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Do investor meetings pay?

Do Investor Meetings Pay?

A survey of 20 major public companies indicates they do.

Today, with mergers and acquisitions, divestitures, and restructuring programs taking place globally, corporations are becoming more difficult to evaluate as investment vehicles. Top managements of many publicly traded companies meet regularly with the professional investment community to tell their company's story.

Are these investor meeting a valuable communication medium for companies? Does the time investment of the CEO and other senior executives generate any bottom-line benefits for the company? Are investor relations (IR) programs worth the time and trouble in financial markets that often seem geared to short-term speculation rather than long-term investment? According to investor relations professionals of 20 major public companies, the answer is yes. As an investor relations manager of a US regional bank holding company puts it, "If you don't have meetings, (investors) don't know your company. If (investors) don't know about your company, then there's no activity in your stock ... and you don't want to be a best kept secret when it comes to your stock."

In the last few months of 1989, members of Hill and Knowlton's Financial Relations Division spoke with the IR specialists, who were assured confidentiality. All 20 corporations conduct an ongoing investor relations program. Moreover, a number of the firms we interviewed received excellent marks for their overall financial communication from securities analysts who rate IR programs. Their company-sponsored meetings include regularly scheduled quarterly and semi-annual meetings and one major meeting each year with the investment community, in New York, a major world financial center.

We wanted the IR practitioners' views on:

* why they believe their meeting programs are valuable;

* whether they believe their meetings have helped to positively affect the company's stock price;

* whether they believe not holding meetings would contribute to a lower stock valuation for the long-term, and

* whether they have any plans to reduce the number of analyst meetings they hold.

Virtually all of the IR professionals we talked with believe that investor meetings are a vital component of their overall investor relations programs. Why? Because a number of the IR specialists say that a consistent meeting program, in both good and bad times, builds credibility. The credibility factor is key to reducing investor perception of risk in the company as an investment, gaining investor confidence and maintaining a stock price that reflects the company's past performance and future potential.

Summing up the views of many, an IR director with an energy company says, "There are companies that say a lot of things to analysts but the analysts don't believe them ... we're not one of those companies ... our consistent meeting program increases our credibility."

Value-Added Features of Meetings

Regular meetings with analysts and investors offer a number of other advantages to companies as well as to investors. IR practitioners say their meetings are an excellent opportunity to provide visibility for top management and to give investors an opportunity to evaluate management and its strategy. In addition, these sessions educate and inform target audiences about the company's business and its operating and financial results. The meetings also give the investment community an opportunity to ask questions about the company's progress and prospects.

Typically, the audiences include influential research analysts with brokerage firms who research companies in-depth, analysts who represent large institutional shareowners, and other investment decision makers.

As an investor relations director of a telecommunications firm puts it, "Institutional investors and sell-side (brokerage firm) analysts use meetings to assess management in a way they can't do by telephone or even in a one-on-one session. Meetings give investors an opportunity to ask questions and to get the benefit of other questions."

Another IR director with a bank holding company says, "The communication process is educational for the analysts and for us ... long-term, our meetings contribute to a fair stock valuation, increased research coverage and a better understanding of our businesses. This is key because we're such a large company we're not so easy to understand."

Besides showcasing their firm's top officers and updating investors on corporate results and current developments, many of these specialists say meetings provide a platform for top executives to give a status report on operations. "We feature different senior executives every time we come into town ... analysts and investors really get a sense of the depth of management," observes an IR officer with a restaurant chain.

Several of those we interviewed feel that meetings also provide an opportunity to attract new investors and increase sell-side analyst research coverage. An IR professional with a food company says, "Our presence ... gives us more visibility and an increase in the number of analysts following our company. The more coverage you have, the more visible you are, and the more interest in the stock ... Positive research reports have a tremendous effect on the stock price."

Do Investor Meetings Affect Stock Prices?

Securities analysts, economists and business opinion leaders often debate factors that influence stock prices, naming economic and industry conditions, a company's earnings results, and major global occurrences as likely variables. A number of the IR professionals we interviewed also feel that a number of factors impact stock prices. While they view meetings as an effective means to convey corporate developments, they agree that a meeting program in itself does not affect stock prices and it is difficult to quantify whether there is a direct correlation between meetings and stock price changes. However, 15 of the IR practitioners we interviewed believe that the credibility their companies gain from consistent, candid meetings helps to support a fair price over time.

An IR officer with a health care and consumer products firm explains, "We do feel meetings put a premium on our stock. Our feedback is that people believe they are better informed to make business decisions about our stock.

"When they're informed, they tend to give you the benefit of the doubt when something comes up. They'll call you before taking action if news comes out, or if they're considering a sell recommendation. They wait to get the story..."

A vice president of investor relations with a paper and forest products company observes, "There is no direct, immediate impact, but meetings do have long-term benefits. Analysts get more comfortable with the company. The meetings help us build credibility and relationships with the financial community... (as a result, investors) are more likely to stick with us when times are bad."

But four of the investor relations specialists we interviewed have different opinions. They say that a company's operating and financial performance "is what really affects the stock price." An IR director with a transportation services firm puts it this way, "...meetings are to educate and inform. And a corporation has an obligation to do that ... If your performance is good and you make analysts aware of your story, this will help optimize the stock price. But if you're doing poorly, or your performance is flat, coming to a quarterly meeting is not going to make any difference in the stock price."

Would Not Holding Meetings Affect Stock Prices?

When asked whether not holding meetings would contribute to a lower stock price, long-term, 16 IR professionals believe that there would be a negative effect on their company's stock valuation over time. As one respondent observes, "When you are doing investor relations you are, in effect, marketing the company just as you would market a product. There's nothing that replaces direct contact with your clients--analysts and portfolio managers. If you stay removed ... they don't understand what you do. The results will be less understanding and therefore, a lower stock price."

And some of those interviewed believe that holding less frequent meetings or eliminating them may signal that the company is trying to hide bad news from investors and raise false concerns about the company's safety as an investment.

While another IR spokesperson claims that it is difficult to say whether not having regular meetings influences stock valuation, he feels that meetings can have a positive effect over the long-term, provided the company's businesses and its industry are faring well.

Although a paper and forest products company IR director would not speculate on factors affecting stock prices, he says, "If we took away analyst meetings, we would lose our single most important vehicle of communication with the investment community ... We would be depriving analysts of vital information ... The whole community would suffer."

In summary, the IR professionals make a strong case for maintaining their investment community meeting programs. Frequent meetings build goodwill and support for management among investors. The points management earns today for candor in good times can help maintain investor interest in the company in the event of a downturn. A commitment to a consistent meeting program is in the best interests of a company as well as shareholders.

Evelyn N. Baratta is a vice president of Hill and Knowlton in the firm's New York Financial Relations Division. Ian C. Whan Tong, an assistant account executive in Hill and Knowlton's Financial Relations Division.
COPYRIGHT 1990 International Association of Business Communicators
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1990, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:includes related article on investment community meetings
Author:Baratta, Evelyn N.
Publication:Communication World
Date:Apr 1, 1990
Words:1496
Previous Article:PR pros find room at the top.
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