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IR Magazine: You say tomato...
21/06/2006
From IR magazine June 2006
You say tomato...
Terry McWilliams reports on the differences between UK and US investor relations
As Irish dramatist and socialist George Bernard Shaw once said, England and America are two countries separated by a common language. It's a shame he's not around today, because nowhere does his observation ring truer than when you look at the two countries' different approaches to investor relations.
Americans and Brits see eye to eye on most things, but the two countries don't approach investors and the financial community in the same way. The reasons are complex and intertwined, involving differences in cultures, geography, regulation, pace of market developments, and yes, even language.
When the two systems intersect - when you go across the Atlantic for a roadshow, for example - the dissimilarities and unfamiliarity with local customs can leave executives flabbergasted (or gobsmacked, as they say in the UK).
'If you sit down with a US analyst or institution and they are not happy, they will likely tell you,' says Steffan Williams, managing director of Capital MS&L, an IR firm that has offices in London and New York and is part of the worldwide Publicis Groupe. 'In the UK it is perfectly plausible to have a charming meeting that lasts for two hours and the CEO will think, Gosh, that went really well - but the fund managers actually disagreed with everything the CEO said and didn't tell him.'
Williams says the lack of feedback from polite UK fund managers leaves many American CEOs perplexed as to why their meetings come up empty.
And what turns UK fund managers off? Management may have failed to address local buy-side issuers, or may not have properly accounted for the fund manager's risk profile and investment horizon. In some cases, US management can appear too slick or might have unachievable expectations from a trip across the pond.
The problem could, however, be more basic. 'Investors are not comfortable sitting with management and saying, The real problem is you,' says Al Loehnis, a founding director of online corporate communications agency Investis and a board member of the London-based Investor Relations Society (IRS).
Brash and aggressive analysts
Cross-border issues aren't limited to US companies visiting the UK. UK executives newly exposed to the US investment community may interpret questioning by buy-side analysts and fund managers as aggressive.
Keith Russell, a veteran IR practitioner who travels to US investment centers four to five times a year, says US analysts pepper him with questions about his company's business and results.
'To do well in the US, you have to be able to think on your feet,' says Russell, senior VP of IR for Stora Enso, a Finnish paper, packaging and forest products company with a substantial presence in the American upper Midwest. It's a process that can be challenging but rewarding, he adds.
By contrast, Russell observes, questions from the UK financial community are less probing and analysts generally accept the information they're given from the company.
'There are plenty of exceptions to the rule but on conference calls, I can't help but notice the US guys are really clued up on what's going on and the UK investors sometimes aren't,' notes Williams.
Worlds apart
The approaches are different because of the predominance of sector-managed funds in the US, says Gary Leibowitz, VP of IR at London-based brewing company SABMiller and an IRS director.
Industry sector specialists often spend much, if not all, of their careers getting very knowledgeable about their sector, Leibowitz says. They use that knowledge to probe management. In contrast, Leibowitz points out, many on the UK buy side are generalists, managing broad portfolios that may include everything from banks to construction companies.
'Generalists use voice inflections and other personality assessments to get a gut feel as to whether they believe the CEO or not,' Leibowitz explains. 'The point is their questions and judgments are formed primarily on the basis of what the company says without a lot of on-the-ground insight from their own research. Call me old-fashioned, but I think that research is what people should be getting paid to do.'
Loehnis, a former analyst, says that a lot of assessment in the UK is about reading between the lines and seeing how well management answers tricky questions.
'The UK may be culturally used to having a cozy, more relationship-based approach than the US market, where there is a huge abundance of choice and you have to do your homework before you make your investment decision,' observes Williams. 'People still want that face-to-face contact across the table.'
Another difference, believe it or not, is language. 'The language of IR is more reserved in the UK, both on the positive side - companies are less reluctant to put out exuberant press releases - and on the negative side,' notes Miranda Lane, a veteran IR and PR practitioner and managing director of London-based Financetalking. 'Words like 'challenging' and 'difficult', when applied to market conditions, seem to have a greater impact here. This is also a function of our earnings guidance being less precise.'
Playing by their own rules
There's another reason company and investor relationships aren't the same on both sides of the pond: financial markets are regulated differently.
'The US regime is much more rule-based, whereas the UK regime is based more on principles,' says Loehnis. Indeed, American companies conduct IR in line with very complex and specific rules, whereas UK issuers are more concerned with following the spirit of guiding principles.
'In the UK, a company must present a true and fair view - but the regime is much less prescriptive on how that is actually achieved,' Loehnis says. 'UK companies are allowed a little more interpretation and leeway than firms in the US.'
British issuers must take care with price-sensitive information, but there is no equivalent to the US' protective 'safe harbor' language for forward-looking statements or earnings guidance. Because they lack this safety net, UK companies tend to talk about expectations and aspirations, says Lane. 'And they use coded language,' she adds. 'For certain companies, 'double-digit growth' is understood to mean 12 to 15 percent.'
Regulatory filings for most US issuers are available through the SEC's Edgar system. In the UK, however, there is no centrally accessible online site. Each company decides how much information to post on its own web site to meet the true and fair reporting principle.
Navigating the two worlds is particularly confusing for companies with a foot in both. 'The best thing is to operate in a manner that satisfies the minimum requirements in both regimes,' advises SABMiller's Leibowitz. 'In other words, don't be sharing anything remotely price-sensitive in private sessions.'
Jumping ahead
The UK investment community is relatively compact. Many companies traditionally review results with the financial community and answer questions in person. With some exceptions, companies find analyst conference calls aren't really necessary.
'Instead, you book a meeting room and expect analysts to show up,' says Lee Godfrey, chief operating officer of WILink, an IR communications services provider.
By contrast, analyst conference calls have long been used by US IR departments to reach a geographically diverse analyst base. Extending those calls to webcasts in order to meet Reg FD requirements was easy.
Loehnis says UK companies are jumping straight to video webcasts of their financial presentations. 'The main event remains the physical meeting,' he says. 'Video brings stuff to life a little bit more if you can show people the whites of your eyes.'
Banking on exposure
The roles of outside advisors are, of course, divergent in each country. Corporate brokers act as trusted advisors for UK companies. They help guide the company's financial communications, provide investor relations counsel and set up roadshows to reach fund managers. British financial PR firms handle relationships with the sell side and the vibrant national financial media, while IR firms are generally called upon when strategic or critical communications counsel is needed.
In the US, IR firms provide a wide mix of counsel and communication services as part of an advisory team that includes securities lawyers and senior management. Leibowitz sees a greater IR role for US investment bankers due to their market wisdom. 'Because investment bankers are insiders, I personally avail myself of their advice in terms of crafting our positioning at a higher level,' he says.
Consolidation and consistency
Could there be a day when both markets are essentially the same? Arvind Sood, VP of IR at California pharmaceutical company Amgen, sees a growing convergence between European and US IR. He spent seven years in France with Aventis and its predecessor Rhone-Poulenc. 'European IR has become more proactive and sophisticated, and today's analysts and fund managers on both sides of the ocean are very comparable in terms of skill sets,' he says.
With the adoption of international accounting standards, the upcoming European Union Transparency Directive, and other cross-border initiatives, chances are the differences between UK and US IR will begin to wane. As to whether both sides of the IR pond will ever be entirely unified, that's a question for George Bernard Shaw.
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