OCTOBER 2008 ISSUE 194

A Cross Border publication

IR magazine

AMERICAS
OCTOBER 2008

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GUIDE: SUCCESSFUL COMMUNICATIONS IN CHALLENGING TIMES

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THE SHAREHOLDER Authorities The perks and perils of Using virtual
ISSUE 194

Counting mistake worldwide get tough video communication deal rooms in IR

highlights flaws in the on shareholder Plus: our annual Plus: our first financial
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page 26 page 29 page 33 page 51
 COVER STORY IR magazine
Extreme measures
Advanced IR performance metrics reflect IROs’ strategic focus
Different companies use different benchmarking methods
Technology can streamline measurement and reporting
I
t’s a fuzzy business, IR, as much art as science,
with no revenues, profits or margins to judge its
performance. Stock price is a lousy yardstick;
even the world’s best communicator can’t turn a
mutt into best in show. Average analysts’ ratings –
sometimes used to calculate an IRO’s bonus – can be
decimated by one missed quarter. So when it’s time
for a raise or a bigger budget, what’s an IRO’s ROI?
As IR has evolved into a strategic discipline
stacked with MBAs and CFAs, IR performance
metrics have also grown in sophistication. When
Michael Haase took on IR at Advanced Micro Devices
(AMD) in 2002, he established specific goals and
presented them to his new bosses at the California
chip maker, including monitoring and measuring
the ‘quality’ of AMD’s institutional investor base.
‘We had a crummy shareholder base,’ recalls
Haase, who left AMD in November 2007 to lead IR at
VMware. ‘There were a lot of fast-money hedge funds
and momentum investors actively trading the stock
22 October 2008
BY NEIL STEWART
and we were not attracting
long-term investors. I wanted to
improve the quality of the share-
holder base and define how the
quality would be measured.’
AMD’s institutional ownership
looked in good shape, but when
Haase drilled down behind names
like Fidelity and Merrill Lynch, he
found that some individual mutual
funds had an average portfolio
turnover higher than 300 percent,
meaning a holding period of only
four months. The weighted average
turnover of AMD’s top 50 mutual
fund holders was 107 percent, or
a holding period of 11 months.
‘Compared with peer firms in
the semiconductor industry, we
were last,’ Haase says. ‘Everyone

else was between 15 and 30
months. Our goal was to improve
that 11-month holding period.’
He whittled the global investment
universe down to 100 low-turnover
target funds and set out to
reshape AMD’s investor profile.
Peer review
Sometimes IR metrics are tied
into wider company processes.
Montreal-based CGI Group’s IR
program, led by Lorne Gorber, is
ISO 9001-certified for quality man-
agement and measurement, like
all of CGI’s IT-related operations.
When Janet Craig joined
Canada’s Nortel Networks as
investor relations chief in August
2007, the company had been
through a series of wrenching
restatements going back to 2001.
Craig’s main goal was to haul
Nortel’s investor outreach up to
By the numbers
Ideas for quantitative performance
metrics
Q One-on-ones, phone calls and
emails with top 50 shareholders
Q Contacts with potential new
shareholders
Q Sell-side analyst coverage
Q Participants at analyst days and
site visits
Q Website visitors
Q Response time to investor
questions
Q Non-deal roadshows
Q Presentations at key investor
conferences
Source: Andreas Goldau, Cisco Systems
IR magazine COVER STORY
All the hits, all the time
‘It’s one of the most common questions we get: how
does a company or an internal IR team know whether
it is doing a good job?’ says Don Duffy, president of
ICR, an IR consulting company.
ICR likes to say it provides real-time perception
feedback because its consultants are constantly in
conversation with corporate executives and investment
pros across different industries. Recently the firm has
gone a step further – into cyberspace.
Timothy Carey, senior vice president of digital media,
explains that ICR is using ‘social media analytics’ to
track message boards and blogs as well as regional,
national and global news. Even YouTube videos and
Facebook pages enter the mix. ‘We’re keeping on the
pulse of what’s being said about companies and their
brands,’ Carey says.
ICR starts by scouring the web for mentions of a firm
and its peers and identifying influential sources like
certain trade magazines or blogs. Then it starts tracking
the sentiment about its client’s stock on those sites.
The success of an earnings call, investor conference
webcast or analyst day can then be evaluated by looking
at its impact on the sentiment percolating up through
the web. ‘The important thing is that we track more than
just opinions on financial performance,’ Carey adds.
a decent level of ‘engagement’. She began by bench-
marking Nortel’s schedule of one-on-ones, investor
conferences and analyst days against S&P 500 and
S&P/TSX 60 companies in Rivel Research Group’s
‘Perspectives on investor communications’.
Craig also studied the IR programs of Nortel’s
closest telecoms equipment peers by looking at
their websites and talking to analysts. ‘I asked them
who had the best IR in the business and why,’ she
says. ‘Transparency, outreach and knowledge –
was there some kind of secret sauce?’
She concluded that Nortel’s IR program was in
the bottom 10th percentile. After a year of concerted
effort, she reckons Nortel is now between the 40th
and 50th percentile; her goal is the 75th percentile.
Brian Rivel, president of Rivel Research Group in
Westport, Connecticut, argues against metrics like
October 2008 23
 COVER STORY IR magazine

counting the number of meetings. ‘It’s not the stock View from outside
price or the number of meetings,’ he insists. ‘It’s
whether a firm’s audiences are hearing its message.’ From the perspective of the
Rivel’s investor perception studies ask investors investment community, what
and analysts about the effectiveness of a company’s could IR do better?
investor communications, the responsiveness of
Buy side
the IR team and the quality of disclosure. After
1 Disclosure
repeating the studies and comparing them against
2 Transparency
the aggregate scores of hundreds of other companies,
3 Company knowledge
IR teams can measure progress and benchmark
4 Responsiveness
themselves against their peers.
5 Website

Tech buzz Sell side

Back in 2002 when Haase started his number 1 Disclosure
crunching at AMD, he did it all himself. Today market 2 Responsiveness
intelligence firms are streamlining the process. 3 Transparency
‘Productivity’ has been a big buzzword for the past 4 Company knowledge
few years, says Peter Juhng at Ilios Partners, whose 5 Proactivity
Source: IR magazine’s
IRNavigator customer relationship management Investor Perception Study, US 2008
(CRM) system integrates shareholder ID. ‘It can iden-
tify meaningful trends and assess the effectiveness better indications of how effective
and success of meetings,’ Juhng says. their IR is.’
Ipreo has built reporting into its new CRM platform, Haase’s initial analysis at AMD
BD Corporate, so IROs can instantly download and spawned dozens more charts and
print out progress summaries, says O’Hara Macken, graphs for his CFO, CEO and board
global head of corporate products. There’s a lot of to digest in formal twice-yearly
smart and relevant functionality built in, he notes, reports, covering everything from
adding that Ipreo’s approach to market intelligence the outcome of specific meetings
is based on ‘correlating activity in the marketplace to to overall results: a drop in high-
certain behavior by investors and giving companies turnover holders and a decrease
in hedge fund ownership.
View from the top By 2007, 12 of AMD’s top 25
institutional shareholders were
Most important metrics in measuring IR effectiveness
new, targeted, long-term firms.
according to US CEOs
International ownership had
Q Feedback from the investment community increased from 3 percent to 11
Q How well message is registering percent of the total and analyst
Q Valuation/stock price
coverage had doubled to more
Q Ability to develop relationships with the investment
than 30. Above all, after five years
community
of steady progress, Haase had a
Q Extent/quality of coverage
starkly clear, measurable bottom
Q Ability to communicate
line: the weighted average holding
Q Visibility/meeting frequency
period of AMD’s top 50 mutual
Q Shareholder retention/makeup of shareholder base
fund holders had improved from
Source: ‘Perspectives from the CEO’, Rivel Research Group
11 months to 27 months. Q

24 October 2008