Managements should be looking for shareholder support, says Sir David Lees, and keeping their investors well-informed will help to ensure it.
There is no doubt about who is responsible for investor relations in any public company. It is the chief executive. That doesn't mean to say that he sees everyone involved but he must take the lead, set out the areas of responsibility and dictate the overall strategy.
First, he must be clear about how his audience breaks down. In any investor relations programme there are three principal constituencies: the institutional shareholders, which can be sub-divided by the size of their holding; the 'sell-side' or broker's analysts; and the small shareholders. Above and beyond these there is the media. It is, after all, through the media that the public at large gains an impression of the company and its activities.
Each of these audiences need addressing in slightly different ways. At GKN I ensure that I visit all our major institutional shareholders - the 20 largest - once a year for at least one-and-a-half hours on an individual basis. I will also see the smaller shareholders - from the 20th to the 60th largest - at our offices in groups of six. In the case of GKN, our 60 largest shareholders account for 60% of the total shareholders by value. If you see around 60% of your shareholders you've been about as even-handed as is practicable. It's a programme that has evolved over the years and is continuously revised to meet changing expectations. What we try to do is to reflect what the shareholder wants - and though you can't do so absolutely, you can go a considerable way towards it.
Major shareholders who meet with management will obviously be better off in terms of their knowledge base than a small shareholder who has not. In the former case the meeting should restrict itself to clarification rather than revelation - to setting out strategic and organisational issues and ensuring that the information already available is better understood. That is to the benefit of all - including the small shareholder. If the whole market is better informed, that seems to me the best way to safeguard the interests of the small investor. It is, after all, the small investor who is more vulnerable than anyone when the market is not informed.
In any investor relations programme responsibilities must be clear cut. Again, at GKN I will lead with the institutional shareholders and the media, with the help of the director of corporate affairs, and the finance director will lead with the broker's analysts. But it is also important to introduce your shareholders to other members of your executive team. At all our major investor relations meetings we will have, in addition to the chief executive and finance director, at least one other executive director.
This has two advantages. First, it's an advantage for the shareholder or analyst to see the whole of the management team over time so that on that basis they can make a better assessment of the company. It's also helpful for the executive director to listen to the questions that the shareholders ask and participate in the answers. It is through this process that the director gets a more rounded view of what the shareholder body looks for and what issues they are interested in.
For an effective programme you also need the appropriate resources - either an internal investor relations executive or an external agency who can arrange the schedule and provide feedback on how the meetings have gone. It means that you can tailor future presentations to be even more effective.
Time spent on communication, though at times burdensome, is not time wasted - rather the reverse. If you operate an investor relations programme well the result will be that your shareholders have a better understanding of the business and the drivers of the business. That's to everyone's advantage. And if one is looking for shareholder support, which I believe any management should be looking for, then the quid pro quo is to be good at communicating.
There are specific situations when this is especially advantageous - when, for example, facing a hostile takeover bid. Suddenly you will need to communicate quickly and effectively with your major shareholders in order to secure their support. The fact that you have a reputation for purposeful communication means that you are not starting the whole process from scratch. And you have the confidence of knowing that the shareholder already knows the company.
How do you know if your IR strategy is working? Well, if you receive back strategic information that you have previously given out, you can allow yourself a degree of satisfaction. You can also be encouraged when the standard of debate between shareholders and executives notably improves. They are, thanks to you, better informed and, as a result, their standard of questioning improves. It is a self-perpetuating cycle.
There may still be those who think that investor relations is just one long lunch. But that thinking would be more applicable to the early '80s, when most meetings took place at brokers' lunches. It was then that GKN introduced a policy of not attending such lunches. The format was set by the broker, they were invariably time-consuming and the questioning often ill-informed. We were one of the first companies to take such a stand and caused some consternation by doing so. Things have now changed, others have followed our lead: lunches are no longer important, and our policy appears to have been the right one - a satisfaction, of course, but not as rewarding as the knowledge that there has been a marked improvement in investor relations as a result.