As converting building societies flood the market with shares,
Viriginia Matthews looks at the trials and tribulations of communicating
with private investors.
’The big picture, as I see it, is that the political momentum to create
a diverse shareholder base all but died when Margaret Thatcher left
Number 10. There is a tremendous suspicion in this country about
investing in the stock market and I don’t believe that such a
deep-rooted feeling against the investment industry can easily be
The speaker is Simon Brocklebank-Fowler, managing director of Citigate
Corporate and a director of the Investor Relations Society. He believes
that, despite the excitement over the so-called share-owning democracy
in the 1980s, the private shareholder of the late 1990s is one of a very
rare breed who is fundamentally unchanged from the type of individual
who has been investing in the market for the past 50 years or so.
Brocklebank-Fowler believes that the low-key wooing of the retail market
by recent privatisations such as RailTrack or British Energy has been in
stark contrast to the multimillion pound campaigns directed at Sid and
co in the major privatisation drives of the 1980s. He says that in the
intervening years there has been a stark realisation that private
shareholding is simply ’not a growth market’ in the widest sense.
While the converting building societies are currently introducing
millions of stock market novices to the mysteries of popular capitalism
- via easy-to-understand contributions to newspaper personal finance
columns as well as acres of pre-float documentation - experience shows
that the vast majority of these new punters will take the money and run.
The rump of serious private investors in this country remains little
more than 4.75 million individuals.
Although there may be a case for using the pages of the Mirror or Sun to
disseminate messages about the Halifax or the Woolwich, the bulk of the
private shareholding market are resolute Telegraph or FT readers.
They are ABs or even As, according to Brocklebank-Fowler, not C2DEs.
The retail, or non-institutional, element of the stock market has shrunk
from 30 per cent to 20 per cent in recent times, reflecting what
Brocklebank-Fowler calls the rationalisation of utility registers in the
late 1980s and the recognition that popular capitalism was perhaps more
rhetoric than reality.
A different view is expressed by Donald Butcher, president of the United
Kingdom Shareholder Association. He maintains that many firms don’t
invest in their small shareholder base - by communicating with them
regularly and finding out more about their future investment plans - but
instead take the view that small private shareholders are ’a nuisance
and a headache’, particularly when it comes to the cost of having to
talk to them. British Gas chairman Richard Giordano, for example, was
reported to have complained about the large number of private investors
who took part in the British Gas privatisation saying that he wanted to
’find a way to ease Aunt Maude out (from the share register) without any
Companies such as Boots, however, make strenuous efforts to reach
private shareholders - the retail chain has recently introduced a
quarterly magazine specifically for its private shareholder audience.
But Butcher believes that other firms are just not bothered.
’I would agree that there are a lot of ignorant people around, and it
must be galling having to spend money talking to people who don’t know
the first thing about the stock market. But the fact remains that for
many quoted companies the private shareholder is an important facet of
the firm,’ he says.
The cost of maintaining a dialogue with millions, or even tens of
thousands, of private shareholders can be enormous, according to David
Hancock, managing director of Salisbury Associates - one of a handful of
investor relations consultancies specialising in the private investment
In the past 18 years ’there have been strenuous efforts made to increase
the pool of new investors in Britain’, says Hancock. Yet despite the
hugely successful appeals to Sid and others ’most have simply not been
encouraged to take the next step, which is to move out of safe utilities
into the stock market as a whole’, he says.
Hancock calculates that with the average cost of communicating with each
private equity-holder running to as much as pounds 11 a year it is
little wonder that so many companies scarcely do more than their legal
duty to distribute preliminary results and annual reports.
’What we should be striving towards is not more but bigger shareholders
who hold onto their shares for the longer term and move out of the
privatised stock into wider share ownership as a whole,’ says Hancock.
’The ones who cost far too much to communicate with are the millions of
people who invest pounds 200 one week and then sell the next, the
punters who invest solely off the back of press comment. But there are
many others who should be treated more seriously.’
Salisbury’s method is not to talk directly to would-be serious private
shareholders - defined as those with between pounds 3,000 and pounds
5,000 to invest - but to communicate with their 3,500 financial advisers
as often as six or seven times a year via mailings and presentations and
sometimes via press advertising.
’Not only do financial advisers have the most up-to-date information on
who these people are - often it’s City people looking for somewhere to
invest their bonuses - but they should also know who has the money to
invest at the time.’
While Hancock looks forward to the day when IR and PR can work together
in harmony, his experience is that the two sides of the coin rarely
co-operate, except when it comes to bids and takeovers.
’In a recent contested takeover battle, the financial PR effort
concentrated on the supposed loyalty that private shareholders had
towards the head of the company that was being stalked, but our more
direct information told us that the majority of the small investors were
quite happy to support the hostile bid. The financial press ads, and the
press comment, looked rather foolish when the bid sailed through against
the advice of the management.’
While IR practitioners may agree that private shareholders come into
their own when a company faces a bid or hostile takeover, British Gas
found that most of its Sid investors were ’passive participants’ rather
than active shareholders, partly perhaps because Stock Exchange rules
are still too complex for ordinary investors to understand.
But according to Hanson plc, it’s all a matter of how you present your
information. ’We don’t believe that analyst briefings are appropriate
for private shareholders,’ says director Jonathan Azis. ’But we always
ensure that there’s a free helpline available with any transaction they
are likely to make. When we send out the annual report, or any other
official document, we include a comprehensive Q and A section covering
all the questions we can think of and we certainly don’t consider their
questions to us to be a nuisance.’
BP ensures that its 388,426 private shareholders receive every document
that the bigger shareholders receive and they also get the choice of a
50 or 60 page annual report or a summary.
Reuters offers a newsletter to private shareholders as well as to
institutions and analysts and says it has established an electronic
dialogue with its smaller investors via electronic mail systems.
’Everything we produce for shareholders is written clearly, in language
that you or I would understand,’ says head of group investor relations
Mike Cooling. ’We are a media organisation after all.’
EUROPE: CLEARING HURDLES TO BUILD BRIDGES
’There is most certainly an opportunity for UK plc investor relations in
Europe. The view that ’there’s no money in Europe’ is definitely
mistaken’ says Andrew Dewar, president of Edelman Financial
Dewar bases his claim on market research that Edelman Financial carried
out earlier this year among 50 international IR managers in the UK and
60 fund managers in continental Europe. The results were published in
the ’Continental Europe: Opportunity Knocks’ report, which was presented
to the Investor Relations Society’s annual conference in April.
The research finds that UK IR managers are complacent about their
investor relations with Europe: 72 per cent are convinced they are
getting it right in Europe - whether they are doing anything there or
not - whereas only 38 per cent of continental European fund managers
agree with this self-congratulatory view.
However, British IR is highly rated on the Continent when compared with
other countries. Fifty-eight per cent of international fund managers
think that UK firms are best at IR, compared with 15 per cent for French
firms, 18 per cent for Swiss firms, 22 per cent for Swedish firms and 37
per cent for Dutch firms.
Germany is currently perceived to be worst at IR - but German firms do
not have the same level of shareholder information available as their UK
However, nearly 60 per cent of international fund managers who took part
in the research think that German firms are making the most effort to
improve their investor relations.
The research also highlighs cultural obstacles to international IR.
Continental fund managers feel that UK plc does not understand their
needs, while UK plc sees continental Europe as foreign territory where
cultural obstacles proliferate and where they are not understood. ’There
are missed opportunities on both sides,’ says Dewar.
The majority of IR managers (62 per cent) recognise that continental
Europe will become a greater priority over the next three years and 92
per cent of continental investors say that improved IR by UK firms would
make those companies more attractive for investment purposes.
’I am convinced that the continental European investment community is
going to become a greater IR priority for UK plc,’ says Dewar. ’The
challenge is to convert that conviction into concrete action.’
NET FIGURES: PROBLEMS OF A GLOBAL AUDIENCE
In December this year, the Investor Relations Society, in conjunction
with the London Stock Exchange, will make an award to the company which
has produced the best report and accounts on the internet. Not simply a
replication of the printed R&A, but a genuine demonstration of how late
20th and early 21st century technology can help make the figures come
alive for would-be shareholders as well as analysts.
One of the leading contenders for the award is Reuters, which in March
became the first UK company to simultaneously release its annual
number-crunching both on-line and in printed form for shareholders. On
the web, the figures are presented interactively in a form which,
according to Reuters, ’appeals to non-financial wizards just as much as
Jo Sumner, client services director at CGI - the design house which
helped mastermind Reuters’ annual report web site - says: ’People
haven’t got to grips with the internet as a forum for R&A yet and even
in the US the whole industry is very new.’
She adds: ’Half of the FTSE 100 haven’t even got web sites yet, or only
put their accounts on it in summary form, so we see it as our job to
push the technology forward.’
Having your annual R&A on the web doesn’t come cheap - costing anything
from pounds 5,000 for a basic words plus graphics package to pounds
100,000 for what Sumner calls ’an all-singing, all-dancing on-line
report’. But with boffins claiming that 50 per cent of all UK households
will have access to the internet in their own homes within five years,
Sumner doesn’t believe that companies can afford to be mean.
’We have already seen a lot of growth in the use of the net for
consumers,’ she says. ’But the recognition of its value in the corporate
field - where data can be updated and changed - is still astonishingly
However, a number of UK firms are said to have already fallen foul of
the strict Stock Exchange rules by revealing their still-confidential
results on the net before they have been released to the regulatory
Sumner says there could be more head-aches to come.
’The potential problem is not just that the internet is a global medium
- and different countries have different disclosure details - but there
are also important copyright implications to sort out. No one can truly
claim to be an expert in this field - after all, we are dealing with
brand new technology here - so companies have to make sure they do their