Corporate Eye

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Brian Nelson

Brian Nelson

Preferred Stock and Investor Relations Websites

Does your company offer preferred stock?

Warren Buffet’s investments in the preferred stock of several companies reignited some of the interest among the general population about preferred stock.  In addition, many investors searching for yield in a market where there is little to be had in bonds and Treasuries, is looking for new alternatives, and preferred stocks might just fit the bill.  But, at many companies, preferred stock is the unnoticed sibling to common stock.  This just might be costing you investors.

Preferred Stock Quotes and Yields

One of the major difficulties for the common investor when it comes to preferred stock is easy access to the basic information.

While many investors have memorized the ticker symbols of numerous publicly traded companies, few have the same knowledge of preferred stock ticker symbols.  The lack of standardization in this arena is partly to blame, with some companies adding a PRF and others a PR or just a P.  The problem is magnified among companies with more than one publicly traded series of preferred stock. If that weren’t enough, the various services that provide quotes don’t provide preferred quotes in a standard format either, with some adding a space to the symbols, while others do not recognize such symbols.

Even if quotes are found and displayed, most online quote systems have been specifically tailored to easily and quickly display robust information about a company’s common stock.  Often this leads to the information for preferred stock being displayed in a less than optimal manner.

These obstacles lead many investors to the company’s IR website looking to find both if preferred stock exists, and if so, information about the yield, dividend payment history, and even the ticker symbol.  However, many company IR pages don’t provide such information at a glance leaving the investor to play investor relations webpage roulette.  They might find the preferred stock information, or they might not.  If they don’t they may simply assume that it doesn’t exist.

Consider US company Kimco Realty.  It’s Investor Relations page landing page can be commended for having a preferred stock quote easily available, that is, if you know that it is there.  The quotes is displayed for access in a drop-down box whose default display is, naturally, for the common stock.  A savvy web user is likely to notice the option and click.  However, many users would not notice such a detail among the sea of information provided.

kimco-realty-preferred-stock

While preferred stock information is always available in official filings such as the annual report, it may not seem worthwhile to an investor to crack open such documents until they have at least a cursory knowledge of what they might find, or at least a confirmation that an outstanding issue or upcoming offering does indeed exist.

Investor Relations Best Practices

While information about common stock is significantly more important than information regarding preferred stock, there can still be a place for such information on the IR website.

Most investors are well aware that preferred stock is not as universal as common stock and will be obliged to dig for such information a little bit.  However, since some companies offer preferred stock and some do not (and some offer preferred stock, but not as a public offering) investors will be likely to leave assuming that there either are no preferred offerings, or that there are no preferred offerings that they may participate in.  As a result, IR departments would be well advised to at least display some minimal information regarding any outstanding preferred stock offerings under the typical “Stock Information” headings.

A full chart and quote is not necessary and may simply add to the clutter on a typical stock information page, but a bold heading titled Preferred Stock with a sentence or two explaining the investor’s options, either click here for more information, or there are no publicly available preferred offerings at this time, would be a welcome addition to most stock pages.

Furthermore, while it should be intuitively obvious that a company paying common stock dividends is also paying full preferred stock dividends, a dividend history of payments for preferred stock, or a simple paragraph stating that since issue all preferred stock dividends have been fully paid could provide a welcome confirmation an investment in your company’s preferred stock has been a solid one from an income standpoint.

As always, the more information that can provided in an easily accessible manner for investors and potential investors, the better.  With preferred stocks, many companies would do well just to acknowledge their existence.  Then, investors may be more willing to dig into the annual report to find details.

Setting The Debate Tone Via Investor Relations

There are varying schools of thought when it comes to dealing with potentially unfavorable information. One school advocates simply ignoring such information, or at best, only reporting or mentioning it when absolutely necessary.  Another school holds that sooner or later such information will find its way to the right (wrong?) people and blow up anyway.

Considering the rate at which information moves these days, the idea of simply hoping for the best is becoming ever more quaint.  While certain facts may have been known for a long time, there is a difference between “out there” and being widely publicized by important media outlets or public figures.  Even worse is the fast word-of-mouth spread of information that may or may not be correct, all with no single person or entity to point to with corrections or defenses.  In these instances, often called “viral news”, companies are left with no way to counter either misinformation, or just out of context inferences.

Much like vaccines that only work before one is infected, information to counter the various types of “viral” dissemination can only be effective if it exists before the negative information starts to spread.  A contrary opinion, useful fact, or even just an acknowledgment of something as a problem, but not one you are concerned about can be enough to nip such PR blow-ups in the bud.

IR and the Corporate Information Castle Defenses

Consider the recent failure of US investing giant, Lehman Brothers.  Subsequent investigations and reporting have shown that the failure of Lehman Brothers was caused by the refusal of lenders to extend their traditional overnight lines of credit to the company as the banks had routinely done prior for Lehman Brothers and other investing companies.  The reason for this refusal was the fear that Lehman Brothers was running out of cash.  Ironically, from all available evidence, it seems that no such shortage ever existed.  Whether bad sources, mistaken calculations, media failures, or poor company response caused the rumor is up for debate.  What is not, is that in the days the firestorm grew, nothing Lehman said was worth anything because it was too late to counter the whirlwind.

While Lehman Brothers is an extreme example and no amount of IR information may have made a difference, it is certain that stopping bad information from starting is the best strategy.

Consol Energy

CONSOL Energy, a large US energy provider, and mining operation, has conspicuously posted its “Risk Factors” in plain view on its website.  Each risk, ranging from current economic conditions, to the impact of various government action, is delineated and then given a frank response by the company.

While each of these items is properly titled a “Risk Factor” what they really are, are possible investor concerns, raised either by the investors themselves, or by some outside source.  A happy CONSOL Energy investor living in California, for example, may have no idea that the state of Pennsylvania is considering a severance tax on natural gas.  But, a single forum post, or investor group comment might cause the investor considerable distress.

However, instead of having to rely on any unverifiable information floating around the Internet, or on whatever info comes out of the brokerage house, the investor could simply scroll through the list of risk factors and determine that while such a tax could impact the company’s operations, the investor might take solace in the information that 12% of production was from Pennsylvania.

While not an insignificant number, it may be much less than any viral report declares the percentage to be.  Indeed, if our intrepid investor were to perhaps reply to the same forum post that caused him so much worry, by saying that although such a tax would be a concern, the fact that it affects just 12% of production made him comfortable with keeping his investment.  Such information injected at the beginning of any potential blow-up might nip it in the bud as 12% is nowhere near as dramatic as say 33% or even 50%!  Thus, IR averts a PR problem without even knowing it existed.

IR Best Practices

While it may be impractical for IR to respond to every possible concern, or even to go to the level that CONSOL Energy has managed to do, it is feasible for companies to address their investor’s biggest concerns and potential concerns in an easily accessible and retrievable format instead of relying on the text buried inside of last year’s annual report to provide solace to the concerned.

Additionally, placement on the company website adds an important dimension to the information, linkability.  On the Internet, nothing is worth the screen it is displayed on until it is linked.  An investor citing the company response in an annual report might be met with an “I’ll believe it when I see it,” attitude from skeptical users, while the same investor who is able to cite a particular web address might be given more benefit of the doubt.

As always, the more public information that Investor Relations can provide, the better.  Consider adding a Risks or Concerns section to your IR site.  Include a form or link that investors can use to contact you about these concerns or other concerns.  If the number of contacts from such a form is significant, you’ll know that you’ve hit the nail on the head.

Investor Relations Website URLs

Recently, it seems that more and more users are making some assumptions regarding website name and URLs. A recent review of logs at several different sites show an increasing number of users attempting to bypass website navigation and directly access what they want via the URL they type into their browser.

Pseudo-Standard URLs

Certain things are established standards in URLs today, the defined extensions (.com, .edu, .uk, and so on) and the registrars who regulate the assignment of domain names attached to those prefixes, for example. Also, certain characters are allowed or not allowed, which results in certain characters being “escaped” or defined by an allowed set of characters. The dollar sign being replaced by &#36, for example.

After that, how and where various web addresses are handled within a site is completely in the control of the site owner.

However, there is an emerging sense among savvy Internet users that certain things can “usually” be found in a specific location by entering commonly used keys into manually typed addresses. Entering URLs in this manner can result in significant time savings, particularly on longer website names, or when entering a web address via a non-standard keyboard like on a mobile device or cellphone.

For example, many websites offer the mobile version of their site at m.sitename.com. Others offer the same mobile functionality at www.sitename.com/mobile or www.sitename.com/m. Likewise, most large Internet providers tend to respond well to entering “mail” and then the site name, even if just by redirecting the user to the official address. Consider, mail.google.com, mail.msn.com, mail.yahoo.com, and so on.

While these locations and shortcuts are by no means standard and are not even noticed or anticipated by many users yet, there is an emergence of user interface design that takes advantage of such assumptions. Doing so continues to allow for specific customized user interface and programming standards, while at the same time allowing users to find precisely what they are looking for in case they don’t quite understand the interface presented, or even if they prefer to skip the interface all together.

Investor.Company.com

Internet users looking for investor relations web content are no doubt significantly smaller in number than users looking for email or mobile content, but a significant portion of them are more savvy than the average web surfer. While certainly not as widespread as concepts like m for mobile, or mail for accessing webmail, there are signs of a pseudo-standards movement coming to the Investor Relations arena.

Consider, that in a recent test, half of the 10 largest US companies provided a valid response to investor.companyname.com regardless of where the “real” IR website could be found. For example, typing investor.wallmartstores.com brings the investor the Wal-Mart IR homepage, despite the fact that the IR page URL is actually walmartstores.com/Investors/

Such response is easily configured via a redirect. A redirect is simply an instruction to a visitor to redirect, or look to a different location, based on the information within the web address the visitor is trying to reach. For example, most commercial websites today can be reached whether or not the user types www. Users trying to reach the New York Times will get there via either www.nytimes.com or nytimes.com, with the webserver either adding or removing the www automatically depending upon the site configuration.

There are multiple types of redirects, but one preferred method is called the 301 Redirect which provides a behind the scenes error code electronically informing the visitor that the page in question has been permanently moved to another location, and then provides that location. This all happens without any interaction or display appearing to the user. Indeed, if the user were to bookmark the page upon arrival, they would actually bookmark the correct link because the redirect not only displays the proper page, but re-states the URL in the browser itself.

The great thing about this method is that it allows the user to continue to access important information in a manner that makes sense to them, while preventing any sort of implicit approval of the visitor’s entryway. Thus, search engines like Google will not provide investor.company.com as a search result no matter how many websites link to it in that manner, and will instead provide the official authorized link as the search result instead. While users who bookmark the IR site after reaching it via redirect will still bookmark the official location.

Best Practices For IR

How should an Investor Relations department handle the rise of pseudo-standard URLs?

Examine your website logs and see if your users are starting to try this technique. Are there multiple 404 File Not Found errors for addresses like investor.name.com or www.name.com/investor?

If so, there is little harm in configuring redirects for those addresses that point to your official address instead. Doing so causes no downtime, does not increase the load on the server, and does not cause any broken links or exceptions to the various standards that may be in place at your corporation. In other words, its a guaranteed win at no expense!

A forward thinking IR group might even consider taking it to the next level. What other ways might people try and access IR information that you are enthusiastic about returning? Is anyone trying to access mobile formatted investor relations content via m.company.com/investor or how about investor.company.com/mobile?

Would it be worthwhile to provide access to the current stock price via something like quote.company.com?

Obviously, such redirects could spin out of control, so trying to anticipate every possible request has little value. Focus instead on what the majority of your users are trying to do.

Such redirects not only provide an easy way for users to access your site, they also provide an easy way for company representatives and executives to reference the IR site as well. Is it easier for the V.P. of Research to stand before a large crowd and say that investor information is available at investor.bighype.com or to expect them to say it is available at www.bighype.com/corporate/investor-relations. (Don’t forget to mention the hyphen!)

Judicious use of such redirects are a great tool to provide an even better user experience to investors and potential investors.

Happy redirecting!

Does Your IR Yahoo? (Or DMOZ)

Investor Relations can be a detailed, complex service provided within a large multinational organization across language and cultural barriers.  As such, sometimes the basics can slip through the cracks.

For experienced IR professionals, it would be intuitively obvious that anyone looking for “investor relations” at a specific company would either search for the same while using the company’s name, or that one would go to the company’s website and find a link to investor relations from there.

But, what about other potential users?  Perhaps users who don’t realize that what they are looking for would fall under the purview of IR, or those who are not especially familiar with such a concept?  Certainly, such users are not likely become major shareholders anytime soon, but that doesn’t mean that the data or information they seek won’t help to shape the opinions of others who might actually be desirable shareholders.  How would they find your information?

Open Directory - Business Major Companies

Are you in there?

Out of the Mouths of Babes

Our pseudo-hypothetical question comes not from hours spent thinking about the possibilities of IR, but rather courtesy of a gathering of adult men around the backdrop of a basketball game that no one was really watching.  For those of you who happen to have not attended an American university with a respectable football (American, not Soccer) team, but a basketball team with a tradition of epic futility, let me assure you that the purpose of the gathering from the first moment was actually to just get a bunch of friends back together in the same room where they could talk.

During this gathering a friend of mine who is both a successful professional and a very intelligent human being, remarked about how he had stopped using a particular company’s products, and that he was working to have the company also banned from the vendors list at his firm based upon the fact that the company in question did significant business with the government in Darfur. What struck me as odd, was that the company in question has a reputation as a rather clean and upstanding corporate citizen.

It turns out that his daughter had done a report for a school project, and that she had used many different sources of information for the project.  Long story, made short, she had misinterpreted an article which listed the company in question as having declined to support a public boycott and thus was listed by the boycott organizers as a “friend” of the government in Darfur.

Three seconds on the company’s website led me to the company’s statement regarding the boycott effort in which it referred to its corporate business and ethics guidelines prohibiting the company from endorsing, engaging in, or contributing to any effort regarding elected officials.  Such a policy is common among multinational companies that don’t want to get dragged into local politics, nor give off any appearance of influencing elections particularly in smaller democracies where such influence might be seen as “buying” government officials.

Though such a policy is not necessarily intended to cover a situation like the one in Darfur, it is nonetheless true that boycotting against government officials would violate the company’s policy.  However, the company did support and endorse various condemnations and calls for action against the events transpiring in Darfur.  In addition, while the company could potentially join a boycott against Sudan, or against other companies that did business therein, it could not take part in a boycott which specifically mentions the government and government officials.  Such a distinction is, not surprisingly, lost on the passionate.

It Is An Island That Cannot Be Found, Except By Those Who Have Already Been There

Captain Jack Sparrow says those words in the movie Pirates of the Caribbean.  At first, it sounds like nonsense, and indeed if one follows the logic all the way back to the beginning it makes it impossible for the first person to have ever been there, but it does suggest a certain truth.  If you know where you are going, it is much easier to get there.

The ethics policy of the company was linked prominently from the Investor Relations page, and a press release stating much of the same was similarly easily available from the page.  So, why didn’t a carefully researched paper turn up such items?

The company in question is one that has a significant brand name in the retail space and thus has a customer focused website using the company name, and another more corporate and operations focused website under a variation of the name.  Having gone to what she assumed was THE company website and found nothing, and also having gotten no response from the inquiry she sent – to the customer service department – the intrepid researcher assumed the company was whitewashing its position by not saying anything, thus their inclusion in the list of bad actors.

Interestingly enough, she found the company site by using the dmoz directory.  The dmoz directory is an open directory project in which human beings catalog and list websites much in the same way that Yahoo used to do (and still does) prior to the ascension of search engines and Google.  As an “open” resource, dmoz is held in high regard in many areas of academics which explains why she started there.

The catch?  The company’s corporate site is not in the directory, likely because it has never been submitted.

All of this adds up to a company that did everything right being dropped from people’s mental list of acceptably behaving enterprises and in doing so, could have cost it millions of dollars in sales either by propagation of the misinformation, or in this case by being dropped from a large organization’s approved vendors list.

IR Best Practices Internet Directories

While this single example will not apply to all companies, of course, the fact remains that there are millions of people who are not familiar with the nuances of corporate websites, ethics policies, investor relations departments and the like.  For them, finding you depends entirely upon luck, unless you put up signs along the road.

No Investor Relations group can control the actions of Google or other search engines, but there is no reason to not have any and all company websites or portals listed in the major web directories, as well as in those that carry some authority for your specific industry.  Often, getting listed is as simple as filling out a form requesting to be listed and then waiting for them to get around to you. (These directories tend to be overwhelmed by submissions.)

In the end, a simple amount of effort could pay off handsomely when the next person or group looking for information finds not only the public face of the company online at thecompany.com proudly declaring its annual sales event, but also the next listing at thecompanycorporation.com and gets their facts straight.

Investor Relations and Executive Pay

In Washington, politicians are making hay with the public’s perception that greedy CEOs and executives were asleep at the switch as their companies circled the drain.

So far, the only concrete action taken has been the limit placed on executive compensation at financial institutions that receive Federal bailout money under the TARP program.  But, that doesn’t mean that more noise isn’t being made in more quarters than ever before.

The problem, of course, is perception.  Most people, and even most investors, have never risen into the executive ranks, so they have no idea what the view looks like from there.  Even fewer have ever been privy to the inner workings of a corporate board.  It is no wonder, then that from the outside, it looks like a seat on the Board of Directors is a free ride and that everyone from CEOs and CFOs to junior executives are grossly overpaid fat cats who smoke cigars and laugh inside backrooms as thousands of “real workers” are laid off.

Investor Relations and the Perception of Executive Pay

While it is undoubtedly too much to ask for any IR department to turn around the public perception of CEO and Board member pay, there is still much good that can be done.

Even before the current economic crisis much of the population viewed the high compensation of CEOs and others as nothing more than undeserved mega-salaries that were rubber stamped by do-nothing Boards of Directors who have seemingly never in the history of business found any reason not to award substantial performance bonuses regardless of how far the company had sunk.  Investors have given more benefit to company executives under the auspices that if the company is well managed and it (or more specifically its stock) performs well, then who cares how much the guy in the big office makes.  Even this goodwill has worn thin among recent revelations.

How then, can something as simple as an IR website make a difference?

First, ask this simple question.  Where on the company website can someone find information regarding executive compensation?

How many clicks does it take to get there from the IR homepage?  What text is displayed on those clicks?  How many people out of 100 would know to look under those clicks.

Second, ask this question.  Regardless of where the information exists, does it say anything other than the equivalent of the board will set performance goals and then set compensation based on how well those goals are met?

The answer to the first question is exactly why people, both investors and the general public, think that companies are hiding something when it comes to executive pay.  When it comes to how executives are paid and evaluated, it is often easier to find out the percentage change in the amount of depreciation written off against a three-year old take-over target’s assets in regards to… Well, you get the picture.

The answer to the second question is why investors, politicians, and the public think that executive pay is a blank check passed out without regard to any factors whatsoever.

A Better IR Approach

While specific performance objectives and actual target figures are often confidential for a variety of reasons, it does not follow that no information at all can be offered to investors who want to know just how the management of the company they are potentially interested in investing in are being evaluated and paid.

First, offer a better path to information regarding executive pay.  Yes, you know, as do many sophisticated investors, that such information is frequently listed under Corporate Governance, or something similar.  However, a link from inside the main IR areas can do wonders to decrease the perception that this data is deliberately being hidden.

Second, consider plain language explanations regarding certain compensation features, especially bonuses.

Perhaps nothing rankles Main Street, and their representatives in Congress more than seeing an executive at a struggling company receiving fat performance based awards.  The problem often stems from a misunderstanding that all performance metrics are based on “this year” or some other time frame.  An executive who joined the company 7 years ago with substantial bonuses for growing earnings by 10% might still be reaping those deserved awards despite the current negative trend, which can still easily be above where the company was 7 years ago.

Simply breaking out a general category of compensation among such broad areas as long-term performance awards, previously met objectives, or something similar can begin to clue in investors that these are not phony bonuses and awards.  As an added bonus, it reminds investors that the current management team has had success running the company in the past and that they are likely the best people to right the ship in whatever stormy waters the economic winds have whipped up.

As is often the case, broader more available communication can go a long way in creating a better investor experience and expectation.

Improving Investor Relations Data Offerings with Excel

These days having the annual report somewhere on the Investor Relations website is all but a given.  While some companies publish just a PDF version of the printed document, others publish a web or HTML version.  This published data no doubt meets the expectations of the average investor.  Indeed, such easy access to annual reports is a great improvement over the days when the most the average IR site offered was an electronic way to request the standard snail mail delivery of the annual report.  However, there are some companies providing even more service to their valued investors.

Downloadable Spreadsheet Data

At Colgate’s Investor Relations website, they provide the usual Annual Report options.  There is a link for a PDF file for investors who like to download and view their reports offline, as well as a link to an online Annual Report.  But, there is one extra link.  It is for the Annual Report numbers as a Microsoft Excel document.  (I will refrain from making any comments about the garish color scheme – Oops.)

 Colgate.com - Annual Reports When it comes to investors there are all types.  Some investors care about technical analysis, or analyst recommendations, or even news reports.  Ask around long enough, and you’ll even find investors – some successful – who will admit to just using “their gut.”  But, one type of investor cares about numbers, and not just the headline numbers either.

The numbers investor wants to crunch data.  They want to calculate all those ratios that don’t come printed on the fact sheet.  They might even have a few ratios or formulas of their own that they use to help make their investment decisions.  Either way, before they can do anything else, they need those numbers in the annual report in some electronic format.

Generally, this involves subscribing to a service, or manually exporting values from an investing website or portal.  And, when all else fails, good old typing them into the computer from the page.

The Excel file on Colgate’s IR site eliminates the middleman and gives investors the raw hard numbers in a format that is easy to manipulate and export to whatever program or service they choose.

The Colgate Excel file contains nothing new or out of the ordinary, but it does make accessible the important numbers from the Annual Report.  Inside is the income statement, balance sheet, retained earnings, cash flows, and the 10-year financial summary.  Each of these is separated out as an spreadsheet page and most contain data multiple years of data (usually back to 2005). 

Benefits for IR

While this additional data may seem to be all about giving something more to company investors, it also provides a benefit for the IR Department and the company itself.

By providing its own Excel file, Colgate can ensure that ALL of the data goes with the numbers.  The 10-Year Financial Summary for example contains 6 footnotes on the numbers shown.  This ensures that investors looking at these raw numbers are getting that all important context.  Data provided by third-parties may or may not pass along such information once the raw data has been imported and standardized by whatever system they use.  Even if such information is carried through, its placement cannot be controlled by the company.  By supplying an in-house spreadsheet, the company can ensure that whatever information it deems necessary shows up in a way that they are comfortable with.

A Little Caution

Of course, releasing information in this way cannot be done on a whim, nor can the data be selectively highlighted or formatted.  Straight reproductions of already approved tables within the printed Annual Report are generally the safest way to go and ensure that there is no additional information released within the file. 

It is important to ensure that any variations from the exact numbers or formatting in the approved documents is not characterized as commentary on the data.  For example, something as simple as making certain lines or numbers bold for better visibility on the computer screen could be interpreted by some as the company drawing emphasis or attention to those numbers or fields.  (Or just as bad, as drawing attention away from other numbers or fields.)

Investor Relations Best Practices

While Microsoft Excel Spreadsheets are commonly used they are not the only format available for making electronic information accessible.  Comma-delimited files have the ability to be imported into almost any spreadsheet or analysis program.  However, the extra portability does come at the expense of readability and the increased chance of errors.

Whatever the format, now is the time to look into electronic distribution of data in this format.  Not only does it make the data more accessible to investors, it provides one more avenue of contact for IR.  Posted spreadsheets coupled with an email subscription to their updates ensures that investors regularly receive not only up to date data, but a subtle reminder about the company as well.

Ensuring that investors have correct timely data is one of the primary focuses of IR and making available electronic files like this is one more way to do just that.