IR: Staying on Top in the '90S (1990)

IR: Staying on top in the '90s Investor relations has already been rocked by a number of major events over the last two decades that have radically altered the way we communicate with shareholders. One of the most fundamental changes is the fact that the long-term shareholder - the person who bought IBM at 20 and still holds it today - is, for the most part, gone. In 1960, the average stock remained in the hands of its owner for an average period of seven years and annual volume was approximately 766.7 million shares. By 1975, stocks were turning over at a rate of 21 percent per year with a share volume of nearly 4.7 billion shares. As of last October, shares were turning over at a rate of 54 percent per year on a volume of 40.8 billion shares. Many of these shares will trade five, six, seven, maybe a dozen times per year. Financial markets today are growing exponentially and stocks are changing hands based on news, forecasts, indexes and computer programs. In fact, there are many in our profession who will argue that we are no longer marketing our companies to but, rather, to speculators. There are, of course, some notable exceptions - Warren Buffett is a good example - but as an audience, it is becoming increasingly difficult to target the long-term shareholder. This is not an insignificant point, since investor relations traditionally assumed a degree of interest in the shareholder for the company's long-term future. Less retail, booming data A second important development is that investment banks, which once derived significant income from trading retail stocks, have broadened their focus. In 1960, an estimated 75 percent of income from NYSE member firms came from securities commissions. By 1987, securities commissions accounted for only about one-quarter of gross income. The balance came primarily from trading and investments, underwriting, LBOs, mergers and acquisitions and all those other high-priced transactions we have all been reading so much about. As the bottom-line contribution of retail trading diminishes, we will continue to see less focus on the retail side of the business, making it even more important for us to learn to communicate with institutional investors who today, as the dominant buyers and sellers of shares, hold the most power in determining stock price. Third, the information explosion has significantly impacted financial markets. Financial markets move on information; today, information is moving at the speed of light. One of the great paradoxes is that as technology becomes more sophisticated, our ability to process and analyze information becomes more impaired. We have become a society consumed with amounts of information, rather than quality of information. As investors hook into more online databases offering instantaneous access to news and market movements, their ability to assess the ramifications of any particular bit of information will continue to be hindered. This promises to become even more difficult as we move to 1992 and 24-hour global markets. But these changes are only the tip of the iceberg. Beneath the surface lie a host of challenges that have yet to come into full view: shareholder activism, increased pressure to deliver short-term results, global markets, the effect of junk bonds and sudden international events, such as the recent changes in East Germany and the Soviet Union. In addition, the increasing number of small-cap companies are struggling to be heard and understood. Index funds, takeovers and foreign investors all draw attention and resources to the large-cap companies. …