Shareholder Value Starts Within
With so much attention placed on institutional investors these days, many companies tend to overlook a key driver of shareholder value – their employees.
Institutional investors have long dominated the investor relations agenda because of their ability to buy large “blocks” of equity. And since many institutions now make their investment decisions based on sophisticated algorithms, today’s “long-term” investor has been redefined as one who holds for multiple quarters rather than multiple years. Thus, the urgency to serve this audience has become even greater.
Furthermore, the mounting pressure facing portfolio managers to deliver meaningful returns has caused institutional investors of all types to aggressively assert their own “value-creation” agendas upon management and boards.
By contrast, employees typically hold the majority of their shares for long periods and typically vote in favor of company-backed proposals.
As Kenneth Freeman, former CEO of Quest Diagnostics, has said,“To create long-term shareholder value, start with your employees.” According to Freeman, employee satisfaction is essential to customer satisfaction, which correlates to investor satisfaction. This correlation has a powerful multiplier effect when investors are also employees.
Here are a few things to remember as you adjust your investor relations program to reach this internal audience effectively:
Make employees a priority when it comes to company news.
By formally announcing news internally as part of a compliant disclosure sequence, companies ensure their employees benefit from the same information external audiences receive. For example, when specialty chemicals manufacturer Lubrizol announced it had been acquired by Berkshire Hathaway in 2011, Lubrizol’s CEO proactively communicated directly with employees via a half-dozen 8-K filings and employee-only conference calls to ensure they were as well-informed as possible heading into the shareholder vote.
Articulate the company’s business strategy and value proposition.
There is clear evidence that companies perform better financially when employees truly understand not only the business, but also management’s strategy for the near and long term as well as the company’s value proposition – what sets it apart from its competitors and what makes it attractive for investors. And, as Columbia University Professor Baruch Lev states in his new book, “Winning Investors Over,” it is important to maintain a two-way flow of this information with investors. This is particularly important with employees, who can represent an important voting bloc during proxy season.Translate complicated financial information and other “Street slang.
For obvious reasons, the language used in quarterly earnings releases, conference calls and regulatory filings is typically geared toward a sophisticated investor or someone with a high degree of financial literacy. Therefore, it is important to make this language meaningful for employees to ensure they have a proper perspective on the company’s financial performance and strategic accomplishments. (Note: Companies with operations outside the United States should also consider translating material disclosures into the appropriate native languages.
Institutional investors have been – and will remain – a critical audience for public companies that seek to employ an investor relations program that is more than merely a compliance function. That said, companies that seek to fully realize their value-creation potential will also actively include their employees in their investor communications plans.
For more information, please contact Lisa Rose at 216-241-4606 or email@example.com,or Rob Berick at 216-241-4611 or firstname.lastname@example.org. For additional thoughts on the capital markets and investor relations, please visit Street Talk.