker, Michael provided a frank perspective on the role of sell-side analysts, why IROs should care and how they should interact with them.

The function of the sell-side analyst is to help investors make decisions about investments.  The sell-side analyst’s role encompasses the following:

• Making investment recommendations
• Providing price targets
• Supplying research notes
• Company interaction
• Buy-side interaction
• Exposing their recommendations/thoughts through the media

Making Investment Recommendations

Michael’s take is that there are really only two recommendations: Buy or Sell, and that a Hold position is the refuge of an analyst that lacks conviction. Analysts provide recommendations/ratings as an indication of where the sell-side thinks the stock is headed and a ‘Hold’ means that the analyst has no strong opinion.

In Michael’s opinion, ratings given ‘after the fact’ (e.g. following earnings calls) are a punishment. Those given ‘before the fact’ are a gamble and obviously analysts that take this approach leave themselves open to being wrong – and some analysts don’t want to risk this.

The analyst role is not about being a cheerleader for your stock – it’s about being right.  IRO’s should seek out analysts that really care about being right and then help them be right by facilitating an understanding of the company, business, leadership etc.

Providing Price Targets

Michael feels that price targets (an indicator of an analyst’s learnings) are usually worthless and widely ignored, largely because not enough effort or conviction (by the analyst) stands behind the ratings:

• The wimp’s refuge is to maintain a rating and adjust the price target
• The lazy man maintains the price target and does not adjust the rating

Supplying Research Notes

Research notes are generally required before and after earnings. They can also be ‘Industry Updates’ centered on a specific event or a regular interval (such as monthly). Research can consist of ‘Think Pieces’ that focus on the specific industry or initiations (the first research piece written by the analyst, beginning or initiating coverage of the stock.) Many analysts do a couple of reports per quarter – a highly engaged analyst is going to issue many more.  Michael releases several reports per month.

(When an investor wants to talk to a sell-side analyst, you have the power to direct the investor to the analyst that really ‘gets’ your company.)

Company Interaction

Michael has minimal interaction with the companies he covers i.e. he never calls management. They occasionally call him, before he forms and communicates an opinion on something.

Many analysts call management frequently – often seeking approval or ‘inside’ information.

Buy-side Interaction

Buy-side analysts often interact with the sell-side and read their research reports. The buy-side will form their own opinions but may value the research/opinions of specific sell-side analysts – this is turn may impact the compensation of sell-side analysts.

There are two ways that analysts are compensated:

• Voting from institutional clients
• Trading volume

If your analysts get paid based on trading volume, they are more highly incented to create volatility for your stock, which isn’t good for your company. It’s important to understand how your analysts are being compensated – ask them.

Media Exposure

Analysts communicate with the media primarily to establish credibility for their research/recommendations. Obviously this exposure can either help or hurt the covered company, so its management needs to pay attention to the media and attempt damage control where required.

Call the analyst and ask, “Why did you think that?” Try to understand their opinions and help them better understand your company, the situation etc. Try to get to them before they form their next opinion.

Conclusion

IROs can use the sell-side to their company’s advantage. By treating analysts well and being responsive/helpful you can better control analysts. By ignoring the analyst or enflaming them, you can provoke an analyst and worsen the situation.

You should work with your analysts to facilitate a better understanding of your company. And you should foster relationships, for example, go to analyst conferences if you can – rotate them into your schedule so you get out to see everyone who’s covering you over time. (Analysts understand that many of their conferences take place at the same time.)

And finally you need to accept what you cannot change; you can’t change arrogance but you might be able to change ignorance.

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1. NIRI Fundamentals re-cap: A ‘Play Book’ to Help IROs Better Deal with the Buy Side In the second of two posts from the NIRI ‘Fundamentals...
2. How the Buy and Sell Side Trade your Stocks Today Live from NIRI ’09 – Session: How the Buy and Sell...
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By reading their reports and following their guidance, any IRO in North America can improve the standards of their company’s stakeholder communications.

To familiarize you more with their work, I have provided an overview of their most recent study, Corporate Reporting to Stakeholders.

Many of you may be familiar with the CICA’s annual Corporate Reporting Awards (CRA) – a program that honours excellence in financial reporting, corporate governance disclosure, electronic disclosure and sustainable development reporting. This high profile event is now in its 57th year. (Darrell and I have volunteered as panel judges in the Electronic Disclosure category of the CRA for 5+ years and through this experience; have come to highly respect their work).

The CICA’s Research Studies Department examines all aspects of corporate reporting, and document their findings in detailed, thoughtful publications. (For a list of publications relevant to this topic, see Performance Reporting).

The purpose of our presentation to the group was to provide input and spur further discussion regarding the implication of Web 2.0 (social media) on corporate reporting for their upcoming research publication, Using the Internet for Corporate Reporting (a first draft is expected to be completed by Fall ’09).

Our presentation turned into more of a conversation as we discussed the growth of social media in investor relations, the factors driving this growth, the various ways that issuers currently use social media to expand their reach and ‘participate in the conversation’, the ways in which stakeholders are consuming information online and our thoughts on future trends. (We’ll cover much of this in an upcoming webinar on social media in investor relations, so drop us a line sherylj@q4wbsystems.com if you’d like to attend).

The group was so engaged in their work that I decided to reread their 2008 publication Corporate Reporting to Stakeholders and highlight a few things.  I encourage you to check it out.

The document examines practices and important trends in corporate reporting by looking at 125 companies across a number of years and considers various reporting formats, including corporate/IR websites.

It begins by examining the purposes of reporting, the various audiences, their information requirements and the priority of this information.

The report identifies and defines all required content types that comprise each information category (e.g. Corporate Overview). It documents the percentage of the companies studied who provided this specific content. It references and quotes existing research relevant to the topic. It then provides the study group’s deliberations and conclusions on the priority of content types within each category, and also lists specific examples of companies who exemplified the specific requirements in their reporting. Appendices for each category provide guidance for those responsible for corporate reporting and include a series of questions that “merit consideration if corporate reporting is to more effectively meet the information needs of investors and other stakeholders”.

In my mind, this format gives the IRO everything they need as a benchmark for their own improvements.

I have listed the various categories here and have pulled out a comment for each to provide a flavour for the document, but in no way does this represent a complete summary of the information included in the report.

• Corporate Overview – the areas where companies scored lowest were in providing information on company ownership and control as well as management committees.
• Social Responsibility – defined as “measuring, disclosing and being accountable for organizational economic, environmental and social impacts”. Although increasingly relevant to stakeholders, there are no standards for reporting in this area although “New global reporting standards are being developed to provide assurance on matters such as financial implications of climate change.” Scores indicated that many companies were still not reporting on social or environmental responsibilities.
• Review of Operations – interesting that only 66% of companies provided information on competitive conditions in their market or industry while only 12% provided a ‘response to change’ – information on how the company has responded or plans to respond to changes in the operating environment and external factors.
• Financial Summary & Analysis – the majority of companies included the required content types for this category with scores being in the mid to high 90s. Analysis of cash flow and historical summary were the areas where companies fell short.
• Supplementary Information – fewer than 46% of companies provided a glossary of terms even though it was considered important to “facilitate the assessment and interpretation of an organization’s activities”.

Additional topics included:

• Enhancing Corporate Reporting – moving beyond the numbers and dense, jargon ridden text. This area included a number of findings and recommendations including:
  o Readability – most corporate reports did not include enough white space, photos, illustrations, graphs and charts.
  o Delivering Key Messages – reports need to maintain a narrative thread to provide investors with a clear linkage from markets, to strategy to key performance indicators, to future goals.
  o Communicating Effectively – must be mindful of all audiences, recognizing the various levels of financial literacy, diverse interests and disparate needs. The first four pages of the report continue to be key – “many casual readers do not look beyond this point and even sophisticated analysts need a reason to read on”.
• Summary Corporate Reporting – Information overload is a big problem in corporate reporting. Research referenced in the report indicates that “Decision-making performance can be impaired by heavy data loads”. Consequently companies need to access not only the information requirements of each user group/audience, but also the level at which you need to address each piece of information.  Paul-Emile Roy, a principal in the Research Studies Department, said that communicators need to evaluate whether a piece of information, “Simply requires ‘commentary’ – 1 or 2 sentences; an ‘explanation’ or a detailed ‘analysis?”. A seven-step process was provided to address information overload. The group concluded that the three most important criteria for Summary Reporting. In order of priority these were:

1. President/CEO letter

2. Financial and operating objectives

3. Performance compared to objectives

• Corporate Reporting on the Internet – In an analysis of corporate investor websites, 90% of surveyed companies did not include more than 8 of the 24 essential information items. Five essential items were not included at all. This led the group to conclude that the majority of companies use the corporate website only as a library to store company reports.

The 202-page report is filled with interesting observations and recommendations and is available as a free PDF download or $47.50 for a hard copy. I highly recommend this report and suggest that you keep the CICA and its publications on your radar screen.

The study group on Corporate Reporting to Stakeholders has committed to three remaining reports that will include:

• Using the Internet for Corporate Reporting – the corporate/IR website is now recognized as the primary source of investor information.  As the reach, immediacy and speed of the Internet continues to grow – along with the variety of online formats and applications, a detailed study covering corporate reporting on the Internet will be a welcome resource. A draft of the study is expected this fall.
• Corporate Sustainability Reporting – I found the group’s perspective on sustainability a telling sign of how far we’ve come in this area. “We see corporate sustainability as a key driver in the health of an organization and an important aspect of a company’s strategy. It sits at the centre of how a company conducts business”.  As most companies use the  website for reporting on sustainability matters, there is quite a bit of overlap between this topic and Using the Internet for Corporate Reporting. But the group will be separating these two topics as much as possible to isolate specific recommendations. It is expected that a draft of this report will be available in the spring of 2010.
• Governance Disclosures – again overlap exists between this topic and the previous two. Governance is clearly tied to sustainability. The group has not determined a release date for this publication.

IROs would be well advised to explore the work of the CICA and its research department. Their in-depth analysis conducted by IR professionals and industry experts and summarized in low-cost reports offers a tremendous value to companies looking to improve their corporate reporting to stakeholders.

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From my discussions with IROs whose companies have not yet taken the plunge with social media, the likely reasons for CEOs abstaining are concerns about disclosure risk, lack of time and quite frankly a discomfort with technology beyond email and browsing. This is not a slag but rather a reflection of the feedback we’ve been given with respect to senior executives adopting new technologies – oftentimes they simply prioritize other things.  Their social networks happen in other arenas and they may have other senior executives within their organizations actively involved in social media.

The topline results taken from UberCEO’s blog post reveal that:

• Only two CEOs have Twitter accounts.
• 13 CEOs have LinkedIn profiles, and of those only three have more than 10 connections.
• 81% of CEOs don’t have a personal Facebook page.
• Three quarters of the CEOs have some kind of Wikipedia entry, but nearly a third of those have limited or outdated information.
• Not one Fortune 100 CEO has a blog.

In reading the Uber post, be sure to scroll down to the comments. There are references to some interesting articles there as well, such as Doug Cornelius’ of  Compliance Building who shares his compliance risk perspective in ‘Corporate Blogs and Tweets Must Keep SEC in Mind’ and another by Dan Haugen of the Minneapolis Post on Best Buy’s new CEO, “Is Best Buy’s Brian Dunn the Most Socially Networked CEO?”

Should CEO’s get involved in social media? Those that do send a very clear message in terms of their transparency and their personal interest in listening to their stakeholders. Where there’s a willingness to get involved even a busy CEO will find the time with the support of a good team and the use of mobile devices. But the answer to the question in my opinion is really, “it depends”. Most organizations can benefit from involvement in social media but whether it happens with the CEO or other senior level executives really comes down to corporate strategy, division of labour and who would be most effective and committed to continuing the conversation.

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Panelists were:  Timothy Carey, Managing Director, Digital Media, ICR, Inc; Ruth Cotter, Director, IR and Treasurer, Advanced Micro Devices; Eileen Cassidy Rivera, Vice President, Communications & Investor Relations, Vangent, Inc., and Darrell Heaps, President, CEO & Co-founder, Q4 Web Systems.

Michael opened the session by asking each panelist to introduce themselves and to describe their involvement /perspective on social media.

Eileen was a new user of social media and referred often throughout the session to the need to get one’s message down to 140 characters. In looking at the Vangent Inc. site, I didn’t notice any reference to Twitter. I searched Twitter for both Eileen and Vangent  Inc. but didn’t find anything, so I assume that Eileen is in the very early stages of adopting social media. Her newness in the area may have served as an inspiration to attendees who were thinking of also getting involved.

Eileen felt that IROs needed to look at getting information out in more new and creative ways in order to reach audiences who might be looking outside of traditional media. And to give these audiences better ways to access information. She said that brevity of message was important in social media.

Ruth said that “Content is king and even more so in social media. It’s a challenge for IROs to adapt their content for social media.” The AMD site was chock-a-block with all kinds of social media – in fact, I had to pull myself away in order to get back to writing this post. It’s obvious that the AMD culture has embraced this new technology. This page in their corporate section includes links to FriendFeed, YouTube, Facebook, Twitter, Flicker, Videos, Blogs. Other than one video for an Executive speech , social media hadn’t penetrated IR communications to the same extent but it’s likely that the road has been paved for Ruth to more easily expand the role of social media for investor relations.

Darrell said that “social media has added another layer to communications – it doesn’t replace the old. It just gives you one more way to get your information out to people who want to access it through social channels.”

Tim agreed and said that “a lot of the tactics that IROs use are still important. It’s not about replacing the old, it’s about having the right strategy to integrate social media into the investor relations program.” The entire panel concurred.

Darrell referenced a panel that he attended the day before on Trends in Media & Technology, where Robert Williams, Director Investor Relations at Dell Inc., had mentioned his surprise the volume of internal responses he received when he solicited questions for his quarterly earnings call. Darrell said that, “Social media drives more internal dialogue as companies respond to things that happen in the market. This can have a positive effect in bringing divisions closer together and in getting input from other areas of the company.”

Mike then asked each panelist what they felt was the largest trend or change in communications that new technology was leading to – was it social networking? Blogs? Enriched content such as video, photos and audio assets?

Ruth said that one of the greatest changes in communication was the ability for social media to address issues in a much faster way than traditional media. She had a great example of how social media helped to solve a market misperception about her company. AMC’s valuation had been discounted by the market because of perceptions about battery longevity. This problem actually stemmed from inconsistencies in the way that battery longevity was measured. Her CEO started a blog that ultimately resulted in changes in how battery life was measured, which soon dispelled this misperception.

In speaking with numerous issuers Darrell has heard many of them express concern about rogue comments in social media and their hesitation to get involved in blogging. Darrell felt that a good place for issuers to start, was to think of SM as a notification system, “60% of web users are using social media – issuers should think of it as an additional way to get information out. Today that means using your existing content, information that has already been vetted through your disclosure controls and procedures to give broader dissemination to this information”.

Tim felt that video had a key role to play, “Video makes things more personal. It puts a face to a name and helps viewers get to know a company better.” (This perspective supports a lot of what we heard the day before from both Laura Graves of Cisco Systems and Dell’s Robert Williams, who also both felt that video didn’t always have to be high production.)

Mike then asked Ruth about challenges she faced in incorporating blogs into IR communications, despite the fact that as a culture, the company seemed to really embrace blogs for product initiatives. He also asked her what IROs should be looking at before jumping in – what rules should they be thinking of.

Ruth, admitted that it was a challenge to get the company to accept blogging for IR. She said that issuers really needed to train their employees on using social media on behalf of the corporation and that employees also needed to be mindful of what they were communicating in their personal social media channels. She gave an example, of an employee had once mentioned on his Facebook page that he was going to be away and the specific location he mentioned led to a market perception that a deal was in the works (which it was). This resulted in movement on their stock. (I heard a very similar story from another executive in a social media webinar I attended last year – different company, but essentially the same story.)

In terms of what companies should do to prepare for their involvement in SM, Ruth felt it important to have a social media policy in place.  She also said that AMD provides in-depth training for their employees on social media and that employees needed to get an internal license in order to use SM on behalf of the company.

At this point, numerous questions came from the audience – it was clear that attendees were very engaged in topic. One person asked how to monitor who was talking about their company?

Darrell said that there were numerous ways that one could automate this, including subscribing to Google alerts for mentions of your company. (This same question came up in the Trends in Media and Technology and Serena Elrich of Start-up Army offered a number of free monitoring services.)

Another person asked, “How do I keep up with responding to all of the mentions?”

Ruth said that, “The purpose of social media is to spur a conversation so we don’t usually respond. You have to consider how important it is to respond on a case-by-case basis.”

The next question asked by an attendee was, “How many big institutional investors are involved in social media?”

Darrell said that as an example Seeking Alpha, a portal for financial blogs, was visited by 4 million unique users per month, and that 1 million of these were institutional investors.

Following this, someone asked, “How do I get my information out to analysts and institutional investors?”

Tim responded by saying that short videos were a good format – again largely because they expose other people within the company. Ruth agreed with this and said that her company found them very valuable.

Darrell said, “You need to repackage your content to make it easier for them to consume both on your site and in social media. For example, instead of just providing your presentations in pdf format, also use Slideshare, which makes for a much better user experience and makes it easier for others to share your content.” He felt that it was, “Important to get involved in social media and be a part of the conversation so you know what’s going on. You can’t ‘control’ the conversation, forget about that, but you can help set the tone.”

“You also need to look at your corporate/IR website and consider the role that it plays. Right now, with current budget cuts, public companies are focusing more on face-to-face meetings, but what does that analyst do before he goes to your meeting? He looks at your website for context on your company. And what does he do after he leaves your meeting? He goes back to your site to verify the facts that came up in the meeting. You need to understand this and stop using your site as a filing cabinet – you need to use it as a strategic tool to provide more context.”

Tim agreed and said, “If you have a good vision, a good leadership team and strong performance you should bring this all together to help users understand why they should invest.” (I talked about this very topic and gave some good examples in an IR Website Best Practices webinar we ran a few weeks ago. )

The topic then turned to using social media for issues management.

Ruth said that using social media could get the word out so much faster than traditional channels. (See reference to Dominos versus Wendy’s in my June 10 post as a great example of this.)

Tim felt that issuers should have a strategy in place for issues management through SM, before a situation arose, so that when an incident occurred, they knew how to respond.

Darrell felt that it was important to be proactive – if a company knew that a situation was going to be contentious, it was better to be out in front communicating about it before a problem arose. He said that Barrick had done a good job of this related to a specific mining site, where they anticipated community backlash. By being upfront, they were able to address concerns before they became problems.

Questions were still being asked as the clock ran down and the time was up.

Clearly this topic continues to be of great interest and companies need to find ways to get involved that suit their cultures and their comfort level.

As I was using TwitterBerry to tweet the session live, I may have omitted something, so if you attended or were a panelist, I look forward to your comments.

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Robert said that Dell uses social media primarily to reach out connect with people who are interested in their company and want to access their information in different ways. He said that it was important to socialize SM internally with legal, finance and other executive positions, who may be concerned about risk, in order to help them understand the importance of being involved and the fact that you just can’t vet everything through the same DC&Ps. “The IRO is in a perfect position to handle social media because they understand the risks, they understand the story. And it’s not like they’re monitoring every phone call I make or every conversation I have with an analyst.”

One has to remember that when it comes to blogging there should be no material statements, no material events and no material omissions.

Laura admitted that at recently as a year ago she was saying, “Social media is not for me” but now she avidly uses it to reach both existing and new investor audiences. Laura said that it’s very important to get your internal people on side, which may be more difficult  with an older established company – you may have to do more work to bring them along but a few quick wins should help.

On this note Laura talked about the contract between Dominos pizza and the employee YouTube debacle, which was quickly addressed and quieted through social media and the Wendy’s ‘severed finger in the chili’ where the issue was addressed through more traditional channels and continued to haunt their brand for many months. (That story alone should be a wake-up call to most senior executives.)

Serena gave specific advice throughout the discussion. She said that it’s important to monitor what’s being said about your company online through sites like www.search.twitter.com , www.socialmention.com , or through RSS feeds. You can even index whether mentions are positive or negative. Serena also felt that issuers should have social media policies that include who represents the company on Twitter, Facebook and other SM. Serena also mentioned a number of other sites as information resources on social media and IR best practices including IR Café and Q4Blog.

Both Laura and Serena said that getting involved in SM doesn’t have to take up a lot of time for a busy IRO and instead, suggested finding someone with the company who is active in Twitter and excited to represent the company online.

Dick said that coordinating SM efforts between IR and PR was very important. He also said that investors are more likely to look for information on your corporate website than any other source and that it should be considered your primary source of information for investors. He offered a checklist as a handout, which he also provides on his site. He then said that a checklist is just the starting point, that a website should not be a filing cabinet and that issuers should look to provide more context for their investment proposition. (Q4 covered this topic previously in an IR website best practice presentation.)

Laura described a scenario which often happens and how social media provides a powerful tool to address misinformation. In the truncating of headlines by the media, often a message is dramatically altered which could significantly alter your stock. A company could issue a press release saying something like, “XYZ reports that sales are soft in Q1 but are expected to be strong in Q4”. The media shortens this headline to read, “XYZ reports that Sales are Soft”. A buzz begins and you can see your stock spiraling down – social media gives you a powerful voice to address these issues and correct the information. And if your company is actively involved in SM, people will know where to go to verify the misinformation.

She also suggested having a section on your site called “Hot Topics” where things like this can be flagged for investors to access further information.

Following this one of the delegates asked how she could keep up with addressing everything negative that was said about her company online. Serena responded by saying that this wasn’t necessary, and that sometimes these negative comments are coming from people who are not widely followed anyway. She suggested to measure how much traffic some of these negative bloggers get (before determining where it was necessary to respond) through sites like www.compete.com , www.quantcast.com , and www.alexa.com

Both Robert and Laura said that V-logs (video logs) were very good ways to address issues and to put investors in touch with more people inside the company. (In fact Dominos CEO addressed their issue through a video.) Robert said that they use V-logs to address 5-6 questions on the quarter and this has been a very effective strategy for them. 

How to get started – read Reg. FD with a ‘blog mindset’, and find a mentor. Put a calendar together to ensure regular blog posts. You’ll find that you won’t have to spend a lot of time thinking up things to blog about as issues will come up that provide blog topics.

There were a lot of good points made in the session, some of which I may not have captured in this post. I welcome comments from any of the participants or panel members to provide additional information.

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The conference kicked off yesterday with a lively presentation by Todd Buchholz, renowned economist and best-selling author of “New Ideas from Dead CEO’s: Lasting Lessons from the Corner Office”. His presentation was entertaining and his stories were a lesson in the value of common sense. (Some great stories regarding A.P. Giannini, the founder of  The Bank of Italy – which is now The Bank of America. Too much to cover here but you might want to buy the book.)

In the first part of the session (for the benefit of anyone who spent the last several months in a coma) he brought us up to speed on some of the conditions that sent the economy into a downward spiral. Most of it you’ve heard by now such as 90% of the foreclosures in the U.S. housing bust occurred in California, Florida, Las Vegas and Scottsdale, Arizona. And the fact that the insurance policies that local banks drafted to protect themselves against mortgage defaults expired faster than the yogurt in your fridge (90 day period for a 15-25 year mortgage).

But what you’d likely more interested in are the signs that the economy will recover and faster than you think. Here’s why Todd believes that the economy is already rebounding:

• Best thing we have going for us in getting out of the recession is the fall of commodity prices
• Risk of inflation is very low
• Unions do not have the same power (read strangle hold) on the economy
• Unemployment is not as bad as the media indicate because they have not taken into consideration the huge increase in our workforce in comparing today’s unemployment numbers with those of the 1980s – sure there are more people out of work but there are also significantly more people.
• Real disposable income is up
• The Housing Affordability Index indicates that mid-income families can afford a mid-price house at today’s interest rates
• The Federal Reserve has increased the money supply to induce greater consumer spending
• The seduction of retail discounts is starting to dissipate consumer fears and they are starting to spend

As a parting message Todd said that what the US really needs to work on is the education of it’s labor market. That we shouldn’t be so focused on ‘Peak Oil’ but rather ‘Peak People’ by investing in education in fields like petroleum engineers, agricultural engineers, medical science, technologies etc. These skills are needed to compete in the future and are sorely lacking in the US now.

Todd’s presentation was fast-paced and keeping notes was a challenge so for more details, buy the book.

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Instead some are taking steps to transition and ensure that they can meet the SEC’ s criteria (which contrary to what some people would have you believe, doesn’t mean you can just bury information in the bowels of your site and never tell a soul).

So for those of you who take comfort in knowing that others have gone before you, here’s a bit of news on some who are leading the way as well as thoughts on how to improve their approach:

BGC Partners, Inc. (Nasdaq: BGCP) is a global inter-dealer brokerage firm who on Tuesday issued the following announcement .  In compliance with the U.S. Securities and Exchange Commission’s recent guidance regarding  notice-and-access news releases, the company plans to discontinue issuance of full-text financial news releases via a wire service and will issue only advisory press releases notifying investors when new and material information is available on its websites.  (Part of the transition I referred to earlier, is the use of notice-and-access news releases.)

Coupled with this, BGC also offers RSS feeds and email alerts to push information out to interested subscribers (who don’t have to keep checking back on their web site  another myth). That said, BGC has made reference to their web sites where the full text release will be posted, but the links they provide are not active.

Dominic Jones of IR Web Report expresses a few other concerns regarding BGC’s readiness, mainly regarding the limitations of IR web site template solutions, and specifially the Thomson Reuters platform:

• the Thomson platform does not include time-stamping or a change log
• RSS feeds included faulty time stamps
• there was no way for issuers to post content to go live at a precise time – they would have to do this manually

Previously on our blog I made mention of Q4 WEB’s comprehensive, time-stamped and easily searchable record and how it differs from other market offerings. Had BGC been using our product, these issues would not exist.

Dominic also twittered about a few other companies who have been making use of notice-and-access releases for some time, Dundee Wealth here’s an example from their November 16, 2006 Q3 results. And of course my favourite, Warren Buffet’s Berkshire Hathaway , parent company of Business Wire.

Further along the continuum in web disclosure, General Motors announced on its global media web site that it was cutting 10,000 jobs. Although Robert MacMillan of Reuters felt that the information should have been distributed through a newswire, rather than just release it on a “company web site”,  he failed to check his facts on just how widely GM’s media site is followed . I spoke with Tom Wilkinson, GM’s Director of News Relations regarding the release. He said that “most of the big automotive companies have media sites that are widely followed by analysts and news journalists, and that GM has been issuing news through its media site for more than 10 years.’ In addiition to posting the information on their site, they also disseminated it through email alerts and RSS feeds to thousands of subscribers. Tom said, “we released the information this way because we were confident that with our following, the information would get out to the market quickly”.

And it did. Within minutes it was on major news portals, twitter and auto enthusiast websites. It was picked up by all the major papers and news broadcasters So, the real point isn’t whether you use a newswire but rather, if your company is widely followed and the topic is newsworthy, it will get picked up – which is exactly why the SEC recognized the need to issue new guidance.

The lesson from GM is that what’s needed to aid news dissemination is to get people to follow you. This supports the importance of building a subscriber base and transitioning to a web disclosure model over time, while you use notice-and-access releases and other methods to let the market know where you disclose your information, and how they can receive automatic updates.

Nobody said that an effective web disclosure model was going to happen overnight but the tide is beginning to turn. Stay tuned!

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