Anil Dilawri

This just in - sell-side analysts are still relevant….whether you like it or not.

Following the financial crisis of late 2008 and early 2009, there has been a lot of buzz about the sell-side community getting smaller and the notion that banks and boutiques are moving away from (or drastically changing) their typical research models.

Even if this were true, I would argue that the remaining analysts (let’s call them “the survivors”) have become more important and more influential.

There will always be a market within the institutional shareholder community for specialized, detailed, and high quality research on specific sectors and specific companies.

With this in mind, what is your strategy for 2010 when it comes to:
• Improving the quality of analyst coverage for your company?
• Improving your company’s communications with covering analysts?
• Improving the perception of your management team in the minds of analysts?

Whether we like it or not, analysts still have power.

There’s a lot at stake when your company communicates with the investment community. It’s more than just your company’s valuation at stake, it’s your company’s reputation.

I recently came across an example of a company that decided to hold a closed conference call with sell-side analysts about future financial guidance. This wasn’t a microcap company that nobody has heard of before. This was a multi-billion dollar market cap company that should have known better.

This was quite obviously an error in judgment and a fairly clear case of selective disclosure.

Think of what a mistake like this does to a company’s reputation. Think of the buy-side institutional shareholder or the retail shareholder who was excluded from the conference call. Mistakes like this are costly.

Even the small details matter. Think about what the cost is to your company’s reputation when you don’t call an investor back after they have left you a message. What’s the reputational cost of having a spelling mistake in your investor presentation or on your IR website?

Everything you do as an IR professional and as a company is looked at under a microscope by the Street. You are always being evaluated, scrutinized, and judged.

The investor communication stakes are high when your shareholders are just seconds away from dumping your stock.

Last week, the media was all over the fact that the Dow had surpassed 10,000. You cannot doubt the impressive run that the Dow has had since closing at 6547 on March 9, 2009.

But is 10,000 still an impressive threshold?

The Dow first closed above 10,000 on March 29, 1999. That’s over a decade ago for those of you who are counting. Not to mention that the Dow has crossed the 10,000 point mark more than a dozen times over the past 10 years.

Psychological threshold - yes.
Impressive - not so much.

Intel - the world’s largest semiconductor chip maker and technology bellwether - maybe you’ve heard of them.

Intel announced stellar Q3 results this week.

As part of the quarterly results process they did something new and innovative. Following the release of the quarterly results they also released CFO commentary for the quarter. Such commentary was traditionally delivered during the prepared remarks portion of the conference call.

From the Street’s perspective, this move was significant for a couple of reasons:

1) It gave the Street more time to digest the commentary surrounding the financial results, thus allowing analysts to ask better and more informed questions during the call.  2) It allowed for more time during the call for questions from analysts.

Intel also adopted the ever more common practice of allowing only one question per analyst in the queue. This is something that makes a lot of sense for a company that has 44 sell-side analysts covering it.

Intel was praised numerous times during the conference call for the new call process.

Sometimes the biggest and the best remain that way because they refuse to stand still and are always looking to improve.

Last week I had the privilege of presenting to a group of IR professionals at a CIRI Ontario event in Toronto. The topic of discussion was social media and investor relations.

Some great thoughts, perspectives, and questions were raised by intelligent minds such as Annemarie Brissenden, IRO at North American Palladium, Alvin Poon, Manager of Investor Relations at TD Bank Financial Group, and others.

A question that was asked was “How much time, as an IR professional, should I spend on social media?” and more importantly, “Where do I find the time to participate in social media?”

Many so-called social media experts have a variety of responses to these questions. In my opinion, the amount of time you should spend on social media is a very personal decision. If you are trying to figure out what is best for you, here is one way of thinking it through:

Think about how much time during the day you spend reading the newspaper, watching TV for news purposes, watching TV for entertainment purposes, reading magazines, reading industry journals, reading analyst reports, listening to the radio, reading email, reading speech transcripts, developing and delivering presentations, and attending conferences or presentations. You make a conscious and personal decision about how much time and effort YOU put into the activities listed above. In the same way, you need to make a personal decision on how much time you spend participating in social media activities. For some IR professionals it’s 4 to 5 hours a day. For others, it’s 15 minutes every second day.

Social media will continue to play an ever-growing role in the world of IR. It’s time to make a decision on how much time you and your IR program should be spending on social media.

Here are five questions to ask yourself as you revamp your company’s IR presentation:

1. Does this slide really add any value?
2. I understand this slide, people in my company understand this slide, but would a new investor understand this slide?
3. Are we differentiating our company at all with this presentation?
4. Does this slide work without a voice over?
5. This slide introduces a new metric. Will the presentation and analysis of this new metric continue to be in our favor next quarter or next year?

Some IROs really get it!

Lately I have had some encouraging conversations with some senior IR professionals who are interested in taking their IR programs to the next level.

These IROs are not satisfied with the same old, same old. They are changing the way they market to investors, they are changing their IR presentations to be more meaningful and less mainstream, they are taking a serious look at social media as opposed to dismissing it, and they are being less ad hoc about the way their program operates.

Some say “if it isn’t broken then don’t fix it”.
Others say “if it is working, how can we make it work better?”

Companies (and IR programs) that continuously evaluate, evolve, learn, change, innovate, and tweak get noticed by the Street.

Sometimes things go wrong.

Dell is getting a lot of attention in IR land this month because of an accidental leak of their quarterly earnings release on their website.

Putting aside the fact that over 23 million shares of Dell were traded between the time of the leak and the eventual release over a newswire, what is also damaging is the hit to the IR department’s reputation.

Analysts and institutional shareholders make a living out of analyzing (some may say over analyzing) companies, situations, and scenarios.  As the investment community looks at the leak they will undoubtedly question the competency of IR management.

Believe it or not, I get asked a lot about the true need for a formal IR plan within a company.  Many believe that running an IR department in an ad hoc fashion has worked in the past, and therefore, will continue to work in the future.

This is true…until a mistake happens.

Members of management rarely get excited about investor marketing. It’s too bad because investor marketing can (and should) be the most exciting thing that IR departments and management teams do.

Too often, I have heard of senior executives saying that going on investor road shows is a “pain in the ass”.

I believe the main culprit (and there are many culprits) of this prevailing attitude is that companies are not being innovative when it comes to investor marketing.

How useful is it going to the same locations, meeting with the same investors, saying the same things, handing out the same slide deck, and collecting the same business cards?

There are endless ways to spruce up your investor marketing efforts. It’s not change just for the sake of change either. When you change and improve your marketing efforts your analysts and investors notice. They become interested. They listen instead of pretending to be engaged. They ask good questions instead of questions they already know the answers to. They buy your stock instead of waiting for a better entry point.

Rightly or wrongly, the market has rebounded handsomely since the March 2009 lows.

Rightly or wrongly, investors are deploying the cash they had on the sidelines.

Rightly, your company should want to take full advantage of this opportunity.

Wrongly, you’re likely doing the same old, same old when it comes to investor marketing. The result is, well, mediocre.

Do something new, fresh, and exciting. It will be appreciated by everyone involved.

Readers of this blog and people who know me are aware of how frequently I talk about the importance of preparation. In the IR world, that means members of the management team being exceedingly prepared for public spectacles such as quarterly earnings calls and financial conference speaking engagements.

Preparation is an insurance policy on your credibility.

The next time your CEO is thinking about spending an extra 15 minutes, 1 hour, or 4 hours preparing for their next public appearance, point them to the edited version of Sarah Palin’s resignation speech (courtesy of Vanity Fair).