Highlights of this 2007 survey include:

• today over 60% of IR professionals have responsibility for research (perception audits and intelligence), up from 46% in 2001. As in 2005, 89% of IROs are responsible for event planning (roadshows, site visits), up from 67% in 2001. Financial analysis was rated an IR responsibility by 30% of IROs – a limited, but steadily rising proportion (up from 23% in 2001).
• formal accountability is increasing: 80% of issuers with IR budgets of $1 million+ measure IR effectiveness using an average of 4.2 formal metrics (up from 3.7 in 2005). The most common measures are stock price, quality of analyst coverage and frequency of meetings with the investment community. Perception studies are used by 25% of the largest companies ($5+ billion), but rarely by smaller issuers.
• with strengthening capital markets, IR budgets rebounded after a period of belt-tightening and fiscal restraint.
• almost all corporate IROs receive a base salary, and the incidence of other forms of cash compensation is rising (bonus, stock option benefits, profit-sharing). Among the IROs who devote 50% or more of their time to IR, total cash compensation increased 9.7% since the last survey in 2005.

For more detailed information, order your copy of the 2007 CIRI Investor Relations Compensation and Responsibilities Survey by going to the Resource Library on www.ciri.org. respondents will receive a free copy by mail. We thank our sponsors MarketWire and Carolyn Vose & Associates for their support of this project.

NEW YORK -- A recent study from Mercer Human Resource Consulting reports that corporate director pay in the US rose 18 percent in 2004. Additionally, between 2000 and 2004, median director pay rose 50 percent from $105,000 to $155,000, the study shows. Mercer claims the rise in pay is related to new responsibilities and risks faced by directors. It studied the proxy statements of 350 of the largest public companies for this research.

'Sox, NYSE and Nasdaq listing requirements, along with all the work going into 404 compliance this past year, has really just driven an enormous amount of work for directors where they didn't have those types of requirements before,' says Mercer's Peter Oppermann, author of the study.

Companies are also changing the way they compensate board members for committee meetings, choosing to pay directors a retainer rather than fees. This change addresses the additional preparation and oversight committee members have under new governance regulations.

'Directors are being held responsible for having good oversight and giving good advice,' says Oppermann. 'Right now we are looking at a shift in how they are paid because instead of being paid for showing up to meetings, they are being paid for doing a lot of work that probably doesn't happen in meetings. They are being paid to emulate how shareholders feel which is about owning shares versus just getting a reward when the stock price goes up.'

Despite all the painstaking work that goes into producing an annual report, the average reader takes just three minutes to flick through their copy, according to German consultancy Strichpunkt. With this in mind, IR magazine and London-based 35 Communications put together a panel to trawl through 40 annual reports from a select group of US and European companies and determine whether their investment story could be understood in three minutes. Reports were then ranked on their ability to communicate the ‘three-minute investment story’.

A new survey finds that neither companies nor fund managers are happy with the state of small-cap IR in the UK. Ben Bland reports.

Depending on the level of interest in your company, the IPO is often the easiest part of acclimatizing to life on the equity capital markets. Investment banks and corporate brokers take the lead and do much of the hard work, eager to justify their substantial fees. As a small cap, it is once you’re listed that it becomes much more difficult to maintain investor interest and keep lines of communication open.

Undercovered
A new report by Thomson Extel reveals that most UK small caps, defined as those businesses with a market cap of less than £1 bn ($1.88 bn), struggle to get a reasonable amount of analyst coverage. Twenty-six percent of those surveyed have only one analyst covering their company other than their house broker; 38 percent have three to five analysts, and more encouragingly, 31 percent say that they have more than five analysts.

As the finance director at a FTSE small cap, Hampson Industries, Howard Kimberley knows all about the difficulties of generating enough coverage. ‘The lack of breadth of analyst coverage is a perennial problem for smaller capitalized companies, particularly those in ‘old economy’ businesses,’ he says in the report. ‘Effective analyst cover is key to ensuring that our equity story is properly understood and communicated and hence that the performance drivers of our business are properly framed for balanced and meaningful analysis.’

While he is unhappy about the amount of coverage his company receives, Kimberley, unlike many of his large-cap counterparts, has no qualms about the quality of sell-side research. ‘While we have not been very satisfied with the breadth of coverage through the recent downturn in the aerospace industry, we have no complaints about the quality of research coverage of the sector,’ he adds.

The director of market services and head of Aim at the London Stock Exchange (LSE), Martin Graham, accepts that a lack of analyst coverage is a significant problem for many small caps. ‘The availability of analyst coverage is a challenge for all publicly listed SMEs,’ he comments in the study. But, with his marketing hat firmly on, he insists that companies get better coverage in London than they would elsewhere. ‘Anecdotal evidence, however, suggests that the research coverage for Aim companies exceeds that for companies listed on similar exchanges elsewhere in the world,’ he says.

Paid research suspicions
Every small cap wants more coverage, but how can they go about attaining it? Company-sponsored research has become more common in recent years. The report finds that 21 percent of respondents do pay for sponsored research to be written about them.

Some providers of sponsored research go to considerable lengths to show that they provide unbiased coverage of their clients. Despite these protestations, however, there are inevitably doubts about the veracity of research paid for by issuers.

Of the 214 small-cap fund managers surveyed, none think that company sponsored research is ‘very useful’ and 36 percent say that it is ‘not useful’, begging the question of whether it is worth companies shelling out for such research. In contrast, buy-side firms have much more time for independent research they have commissioned themselves, with 24 percent of respondents saying they find it ‘very useful.’

Better IR needed
It’s all too easy for small companies to feel they’re getting a raw deal from the analyst community, but are they really doing enough themselves to boost their profile with investors? Jimmy Burns, co-manager of Berenberg Bank’s small and mid-cap fund, thinks not.

‘The root of the problem in the UK lies in the underdeveloped role of investor relations,’ he says in the report. ‘While the UK has arguably the most developed small-cap industry in the world, the small-cap fund manager still encounters barriers to information which, perhaps surprisingly, are less prevalent in continental Europe.’

On the continent, Burns explains, companies send out comprehensive information on a regular, often quarterly, basis and ensure that their investor presentations are accessible to those who do not already know the company. It’s an altogether different picture in the UK. ‘By contrast, I find that [UK] companies are often hard to access and information flows are poor,’ he continues. ‘Companies typically depend on their house broker to organize meetings and to control access to management, resulting in a disproportionate amount of time being spent with a small number of existing shareholders.’

But Burns believes there is hope, and that UK small caps have a good opening to prosper on the back of Aim’s current buoyancy. ‘The UK has a fantastic opportunity to build on its reputation as a premier location for trading in small caps,’ he concludes. ‘The routes to company access have become stale and need revisiting, and objective secondary research needs to be encouraged to maximize this potential.’

Thanks to IR Magazine for allowing us to bring this article to you.

Early in the year, Section 404 compliance hung like a weighty yoke around the necks of US listed companies. It sucked up resources, diverted the finance department’s attention and, in some cases, put pressure on earnings. It consumed far more dollars than anyone ever imagined – an average of $4.36 mn per company, according to a survey by Financial Executives International (FEI), a leading professional organization for CFOs and senior financial executives.

On March 16 thousands of companies breathed a sigh of relief. Having completed their first round of internal control certifications on time, their yoke had fallen. However, some companies still bear the awesome weight of impending Sarbanes-Oxley Section 404 compliance. Among them are several hundred companies that requested filing extensions, non-calendar year companies, and those dubiously ‘lucky’ small caps and foreign issuers that won a reprieve from the SEC and don’t have to file until 2006.

Mixed results
Not only does Section 404 require companies to identify, test and certify their internal controls over financial reporting, it also requires their public accounting firms to evaluate and attest to the effectiveness of these internal controls. With companies and auditors bound to report material weaknesses that come to light during their intensive 404 reviews, there was much speculation about how the market would react to such news.

For the many IROs like Don Washington, whose company passed the certification, the experience was almost a non-event. ‘Our investors have had very little curiosity about the results of the certification,’ recalls Washington, director of IR and corporate communications at EnPro Industries, a diversified manufacturer of capital goods. ‘The only question we have gotten has been about the cost of the whole effort. We never had any concern expressed about our ability to meet the requirements.’

Lori Barker, director of IR at SanDisk, a major supplier of flash memory data storage card products, had a similar experience. ‘SanDisk passed 404 and I had very limited questions from Wall Street,’ she reports. Barker says her company spent an ‘enormous’ amount of time and money on the process. ‘For companies that failed, or delayed [their] earnings release due to 404 work, stocks were penalized,’ she adds.

Other companies found their valuation affected after reporting in line with Section 404. Credit Suisse First Boston (CSFB) tracked the stock price performance of 74 companies that announced a material weakness between October 2004 and February 2005.

‘We looked at their stock price performance for the 20 trading days before the announcement and the 20 trading days after the announcement,’ comments David Zion, accounting analyst at CSFB. ‘The day after the announcement was – for this group of companies – the worst-performing day in that entire trading period.’

As many of the companies included in the study were small caps, CSFB compared their relative returns to stocks in the S&P 600 Small Cap Index. ‘If you look at that group of companies, stocks were sort of heading down before,’ Zion points out. ‘With the announcement of the material weakness [stocks in the study] headed down even more the next day, and 20 trading days after did not recover.’

Zion describes what goes through an analyst’s mind when a company says it has trouble with Sox 404 compliance: ‘When a company announces a material weakness in internal controls, the initial thought process is, That’s not a good thing. Analysts wonder, Can it continue to put the same reliance on the numbers in the financial statements?’

Take control
However, Zion warns that the focus should be on the plans a company makes to correct the situation, not on the problems themselves. As he points out, when a company announces a weakness, it usually lays out a remediation plan. ‘You can take that as a positive,’ he stresses. ‘The weakness has been there, but it is getting fixed so, going forward, that’s a positive.’

Barker believes this is where clear communication is absolutely essential. ‘Each circumstance is different, but it is hard for investors to have time to investigate the specifics,’ she notes. ‘IROs owe it to the investor to make sure they clearly articulate the impact of the material deficiency and the fix.’

In evaluating companies’ Sox 404 announcements, investors need to consider the level of risk and uncertainty, according to Zion. ‘Investors should ask themselves a number of questions to try to get a feel for whether or not the company now appears more risky,’ he explains. ‘You need to ask questions like, Has the company had accounting problems in the past? What is the weakness? What line items does it affect? Does it, in fact, affect key performance metrics? Is it company-wide, or is it one item on the balance sheet? Now that it’s been fixed, would you argue that maybe there’s less risk? We would recommend that investors focus on the remediation efforts the company has laid out and how clearly it has laid them out.’

Zion’s approach also involves looking at what a company is saying about the material weakness and thinking about it in terms of how much uncertainty comes along with what it is saying. ‘[The biggest uncertainty is] when a company can’t comply with Section 404 and the auditor disclaims opinion – then the company has an incomplete 10K,’ he points out. ‘[The least uncertainty occurs] when both the company and auditor agree controls are effective and the auditor provides a clean opinion.’

For Zion, market reaction boils down to transparency. ‘The market doesn’t like uncertainty,’ he says. ‘To the extent a company can explain clearly how it is fixing these problems, I think that goes a long way to assuaging investor reaction.’

The bright line
Analysts, credit rating agencies and investors have received praise by some for how they’re approaching 404 results. ‘What I find very encouraging is that the investment community has been broadly sophisticated in its attempt to understand why companies have material deficiencies,’ says Paul Reilly, CFO of Arrow Electronics, which passed its 404 hurdle. ‘Remember, 404 is dealing with your system of internal controls. It does not mean your numbers are incorrect. It may be an indication that you need to invest more time, effort and better resources into a more efficient system of internal controls. But it also means you have the opportunity to ensure your numbers are correct through substantive testing.’

First time around, the learning curve has been pretty steep for everyone involved. There’s been some griping from companies about auditor inflexibility and lack of communication. Auditors have complained about companies getting started too late, or not placing oversight of 404 at a high enough level. And boards, management and investors have scoffed at the astronomical cost of compliance.

After the first round of Sox 404 filings, public company representatives, investor advocates, auditors, audit committee members, US regulators and other experts aired their comments at a roundtable convened by the SEC. Other stakeholders submitted comments for posting to the SEC’s web site. There seems to be a determination on everybody’s part to make the process go more smoothly next time around.

‘I’m encouraged by a sense of everybody understanding that the blame doesn’t fall squarely on any one party,’ says Robert Dohrer, partner in the national office of audit and accounting at McGladrey & Pullen and the firm’s co-national director of auditing services. ‘You know, management could have done a better job. There could have been more implementation guidance. The auditors could have used more judgment and more flexibility in determining the amount of work they had to do. There will be a lot of progress made to make this process more efficient going forward.’

Washington is hopeful his company has everything in place to make Section 404 compliance easier next year. ‘We thought it would probably be a one-person job with maybe a little bit of outside help, and it ended up being pretty much full time for three people with more outside help than we anticipated,’ he recalls. EnPro Industries has since added one person to internal audit. ‘We’ve got the process in place,’ Washington adds. ‘The people are here. It will be a question of continuing the things we did first time around.’

Reilly says that although his company’s Sox champions tested key controls at over 95 percent of the company’s operations around the world, he anticipates doing some streamlining next year. In April, while Sox 404 was still fresh in their minds, 25 high-ranking finance and IT executives at Arrow Electronics participated in a two-day summit for what Reilly calls a ‘did well – do better’ debrief.

The summit also provided a forum for the team to consider how it can be more definitive in identifying key financial controls and reducing the amount of testing.

Integrating 404
‘Sox 404 is not a one-off event, or something that companies can focus on late each year,’ notes Reilly. ‘It’s something you need to live each and every day. We’ve now aligned Section 404 with how we actually operate the company, with how we make strategic decisions around initiatives we’re carrying out in the company to make us better or more effectively streamlined. One of the really important lessons learned is that this really needs to become part of your living culture and how you drive the business forward.’

At the same time, Reilly acknowledges the somber side of Section 404, the side that’s causing the buzz. ‘We have to be very honest with ourselves and recognize that the processes required by Sox, especially Section 404, are a bit burdensome for companies, and a bit costly,’ he concludes. ‘What we are trying to do is drive it forward to ensure we get something more than just an opinion from our auditors. But it will be difficult to get those benefits from a financial point of view [to] be the same amount of money that it costs us to do Sox 404 compliance.’

Mirror, mirror on the wall – who’s the fairest CEO of all? Executive beauty contests are a dime a dozen today, but no one (to our knowledge) ever set out to determine which CEOs are most admired by IROs specifically for their prowess in IR.

So we decided it was about time and called up around 100 IROs working for US-based public firms and asked: who would you work for if you could work for any CEO in the country? Around 20 IR professionals answered us and their responses form the basis of this informal survey.

Job satisfaction among IR participants seems quite high: despite being told their comments would remain anonymous, two thirds of the IROs we spoke to identified their own CEO among their top choices. In fact, several nominated only their own CEO. On the flip side, one IR person responds candidly: ‘Well, it’s certainly not my CEO – or any in our sector!’

Respondents also offered interesting insights into what makes a CEO IR-savvy. ‘CEOs are so much better today because they have grown up in a generation that appreciates the value of IR and are willing to have relationships with investors and the Street,’ says one IRO who has worked with five CEOs over a two-decade career. ‘Old-style CEOs played a game of making themselves a scarce commodity to make themselves feel important. That’s out of fashion now.’

‘Great CEOs recognize they have an obligation to their shareholders and understand it’s part of their job to help investors understand the direction of the company as well as to guide the company in that direction,’ says another IRO. Clearly IR is a critical part of a CEO’s job description – and those featured below appear to be taking that responsibility seriously.

The winner
Jeffrey Immelt, the ninth chairman in General Electric’s history, took over the company reins from the legendary Jack Welch four years ago this September and was the top choice among IROs as the best CEO to work for in the US.

A GE-lifer who came to the company fresh out of Harvard Business School, Immelt garnered an honorable mention in the category of best IR by a chairman, president or CEO at the IR Magazine US Awards in March of this year. He was nominated in an independent perception study* of buy-side analysts and fund managers, sell-side analysts and retail investors.

According to one survey respondent, ‘[Immelt] is the best conveyer of strategy and growth prospects’ – so it’s hardly surprising that IROs clamored to join the investment community in heaping praise on him. One IRO describes him as simply ‘awesome’, another says he is ‘great to work for’, and several say he ‘just gets it.’ One IRO who met Immelt was ‘blown away that this fellow running all GE’s global businesses was able to stop and make intelligent conversation in depth about the capital markets.’ IROs who ranked Immelt as their top CEO felt it was no coincidence that he was also running a great company.

Bill Cary, VP of corporate investor communications at GE, says: ‘Not only does Immelt take IR seriously, but he also invests much of his personal time in making IR successful.’

* Investor Perception Study, US 2005. Published by IR magazine. Available from ali@irmag.com.

Runners-up: The following CEOs received several nominations from IROs across the US

Setting the tone
Anne Mulcahy, like Immelt, is a lifer at her company and took over as CEO in 2001. One IR respondent says she ‘sets the tone’ for IR at Xerox, and is often praised for her efforts throughout the company’s restructuring. ‘She hasn’t had an easy job but she’s stayed right out there,’ says one respondent.

Her own IRO also sings her praises. ‘Anne is an exceptional leader who recognizes that driving revenue and shareholder value is a job shared at every level of the organization,’ says James Lesko, vice president of investor relations at Xerox. ‘We have an extremely talented, diverse and committed work force. Her leadership has helped reinforce a culture of ownership and a common objective to drive the company forward to growth.’

Filling big shoes
Stepping into Michael Dell’s shoes and showing the investment world how well they fit really impressed some IR respondents who named Kevin Rollins as someone they’d like to report to. ‘He understands how to present an investment thesis,’ notes one respondent. Others marvel at Rollins’ ability to make Dell’s complex story seem simple.

That her boss was chosen for this honor is no surprise to Dell’s vice president of IR and corporate communications Lynn Tyson. ‘Every IRO wants a seat at the table,’ she explains. ‘Kevin not only gives me that as a member of Dell’s global executive management committee, but he also expects me to use it. He challenges me personally to be a business executive first and an IRO second.’

Celebrity stature
‘It just seems like he’s really with it,’ intones one IR respondent in nominating John Chambers as the best CEO to work for in the US. Chambers, who celebrated his tenth anniversary as CEO of Cisco Systems in January, took over the helm when revenues were a measly $1.2 bn. Because he’s out front and center, many IROs feel assured Chambers is a willing participant in IR.

Another respondent cast his vote for Chambers on the basis of what he’d heard from insiders at Cisco, who describe him as ‘genuine’ and give him high marks for investor relations.

All true, certifies vice president of investor relations Blair Christie. ‘John recognizes the value of a strong relationship with the investment community,’ she says. ‘He is very balanced, open and transparent, which makes our job as IROs easier.’

Level playing field
In spite of rumblings stirred by the imminent publication of an unauthorized biography (which, according to the New York Times, confirms Jobs’ obsession with information control), several IROs fantasize about working for tech visionary Steve Jobs.

‘Any successful person has high standards,’ says one IR person. Never mind the rumor that Jobs will have nothing to do with investors – a chance to take a crack at working for this icon is what excites those who name him. The reality is that Apple’s IR goal is to provide a level playing field, which it does by allowing no contact with anyone, explains Gene Munster of Piper Jaffray – so it’s up to analysts to figure out what’s going on without the benefit of interaction with the company.

LONDON – CEO remuneration at large-cap companies is growing faster than company profits, thanks to a surge in 'performance related' pay this past year. So concludes a recent survey conducted by Independent Remuneration Solutions (IRS), a London-based executive compensation advisory and Manifest, an independent corporate governance and proxy-voting specialist in the UK.

BUDAPEST -- The online corporate data provided by listed companies in Greece and Turkey is on par with that obtainable from their counterparts in Central & Eastern Europe (CCE), according to a new survey by the Budapest-based Partners for Financial Stability (PFS) Program.

Earnings guidance isn’t what it used to be. But then, you knew that. A recent study by the National Investor Relations Institute (Niri) of 527 IROs shows a distinct trend toward longer-term perspectives in giving guidance. Moreover, the number of firms willing to give guidance fell to 71 percent from 77 percent in 2003.

CIRI is your association. Conferences and seminars are refined based on your feedback. New products and services are developed in response to your questions. When we talk to regulators, we speak for you.

Investor Relations Global Ranking (IRGR) developed IR websites ranking to provide feedback and benchmarks for companies to improve their online communication.

Canadian Investor Relations Institute and PrecisionIR announce the results of an Investor Survey.

The latest Harris Poll of most respected occupations finds journalists in the bottom five, smack between accountants and bankers. Investor relations officers aren't included on the list, but judging by the respect paid IROs by some of the least respected, their prestige has bottomed out.

Thanks to everyone who participated in the 2005 Compensation and Responsibilities Survey. Your complimentary copy of the results have been mailed to you. These survey results are available for sale to non-participants - $300 member/$500 nonmember - through the Resource Library on www.ciri.org.

Proxy Protocol, the industry rulebook for proxy validation and related issues, has recently been updated for the first time since 1991. Much of the document is still valid for today's purposes; however, developments like NI 54-101, changes to statutes, the use of technology to promote voting by Internet, and telephone and electronic delivery, require an overall revision to protocol.

Newsline Volume 15 Issue 2 - Canadian IR Practitioner

There's nothing like the prospect of a little jail time to help focus the mind.

As the definition of what constitutes governance expands, so too will the board's reliance on the investor relations officer.

Director Compensation Study
Newsline Volume 15 Issue 1 January 2005

DOES Corporate Governance MATTER TO CANADIAN INVESTORS?
BY STEPHEN R. FOERSTER AND BRIAN C. HUEN
FALL 2004 • CANADIAN INVESTMENT REVIEW