FOCUS: INVESTOR RELATIONS - Targeting a rare breed of investor

As converting building societies flood the market with shares, Viriginia Matthews looks at the trials and tribulations of communicating with private investors.

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.’


’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.’


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

the cognoscenti’.

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


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