Investor Relations

Investor Relations

1. Once the battle begins

   • In the takeover drama, investor relations people play 3 essential roles:
     • 1. Participate in strategy development
     • 2. Provide highly useful information and analysis on investor attitudes, actions and anticipated actions
     • 3. Help plan and implement communications programs
   • That latter role is likely to be a joint effort with the public relations or corporate communications department
     • Strong relationships will show in numerous ways
       • Easy access and an open mind among institutional holders
       • Ability of the company to gather enough feedback to assess the outcome of a proxy vote or tender offer
       • Analysts making comments favorable to the company in press stories
       • Reporters giving the company fair treatment as well as pursuing follow-up coverage
       • Absence of good relationships will become obvious as well:
         • Difficulties in reaching analysts and institutions
         • Conversations that are uncomfortable with little basis for common ground
         • Inability to draw any reliable predictions of the outcome from talking with institutions
         • Analysts comments in press stories that favor the bidder by sugesting that the offering price is fair and criticizing current management
         • Reporters showing impatience with spokespersons, giving more credence to the bidders arguments and writing thinly or inaccurately about corporate strategies
   • For communications people, that pressure can take numerous forms:
     • Continually being aggressive in strategy meetings
       • Handling hundreds of phone calls, where reasonable and unreasonable demands are being made for information
         • Directing or taking part in creative sessions to come up with new ideas or approaches for saying things
           • Writing releases on tight deadlines or new backgrounders in the middle of the night

2. Director responsability in a takeover

   • Fiduciary duties to shareholders have put directors on legal notice that their decisions involving control of a company's assets need to be made with the greatest of care.
     • Investors claim that directors should represent shareholder interests, but board bias has tilted toward management when interests conflicted.
       • The problema is that too many corporate directors are hand-picked by chief executive officers and are beholden to them and the solution is to have the majority of boards made up of outside directors, who are truly independent. That Way, the interests of shareholders will be represented fairly.
         • Institutional and individual investors have been backing their complaints with proxy proposals aimed at giving shareholders more authority in corporate governance.
           • A closer look at the proposals indicates they are geared mainly to lifting barriers to maximizing stock investing returns on a short- term basis. That includes capturing takeover premiums. The two most popular proposals over the past few proxy seasons have involved minimizing the effect of poison pills and allowing shareholders to cast their votes confidentially
             • The institutional activists want to take away board authority to approve poison pills, instead putting the decision in the hands of shareholders. Or, they want poisons pills rescinded altogether, or reapproved by the shareholders every few years.
               • The secret ballot would free investors to vote against corporate management. Activists reason that investment firms and banks managing pension funds or doing business in other ways with companies jeopardize the relationships if they go against the company and are found out.
                 • The effect of these various moves has been to create a tensión between institutional shareholders and corporations that is changing the basic structure of the board

3. What can be expected in the future

   • Investor relations practitioners looking to retire in their current corporate posts can take little solace from the quiet time currently being observed in the takeover wars.
     • Investors determined to gain control of corporate assets in the 1990s can be expected to turn more to the proxy system

4. Institutions involving themselves in corporate governance

   • Institutionalization of the quality markets has made institutions much more interested in how managements run their companies
     • Activism is playing out in an almost envolving manner, with events driving the emphasis at any time
       • Judging from the issues institutions have chosen to advance, protecting and enhancing the value of their investments are the major goals

5. Takeovers trigger institutional activism

   • It was the takeover boom of the 1980s that triggered substantial institutional involvement in corporate governace
     • Mistrust has grown out of the entanglement.
       • Institutions see the anti-takeover measures as additional risks to portofolio returns
         • Three variations of poison pill proposals are being presented:
           • 1. Rescind the pill altogether
           • 2. Require it to be approved by shareholders
           • 3. Give it an expiration date

6. Current Climate and Trends

   • Institutional activists are advancing their agenda on three fronts simultaneously
     • 1. Lobbying for changes in the proxy system that would facilitate their ability to gain greater participation in corporate decisions and possibly some control over the governance process itself
       • 2. Steadily refining their approach that might be leading to some type of definitive course of action, the most likely posibility at present being a more influential voice in the selection and role of the corporate members
         • 3. Increasing the amount of support coming from other investors

7. Poison pills can raise takeover premium

   • A Securities and Exchange Commission study on poison pills in 1986 attracted activist interest
     • It showed a negative effect on stock price of companies passing the measures
       • The evidence on poison pills has prompted many institutional investors to modify their positions by judging the merits on a company-by-company basis
         • Preventing management from "entrenching" itself becomes a reason to do away with a poison pill

8. Other kay governance issues

   • Banning greenmail payments isnt seen as particulary controversial
     • Corporate managements abhor it as much as institutional and individual investors
     • A number of the other prominent or emerging issues reflect institutional interest in shareholder rights to decide the fate of corporate managements in power or prevent them from interfering with processes that should improve securities values
       • The ability to do so stars with knowing how the investors are voting on the issue
         • Some companies voluntarily are agreeing to permit confidential voting

9. Activist momentum growing

   • The agenda is being built on three linked platforms simultaneously
     • 1. Forcing or gaining agreement to change by mobilizing shareholders to express their views, chiefly in disapproval of corporate actions
       • 2. Influencing the selection of board directors
         • 3. Creating discussion with management and boards on governance and control issues that leads to agreement on certain changes or concessions in return for institutional support in proxy contests

10. The progress and arguments on both sides

    • As dialogue picks up, companies remain skeptical of investor intentions
      • Companies see the goal of activists primarily concentrated in insuring the flexibility to maximize investment by presevering the opportunity for highest returns in hostile takeovers
        • Institutions believe they´re being encouraged to pursue their goals while companies worry about their real motivations

11. The corporate side of the question

    • Companies arent sure whether they should welcome institutions as high stakes "partners" or fear them
      • Liquidity and broadened institutional ownership are two-leading investor relations priorities
        • The proposal would grant an exemption from the proxy process for institutions qualifying on the basis of the size of their holdings
          • Another concern is the growing power of advisory firms to institutions
            • Some companies and even some private investment managers, wonder whether personal political aspirations are influencing any of the public fund administrators
              • As the governance issue moves forward, the investor relations role will be critical