STRATEGIC ROLE: City PR consultants are being drawn into financial

planning and decision making at board level

INVESTOR RELATIONS: Public relations agencies are making inroads into an

area dominated by other advisers

FINANCIAL REPORTS: Top companies in major European countries are

adopting Anglo-Saxon standards

UK City PR advisers have become an integral part of decision making at

the top of Europe’s most profitable companies. Rob Gray uncovers the

secret of their success

Last year the City saw a boom in domestic mergers and acquisitions

activity and a steady rise in the number of companies coming to the

market.

According to Department of Trade and Industry figures, during 1995 UK

companies were involved in 122 deals worth a cool pounds 32 billion

combined. Pharmaceutical company Glaxo led the way with its pounds 9

billion takeover of Wellcome. But as Granada’s successful bid for Forte

illustrates, 1996 could well be as promising a year for M&As as 1995.

And high-profile flotations, such as Hutchison Telecom’s Orange, have

already created a buzz in the market.

The intense excitement of large flotations and the high stakes outcomes

of M&A work capture the headlines - and the high-margin fees paid to

advisers, including financial PRs, also turn heads. Yet in truth,

despite their high profile, flotations, bid promotion and defence

activity form only a small part of the City PR landscape. Citigate

reckons that M&A activity accounts for only 30 per cent of its fee

income, while Financial Dynamics and College Hill estimates put M&A fees

nearer to a quarter of fee income.

On a day-to-day basis, financial PR more usually involves helping client

companies communicate with the people that own them. The conduits for

this communication are primarily the media and City analysts. Although

this is clearly a year-round process, activity is stepped up twice a

year when a company announces its interim and end of year results.

‘The prosaic necessity of getting a proper understanding of a company’s

full-year and half-year figures is the most important part of any

financial PR strategy,’ says Lowe Bell Financial managing director

Terrence Collis.

Due to the Stock Exchange’s strict rules on the disclosure of price-

sensitive information, which stipulate that as far as possible

information should be released to shareholders equally and at the same

time, financial PRs need to tread carefully. In this context, set-piece

events such as corporate AGMs, public announcements and analysts’

briefings are patently of prime importance.

With analysts, whose research and views have a direct bearing on the way

companies and their sectors as a whole are perceived in the market,

there is little room for error. And while it is the client and its

broker which handle the bulk of the preparation and execution of a

presentation, financial PR agencies often have a role to play in the

process by, for example, canvassing the analysts beforehand.

‘Such presentations cannot be given in a vacuum and are prepared in

response to feedback on what are the analysts’ major concerns and areas

of interest,’ adds Collis.

Fund managers and other institutional investors draw heavily on the

opinions of analysts when making investment decisions. But, of course,

they are also influenced by what they see in the media.

Positive media coverage is essential for a quoted company if its share

price is not to be undermined. This can put a lot of pressure on

financial PRs.

‘Our trade is at the sharp end,’ says College Hill chairman Alex

Sandberg. ‘We will be beaten up by the client if he doesn’t read a

glowing article about his company - whatever the financial results

were.’

But, as Ludgate Communications chairman Tim Trotter points out, there is

now a good deal more to City public relations than media relations and

the odd chat with an analyst. ‘The nature of advice required has

changed,’ he says. ‘A lot of companies are using leading consultancies

more for strategic advice rather than just for execution.’

The leading financial consultancies are now, in PR terms at least,

mature businesses. The opinions of their senior practitioners have a lot

of credibility and are often eagerly sought by the directors of

companies planning a flotation or share offer. In other words, PR has

earned its place next to the brokers and investment bankers at the City

table.

Financial PR advisers are also able to act as a buffer between clients

and analysts, reporting back the views of the latter on the former.

Sometimes this entails telling the directors things they may not want to

hear - unpleasant for both the client and agency.

‘When a company goes off the rails it’s because they weren’t listening

to what the analysts and institutions have to say,’ argues Focus

Communications joint managing director Rupert Ashe.

Communication direct with institutional shareholders lies squarely in

the realm of IR (see panel, p11). But as mentioned earlier, these

influential stakeholders can also be targeted through the financial

media. Reaching them in this way can be seen as the number one function

of City PR.

In Europe, the Financial Times, Economist and Wall Street Journal are

still seen as the most authoritative titles, along with the business

pages of the national newspapers. Although it’s interesting to note that

the UK market is being swelled by the launch of the City-specific London

Financial News and the more general Sunday Business.

For the moment the jury is out on the likely importance of these

newcomers and the much-trumpeted growth of business TV in the shape of

European Business News and FT-TV among others.

‘It’s not clear to me that the right package and product is with us

yet,’ says Financial Dynamics chief executive Nick Miles. ‘Broadcasters

have got to get over their obsession of going for the lowest common

denominator and explaining everything.’

‘My feeling is that at this point specialist financial TV is at the

margin,’ adds Tony Carlisle, executive chairman of Dewe Rogerson’s

London office. ‘I don’t really know anyone who watches it.’

That, of course, could change as business television becomes more

established. Its very immediacy gives it one distinct advantage over the

press - but then again denizens of the City are able to get the latest

news and price information from their screens.

So, logically, if it is to make any real inroads on the hegemony of the

press, business TV will have to provide the added value of in-depth

comment and analysis that is the strength of the newspapers. None too

easy given the nature of broadcasting.

The Internet is also likely to have a profound impact. Vast amounts of

financial information will be put out via the World Wide Web. Shandwick

Consultants director Gillian Pattison, for one, believes that financial

PR consultancies will have to ‘speed up’ their dissemination of

information, maybe even updating what is sent out electronically every

few hours.

Talk of the Web brings us neatly enough to the issue of globalisation.

Finance is international. One of the questions that financial PR firms

of a certain size have to address is whether or not they too should

become international.

Some think not. ‘I’m very suspicious of global structures for small

service industries,’ says Fishburn Hedges chairman Dale Fishburn.

The financial specialist which has been most successful internationally

is Dewe Rogerson, which now has about 50 staff in New York and offices

in Hong Kong, Tokyo and Bombay, plus another 20 London-based staff

working on international business.

During the 1980s DR carved out a niche for itself as a privatisations

specialist. Its expertise in this field has been rewarded with a slew of

privatisation contracts.

Those consultancies with a significant and growing international

capability, like Dewe Rogerson and Gavin Anderson, have become part of

small elite able to offer global financial PR services. Yet for the

many smaller or less internationally-minded consultancies, the amount of

UK M&As, flotations and on-going domestic communications means they will

not be forced into embarking on risky, capital-intensive overseas

expansions if they do not wish to do so.

Investor relations: Breaking the securities houses’ hold

Where does financial PR end and investor relations begin? It’s a vexed

question and the answer has important implications for the relationships

City PR consultancies have with the securities houses and investment

banks with which they need to work closely.

‘The real question about where financial PR stops and IR starts has to

do with how far you should push the service without getting in the way

of other advisers,’ says College Hill chairman Alex Sandberg. ‘There’s a

grey area between all of us and handling that grey area sensitively,

without treading on anybody’s toes, is the key.’

Sandberg adds, however, that IR should, in the main, be carried out by

the client and its broker. That view is backed by Philip Hooker,

divisional director of Hoare Govett Corporate Finance, who asserts that

IR is ‘fundamental’ to broking activity.

There is no great tradition of financial PR firms carrying out IR

programmes in the UK, unlike the US. However, in a move to add value for

their clients, some UK consultancies have edged tentatively into an IR

sphere normally associated with the banks and securities houses.

Typically this has manifested itself in the provision of services such

as share register analysis and roadshow organisation. But many in the

City believe that PR agencies simply don’t have the resources to offer

full-blown IR.

‘Where the difference comes in is the in-depth knowledge of what the

institutional investors are doing,’ says SBC Warburg director and head

of institutional IR services Julia Land.

‘A financial PR company just can’t replicate the nexus to the market

that an investment bank or broker has,’ adds Land, who heads up one of

the few investor relations consultancy services that is integrated

within an investment bank.

That said, two outfits have bucked conventional wisdom. Makinson Cowell

and Frew Macmaster have carved out a niche for themselves as specialist

investor relations consultancies. They work closely with the boards and

internal IR staff of their listed clients to ensure that relationships

with institutional investors remain sweet.

From a client’s standpoint, what matters most in the implementation of

financial PR and IR programmes is that they don’t send out contradictory

messages to the institutions. A fund manager will be confused if he or

she gets one message from communication directly with the company and

quite another from what is said in the media.

Burmah Castrol director of corporate affairs James Alexander sees IR and

PR as ‘inextricably intertwined’, and argues that it is wrong for

clients to put them in separate departments.

‘I’m sometimes surprised that investor relations is hived off and left

as part of the finance function,’ says Alexander. ‘Clearly you’ve got to

work closely with the financial side but it has always made sense for us

to have the two in the same department.’ In addition to its in-house

operation, Burmah Castrol relies on its broker Cazenove for IR advice

and implementation.

Financial reports: Europe catches up

The Anglo-Saxon model of communicating financial performance -

including the use of the English language - is increasingly being taken

up by Europe’s most successful companies, judging by the findings of the

1995-96 Company Report. There has also been a dramatic process of

standardisation across Europe’s top 100 companies over the five years

that the report has been published.

Laughable translations have almost completely disappeared and most of

the top 100 companies’ reports now excell in English. Anglo-Saxon

brevity in the first part of a report has started to spread to the more

verbose cultures of Germany, Spain and France, making for better

readability. Preparation of accounts to GAAP (American) standards is

now mentioned in 20 reports, and 40 companies show the progress of their

share in good charts.

The sector that produces the best reports remains the food and drink

industry, while insurance remains the least impressive, weighed down as

it is by Italian and German companies that do not match the European

norm. Within the insurance sector, Prudential shows the most

improvement, reaching 12th in the top 100. Swiss companies have

consistently high standards over all the sectors, and the British lead

in terms of ranking.

In short, we are seeing briefer reports in English, more targeting of

the American market, and the privatised utilities are moving towards

less institutional reports. Standards are definitely rising, but there

are still reports out that are more like codes to be cracked than

communications.

The message that shareholders want to hear above all is a message about

long-term prospects. So the annual reports that reveal a strategy, and

targets for the future, are the winners. For the 1995/6 report we

carried out research that shows that both professional investors and

private shareholders put the annual report ahead of all other sources of

information about a company.

For the first time this year, we also looked at the cost of producing

annual reports. The range of budgets, including design and printing,

quoted by the companies themselves ranges from pounds 124,000 up to

pounds 1,800,000 with a median of pounds 430,000.

Other aspects of the communications effectiveness that we looked at

include the length and style of the chairman’s statement, use of

editorial techniques (such as subheadings) for better readability, key

messages, narrative style and the way photography supports a strategic

message. We then ranked each annual report on the basis of an aggregate

of scores against these and other headings.

Topping the charts was Hoeschst whose annual report scored 715 out of a

1,000, closely followed by Grand Metropolitan’s bullish offering and

annual reports produced by Tesco, Bass, Societe Generale and Allianz

Holding.

Peter Clifton is research manager of Peter Prowse Associates and editor

of the 1995-96 Company Report.

Financial worries: Issue of regulation won’t go away

For Financial Dynamics, the consultancy that has been one of the star

performers in the City PR sector, the past six months must seem like a

bad dream. First it was rebuked by the Takeover Panel for ‘serious

breaches’ of its code regarding the leaking to a broker of price-

sensitive information on its client Amec, which was at the time involved

in a takeover battle with Norwegian group Kvaerner.

Then the London Stock Exchange began investigating dealings in the

shares of another of FD’s clients, building materials group Caradon,

following unusually heavy trading in its equity ahead of last

September’s interim results announcement. The Exchange won’t comment on

its findings, but has passed its report on to the Department of Trade

and Industry for consideration.

Although no allegations of impropriety have been levelled at FD over

Caradon, the consultancy’s name has appeared in much of the media

coverage of the affair, inflicting further damage on a reputation

already hit by the criticisms of its activities relating to Amec.

All of this has re-ignited the debate on the regulation of financial PR

firms. At present, although City PR consultancies must conform to the

law of the land and rules of the Stock Exchange and Takeover Panel,

agencies do not have a regulatory body of their own, as is the case with

stockbrokers and investment banks.

The City and Financial Group of the IPR has been looking into the matter

of financial PR-specific regulation but so far all that is clear is the

polarisation of views among practitioners, with some championing

additional regulation and others happy with the system as it stands.

‘The rules that exist are good rules, and there are sanctions if they

are broken,’ says FD chief executive Nick Miles. ‘At the moment I think

it’s right that we’re held to account by the Takeover Panel and Stock

Exchange.’

Many City PR luminaries agree, feeling that the rules set out in the

Takeover Panel’s ‘Blue Book’ and Stock Exchange Listing Rules ‘Yellow

Book’, plus the law enshrined in the Companies Act, Financial Services

Act and Criminal Justice Act, provide ample regulation. ‘I think the

system works. Recent events have proven it,’ says Citigate deputy

managing director Jonathan Clare.

NatWest corporate affairs director and IPR president-elect Simon Lewis

takes the contrary view, arguing there is a need for greater

accountability.

‘When things go wrong the only way financial PRs can be admonished is

through the Takeover Panel or Stock Exchange,’ he says. ‘What I’m saying

is that’s no longer tenable. We must have a greater degree of

accountability exactly as there is for any other discipline in the

City.’

Focus Communications joint managing director Rupert Ashe also supports

greater regulation, although conceding it is partly for reasons of self-

interest. ‘We look forward to regulation because it’s another barrier to

entry,’ he says.

‘With practitioners so divided, it’s difficult to see any wide-ranging

changes taking place soon. But even if the regulations remain as they

are it would seem that the activities of financial PRs will be subjected

to closer scrutiny - in the wake of the Amec affair Takeover Panel

chairman Sir David Calcutt wrote to all financial PR consultancy heads

reminding them of their responsibilities under the panel’s code.