Institutional investors have long dominated the investor relations agenda because of their ability to buy large “blocks” of equity. In recent years, the sense of urgency to serve this constituency has become even greater.
Today's institutional investors are facing unprecedented pressure to deliver meaningful returns. As a result, they are aggressively asserting their own value-creating agendas on companies – the quintessential “squeaky wheel.” This phenomenon is exacerbated by the fact that today's “long-term” institutional investor is one that holds for multiple quarters rather than multiple years.
It's no wonder so many companies overlook a potentially powerful group of shareholders – the employee base.
“Employee-investors” typically hold the majority of their shares for long periods and typically vote in favor of company-backed proposals. This group of quality investors is easier to find – you already have all of their contact information – and keep engaged in your “investable” story than any other segment of the investment community.
Kenneth Freeman, former CEO of Quest Diagnostics, once said: “To create long-term shareholder value, start with your employees.” He believes employee satisfaction is essential to customer satisfaction, which correlates to investor satisfaction. This correlation has a powerful multiplier effect when employees are also investors, as stock ownership is still an important way to encourage productivity, boost morale, and create wealth internally.
What makes this oversight ironic is that employee-investors are more than ready to engage with management. Just ask Wal-Mart, which had its first proposal from a group of employees on its proxy this year. According to columnist Gretchen Morgenson, this group had grown concerned about the stock's lackluster performance and organized as way to have their opinions heard by the board, management, and, ultimately, other shareholders.
As is the case when interacting with any investor, there is a line that must be adhered to when dealing with employee-investors. In my next post on Wednesday, I'll provide some simple steps you can take to expand your IR program to reach your employee-investors effectively.
In the meantime, I'd love to hear your thoughts or concerns on taking a more proactive approach to cultivating the interest and support of this oft-forgotten investor population.
Lisa Rose is senior managing director at Dix & Eaton. She can be reached at email@example.com.