Rumours of the demise of the annual report are greatly exaggerated, if leading Canadian companies are any indication.

It’s true that the traditional annual report may be nearly dead – the kind that served as a ‘tour of the empire’, exhaustively and exclusively describing a company’s projects and properties. On the other hand, annual reports that make a compelling case for investment, discussing sustainability and good corporate citizenship, are popping up everywhere, as leading companies experiment with new formats and approaches to making information relevant to shareholders.

TELUS is a case in point. “We view the annual report as more than reporting our

Do-it-yourself publishers are stealing mainstream media’s thunder, as Betsy Pisik discovers

Bob Lutz, vice chairman of General Motors, enjoyed his recent tour of dealers and auto shows in central Europe, where conversations with industry peers, sales reps and even Vienna’s showbiz elite gave him the opportunity to ‘debunk the myth’ that the automobile giant is on the skids.

Bob Langert, senior director for corporate social responsibility at McDonald’s, is pleased that so many of the chain’s meat suppliers are reducing their use of antibiotics. And Anne Stanton, president of a tiny technology consultancy, the Norwich Group, was feeling wistful on a recent weekend because she had to stay at her desk while her family was out enjoying the beautiful Vermont weather.

It’s easier than ever to know what’s on the minds of corporate leaders, because so many of them have begun blogging – and more will soon follow, driven by a gradual embrace of technology that will allow them to communicate directly with investors, customers, suppliers and employees.

Seven percent of the top executive officers of the largest US companies have already begun to post their thoughts on the internet, and 19 percent are highly disposed to start blogging, according to a recent Burson-Marsteller/PR Week poll. Some of the biggest names in industry post their thoughts several times a month for anyone to read. As with any blog, the subjects and tone vary with the executive, from the breezy boosterism of AOL’s Ted Leonsis to the geek-speak of Microsoft and Sun Microsystems.

The best blogs, say the experts, are the ones that are intrinsically part of the company’s communications strategy but are clearly written in the voice of the author. That means short postings, probably at least once a week, in which the executive muses about the company, industry or issues that are somehow relevant. Done properly, a blog allows readers to better understand the business, get a feel for the management team, or learn about a product.

Just as importantly, blogs provide an easy avenue for customers and others to communicate with the company – a delicate issue that can be decisively turned to the company’s advantage. ‘Corporate blogs are great if they get lots of feedback,’ says Leslie Gaines-Ross, who as knowledge director for Burson-Marsteller advises CEOs on information sharing and the internet. ‘It’s like having many, many focus groups, and you can get a lot of people responding at once.’

An official blog is not likely to be the IRO’s responsibility, but it is important that the investor relations department – or legal, or public relations – establish guidelines about what information is not acceptable on the site. The IRO will probably not ghost the boss’s blog, but if the subject involves stock activity, raising money or issues investors have been asking about, the department should certainly vet it, experts say.

Pretty much anything
Back in 1997 the first online journals appeared under the moniker ‘web log’, which playfully became ‘we blog’ and subsequently wound up simply as blog, both noun and verb. At its most primitive, a blog is a series of chronological entries about pretty much anything, often lavishly strewn with links to other spots on the web. A blog usually allows readers to post comments, although an administrator can vet what is actually put onto the site. But perhaps the most important thing to know about blogs is that before long, your chief executive will have to have one.

‘The CEO blog will become more mainstream by 2010 or 2012,’ says Gaines-Ross, an architect of the Burson- Marsteller/PR Week poll of CEOs. ‘The blog will be the new e-mail address,’ she continues, adding that the form’s easy mix of immediacy, informality and directness makes it an important communications tool.

Communications and legal experts stress that, despite the seeming informality of a blog, it is a form of corporate communication and is therefore subject to libel, privacy, copyright, trade secrets and Reg FD restrictions.

‘I always caution people that with all communications, from a newspaper advertisement to an employee-only blog, none of the rules change,’ says Paul Arne, co-chair of the technology, privacy and security groups at Atlanta law firm Morris, Manning & Martin. ‘Anything you worry about on the web site, you need to worry about with all your communications.’

But the informality of blogs is also their power. The blogosphere – once the undisputed home of sexual boasting, trivia sharing and political ranting – is a surprisingly receptive avenue for CEOs and boards of directors to communicate about whatever’s on their minds or crossing their desks. Blogs allow executives to communicate directly and immediately, bypassing the media to respond to news or current concerns.

Blogs don’t need the gravity of the annual report’s preface, and they aren’t the carefully worded messages that come from investor roundtables and newsletters. Because they are conversational, blogs should breathe – but they should not be an unedited, highly personal stream-of-consciousness diatribe. Even when the exec himself writes the entries, the odds are good that someone in legal, IR and/or PR has sifted through them for questionable content. So if Lutz is reveling in the beauty of the new Saturn, well, what did you expect – Dennis Koslowsky’s shopping adventures? Blogs shouldn’t take that much time to craft – a quality that 50 percent of the CEOs in Burson-Marsteller’s poll don’t seem to appreciate, because the time it takes to produce a blog was cited as their primary reason for not starting one.

Scouring the blogosphere
It’s always hard to know how many analysts or fund managers are scouring the blogosphere looking for insight, but there’s plenty out there for the harvesting. ‘The value of these blogs is self-evident,’ says Arne. ‘I would think that anything directly from the mouth of a CEO of a publicly traded company would be of interest to investors. Any analyst worth his or her salt will listen to what a senior executive says, even if it’s not breaking news.’

Arne also notes that some companies have blogs from different departments that can offer some insight into product development, business glitches, customer satisfaction and other indicators that affect the business and eventually the share price.

But Gaines-Ross, who advises CEOs and clients on information sharing and leadership, disagrees. ‘I can’t imagine anyone would think it’s a good thing for the CEO to spend his time blogging,’ she asserts. ‘He should be out talking to customers and attending meetings.’

One exception, Gaines-Ross says, would be a blog from a chief executive involved in a turnaround or restructuring, as his or her thoughts and insights during that period would be very enlightening to investors. Experts caution against allowing a blog to burnish the image of the ‘celebrity CEO’, making the argument that no one benefits from having an executive who is more famous than his or her company.

Honest feedback
One undisputed benefit of the blog is the immediate and honest feedback it provides. Not only do readers have an easy way to respond to anything they see on a blog, but your company can also measure traffic on the site – and whether it spikes around the times earnings are released, or on a day of big industry news.

But this element of feedback is the thing that unnerves many IROs and CEOs the most. If people rant, criticize or complain, they say, it won’t reflect well on the company or the executive. This isn’t necessarily true, however. Experts like Charlene Li, a technology consultant with Forrester Research of Boston, say it’s better to address legitimate criticism or issues openly. It’s preferable to have someone complain to you than to have them complain about you in a forum where you can’t respond, she says.

Experts also suggest monitoring other blogs and web sites for mentions of your company or industry. A number of blog-specific search engines have sprung up to make it easier, including Bloglines, BlogPulse and PubSub. Some of these allow limited searches for free, while others will set up custom programs to help you stay on top of your brand in the blogosphere. One site, Technorati, pretty much does it all.

Look out for blogs by hedge funds and sell-side analysts who write about the industries and companies they follow. Read them carefully, but don’t expect much. Among the less scrupulous, a negative mention might be the work of a short-seller. The more ingenuous might be trying to shake loose rumors or information that will be used more selectively. But if others are reading these blogs, you’ll want to know what they say.

While you’re at it, try to keep abreast of sites or blogs used by shareholder activists.

A cautionary tale
Some companies are forgoing the public blogosphere for private, internal discussions. For example, a CEO blog can be a strong communications tool for the corner office to stay in touch with a far-flung workforce. But remember, even if it’s password protected, what is said on the internal blog is not likely to stay there. Today, everything that is electronically sent out or dialed in is easily disseminated by a few clicks of the mouse. Consider the cautionary tale of Lee Scott, Wal-Mart’s CEO, whose peevish employee-only blog was so filled with contempt for managers and labor unions that it was reported on the front page of the New York Times business section earlier this year. If you’re trying to get your CEO’s blog noticed, make sure it’s in a good way.

There are something like 70,000 new blogs launched on the internet every day – a lot of clutter for anyone to weed through, regardless of how interested they are in what your corporate leaders have to say. Experts suggest linking to other blogs and dropping names that would be of interest to your target audience. Reference any blogs on your corporate web site, and consider pushing the blog to interested readers via e-mail or other means.

Above all, make sure your blog is worth finding. If your CEO can’t come up with enough interesting things to say or articles to link to, find someone else in the company who can keep the conversation going.

by Betsy Pisik

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

Ian Sax talks to six experts about faster filing, virtual deal rooms and electronic proxy distribution

Financial printers are now far, far more than just printers. Over the last two decades, as the SEC and issuers started going paperless, financial printers recast themselves as proponents of new technologies for corporate filings and deal-making.

David Shea, Bowne
‘Clients are holding on to documents longer and coming to us later in the cycle, so we may be down to hours instead of days – that’s a challenge for the industry,’ says David Shea, president and chief operating officer of Bowne. ‘We’ve created a global composition network so we can work locally or, if we’re overloaded, we can distribute the job to our network and then bring it back to the client in a timely and seamless fashion.’

The trend, both in the US and globally, is toward more electronic distribution of documents, says Shea, though it’s unclear how far issuers will take electronic delivery. ‘We’ve put the technology in place for more selective print-on-demand capability,’ he explains. ‘We assist our clients in the editing, formatting and distribution of the documents – either printed or electronic – as well as filings to the SEC. Print distribution is really the last piece. And it’s the easiest piece.’

Services and products such as virtual deal rooms are just part of the new push into technology, Shea adds. The greatest transformation is the financial printer becoming more of a consultancy-based service provider.

John Waterlow, Corporate Mailing Matters John Waterlow, head of financial sales for London-based Corporate Mailing Matters, says regulatory changes are having the most significant impact on the business. The UK’s new Company Law Review, expected to be approved later this year, will move financial reports toward more digital distribution.

‘At the moment you get paper unless you’ve requested electronic distribution, and that would be reversed,’ he notes. ‘The companies with the largest shareholder bases are pushing for this, as they’ll see the biggest savings. But people have very different ideas about the consequences. It’s not clear what shareholders want. What is clear is that, five to ten years out, there will be far more electronic distribution than print.’

Waterlow also says new electronic formats such as XBRL are being embraced, allowing more information to be extracted more easily from company web sites than from PDFs. ‘This is reducing the demand for print runs of documents, too,’ he says. ‘You are also seeing the SEC relaxing rules for foreign issuers, which reduces the amount of print distribution.’

As companies focus more on the digital side of publishing, Waterlow believes financial printers are reequipping themselves with better technology to improve quality and make it all more affordable. ‘This is especially important, as reports and accounts are becoming more of a commercial document,’ he explains. ‘Companies are spending more of their budgets on the electronic side.’ David Wade and Steve Grandis, Doremus ‘With the increased public scrutiny that CFOs and IROs face today, the pressure is much greater for increased disclosure, plainer English and greater accuracy, all in a shortened timeframe,’ says Steve Grandis, executive vice president of Doremus in New York. ‘As a financial printer, all that pressure flows downhill to us. In response, we’ve moved to a desktop and digital environment that allows us to respond faster.’

Doremus can now offer on-demand printing: if a firm wants 500 books one day, and another 50 a few days later, Doremus can deliver. ‘A financial printer with printing presses alone can’t do that without great cost,’ Grandis notes.

The company recently partnered with press release newswire PrimeZone Media Network to expand its offerings. ‘We offer one-stop shopping to clients, from typesetting and Edgar filing to printing and distribution, all in electronic format,’ says Doremus president David Wade.

As for new formats like XBRL, Wade thinks it’s too early to commit, given the costs and limited use. ‘Web access delivery of IR documents will be another big trend,’ he predicts. ‘At least it will cause shorter print runs, which gets you back to the digital environment. You also have new rules on electronic access for proxies. Virtual data rooms are perfect for things like tracking who has logged in to review the proxy.’

Klaus Rainer Kirchhoff, Kirchhoff Consult ‘Clients today want more consultancy than just pure design,’ says Klaus Rainer Kirchhoff, chairman of the German financial printing company Kirchhoff Consult. ‘We have analysts with CFAs who can help companies on US Gaap, for example, and we have analysts for international accounting standards. This is what clients want – analysts to work closely with CFOs on content.’

Electronic formats are another major trend, Kirchhoff adds, noting that the German investment community wants more efficiency in annual reports, especially the internet version. ‘People want more on the pages, and they want better navigation,’ he says. ‘But digital versions are much less developed in Germany. What most companies have are PDFs on their web sites, and they’re not especially good. Only a few companies, generally the international ones, have a specialized digital version. These are more user-friendly and navigable.’ Kirchhoff sees the German market exhibiting a greater demand for digital publishing, but German companies are still slow to embrace newer types of financial communications. ‘It will take a few more years for the interest to grow significantly,’ he concedes. ‘But this is the trend. International investors use the internet more to get quick information, and with these digital versions of reports, you can offer this flexibility and be more up to date.’

Mike Schlanger, Merrill Corporation
‘Sarbanes-Oxley is affecting everything,’ says Mike Schlanger, New York regional vice president at Merrill Corporation. ‘Many of the rule changes have forced companies to put more time and attention into routine disclosure, and that has shortened timelines.

‘For example, more and more companies wait until the last few days to file their 10K or 10Q, so less time is allowed to manage the documents and prepare for filings than in the past.’

Among new services offered by some financial printers is the virtual deal room, which ‘has changed the practice of M&A transactions,’ Schlanger says. ‘In terms of integrating two companies following a merger, virtual deal rooms are extremely helpful – fully searchable down to the page, rather than by PDF, for example.’ The problem with PDF is that you can’t isolate individual words or numbers.

Of course the greatest change on the horizon is the move from paper to electronic proxy materials as recently proposed by the SEC. The implications for financial printers are obvious, but what about issuers?

‘Every company needs to determine the character of its shareholder base and make sure it is responding to the needs of that base in terms of delivery,’ Schlanger says. ‘IR folks need to discuss the best way to address their shareholder communications.’

by Ian Sax

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

Phoenix IR’s Gill Newton finds fund manager Alan Torry has the trigger point for tech investments in his sights

Alan Torry is one of London’s most experienced fund managers, having been on the buy side since 1972. Today he’s head of technology and US investments at SG Asset Management (SGAM) UK and responsible for managing equities worth $430 mn, which includes SGAM’s three global technology funds, worth approximately $200 mn, and its US funds, worth around $230 mn.

How would you describe your investment style? We try to identify the key cycles in technology. Satellite navigation is one of our themes at the moment and it stretches from software and hardware to semiconductor companies. Those themes are far more important than weightings in sectors.

Why so optimistic about the outlook for technology? The consumer has saved on technology in the last few years. Consumer demand never really existed a few years ago; it was corporate demand. Then the key was playing the cycles: mainframe to mini-computers to PCs, and so on. Now the consumer is probably 50 percent of the demand for technology.

That rate of growth will slow because we think the American consumer is a bit stretched so we are looking for corporations to pick up some of that slack. We are getting close to the trigger point but we are not quite at the stage where companies say, ‘We need more equipment to grow our businesses.’ I think that is the next leg.

How many companies do you meet with a year? In tech, typically 60 a quarter but if Hugh [Grieves, co-manager of SGAM’s technology funds] and myself are out at conferences or on the road, that figure will be higher. I would say between 250 and 300 a year.

I prefer companies coming in to see us. I might want to see them when they don’t have a story to tell; they might want to see me only when they think they’ve got something to say. Hugh and I each go to the US twice or three times a year, and to the Far East every year or every other year. We also visit UK, European and Israeli companies.

How does meeting management help you? When you meet with a company you spend time understanding its business because that is the key reason you are seeing the company, but you also get an enormous amount of value asking it about suppliers, and who it respects in the industry.

Even with Reg FD, management can say an awful lot about the industry so the value in those snippets of information if you ask the right question is extremely valuable.

Who do you want to see?
In most companies you want to see the CEO – and the smaller the company, the more important the CEO is. As the companies get larger, divisional heads become important. For small and medium-sized companies, you need to understand what motivates the CEO.

I’m happy to see the CFO, though I’m more skeptical about seeing IR. Some of the big companies have IR that is designed for PR rather than IR, and I think they damage themselves. They should tell it how it is.

If the company explains its problems you have more confidence that management knows the way out of those problems. But if management glibly goes along and says everything’s wonderful, you do not know what risks you are taking – and understanding the level of risk you are taking is crucial in this business.

Do you invest in companies if you haven’t met with management? Yes, but not often. We write notes for every company we hold and every company we meet, and if we haven’t met a company in the last year, we’ll have to do a holding note. That’s rare. We therefore get fairly close (90 percent) to seeing every company we own once a year, minimum.

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

With two regulators looking on, IR at life sciences companies is getting a lot more complex.

other heavily regulated industries in the US, the stakes seem more dramatic in the high-risk life sciences sector becauseit is under the watch of two federal regulators: the SEC and the Food and Drug Administration (FDA). ‘Biotechs are subject to more scrutiny than most companies because of the FDA,’ acknowledges Arthur Gabinet, district administrator of the SEC’s Philadelphia office. ‘Because biotech companies’ financial futures are so heavily dependent on the outcome of the FDA regulatory process, the two regulatory parts are on a collision course.’

Executives at VasoActive Pharmaceuticals may have assumed no-one really followed the FDA’s approval process when they began issuing a stream of statements about new medications they hoped to bring to market. The company said in its July 2003 IPO filing and other public statements that three treatments for athlete’s foot and arthritis had already received FDA approval for over-the-counter sales. VasoActive also claimed that ‘independent physicians’ at the prestigious New England Medical Center (NEMC) had supervised six-year trials of the new compounds and found them to be effective.

In both cases, as dismayed shareholders discovered, the truth was far less celebratory. In April 2004, with the share price already beginning to slide, the SEC abruptly halted trading for Massachussetts-based VasoActive, alarmed by what it described as misleading statements about FDA approval. This was only the beginning of the firm’s troubles.

A month later, shareholders filed a class action lawsuit, noting that none of the products had FDA approval. And the drug trials, they claimed, had not been performed by NEMC physicians but by a single podiatrist – who had been hired by VasoActive’s parent company, BioChemics.

With the plot thickening, VasoActive former president and CEO John Masiz last August agreed to settle the suit, paying an SEC-imposed $80,000 fine and accepting a five-year ban from serving as an officer or director of a public firm. The company never acknowledged wrongdoing.

Like VasoActive, some of the biggest names in life sciences have recently paid out in the multi-millions to settle criminal or civil suits based on violations of Regulation FD and other SEC rules. Schering-Plough and Bristol-Myers Squibb are among those that have been snared for violating basic fair disclosure rules.

Under the radar
While not all cases involve questions surrounding the FDA approval process, the SEC is particularly attuned to exaggerated prospects for a new drug or compound that willfully misleads investors and the public. To companies’ credit, however, the rules for compliance are confusing, making firms more vulnerable to SEC investigation. Often, experts claim, the founders of these companies – scientists or doctors with no business background – just don’t know any better.

‘Few companies want to cheat – it’s more often a difference of interpretation on reasonable disclosure or material information,’ explains physician and attorney Gregory Glover, a partner with Ropes & Gray who advises biotechs on their disclosure strategies. Regulations were drafted by lawyers, not research chemists, he adds. Often, scientists and doctors don’t apply the same focus to SEC filings as they do to the painstakingly detailed lab work they carry out.

At the same time, over-zealous business people can misinterpret the meaning or value of a preliminary FDA finding, leading them to issue a press release saying their product has been shown to have efficacy or promise in an FDA Phase I trial. But experienced researchers and investors know this is not newsworthy.

A fine line
It’s getting increasingly difficult for companies to paper over an honest misunderstanding or stupid mistake, however. Last year the SEC and FDA negotiated a memorandum of understanding allowing investigators to better cooperate. The two famously insular agencies have already collaborated on several SEC-initiated investigations, and observers say it could make more litigation almost inevitable as companies fall foul of one regulatory body while trying to please the other.

Of course, there are guidelines to help companies from committing the obvious mistakes. The first lesson, experts say, is not to disclose too little, or too much. If a company sends out a press release every time it hits a small milestone or receives some promising news, it’s setting a very communicative precedent it might be obliged to maintain.

‘The way the law works, unless there is an event in the life of a public company that is earthshaking, there is no need to discuss it,’ says Gabinet. ‘But once you talk you must keep updating the record so people don’t keep thinking the last public guidance is the latest and most definitive word on a situation.’

In other words, if a company trumpets its incremental triumphs, the investment community and the public reasonably assumes it will also acknowledge setbacks and uncertainties. In the case of biotech IR, it’s important to be aware that early disclosure decisions can be binding for a long time. Product development can take at least five years and tens of millions of dollars, so patience is the most valuable trait you can find in shareholders.

Former SEC enforcement specialist Elizabeth Gray, who is now securities defense attorney in the Washington office of Foley & Lardner, says one good way to get out bad news is to announce it in regular 10Q filings, along with any upbeat information. ‘That usually works, but be sure you can do it in a timely manner,’ she adds.

Avoiding temptation
In biotech, where only a fraction of ideas reach Phase III human testing, and only a fraction of those mature into profitable products despite the tens of millions of dollars invested in each, the lure of the quick hit can be too strong to resist for some company insiders. ‘You have no idea,’ says an exasperated Gray. ‘I tell my clients the SEC can easily build an insider trading case.’

Gray warns that federal authorities can track every stock trade during a finite period – for example, the days before a major announcement – and can readily investigate if they see something suspicious. ‘You have to put the fear of God into your people,’ she says, suggesting starting with a healthy wariness about computer messages. ‘E-mails are rarely benign. I advise all my clients to be prepared to see their e-mails on the front page of the newspaper.’

You might think investors in the volatile world of cutting-edge medicine would welcome all this oversight. You might think it would help them make informed decisions. But closer collaboration between the SEC and the FDA (not to mention the demands of Reg FD) is not making it easier for portfolio managers and analysts.

Even the most specialized biotech investors, who presumably understand the unique risks and roadmaps of the life sciences industry, shake their heads when it comes to deciphering the latest release from a company with a drug or device in the pipeline. A press release trumpeting the results of the latest phase of FDA testing could be desperate fakery, genuine misunderstanding or the real deal – there is no way of knowing.

‘The problem from an analytical standpoint is relying on what the company says,’ points out Buddy Lyons, senior vice president of research at Memphis-based Stanford Group. ‘The FDA is just a black box; we don’t know what it really said. In drug development, there are lots of euphemisms that are hard to clarify or nail down. As an analyst, I wish a lot of this could be verified. But you know the agency will never talk to you.’ Reg FD hasn’t helped Lyons out much. Since its passage in 2000, companies are putting out more press releases and public statements, but executives rarely venture beyond that. ‘They put out more statements but they’re not saying as much as they used to,’ Lyons complains. ‘Today, you can no longer speak to an executive candidly. We’ve got more information but it’s not as insightful.’

Gabinet thinks investors demand too much information, however. ‘Some of these equity analysts are like paparazzi waiting for Britney Spears!’ he laughs.

Looking ahead
It doesn’t look like things will get any better for IROs at biotech companies. Watchful regulators, ambitious scientists, increasingly cautious investors and a voracious media will continue to complicate these companies’ IR strategies.

Consider the case against Merck & Co, which was forced to withdraw popular anti-inflammatory drug Vioxx last October after it was found to contribute to heart attacks and strokes. The FDA contends the pharmaceutical giant knew for years about the side effects of Vioxx, a charge the company denies.

As patients scramble to find new treatments, advocacy groups are demanding the FDA create a new drug registry and post its own findings – and possibly those of the drug companies – on web sites. The information will, of course, be available to doctors and patients who want to read up on the statistics and case studies and make their own decisions about whether to gamble with a new product or prescription. But the data trove, presumably, will also be accessible to lawyers and investors. So the question is: what impact will this have on late-stage fund-raising and long-term investment?

Few life science companies are enthusiastic about the proposal and the industry trade group, the Biotech Industry Organization, is preparing to resist if necessary. Glover says companies must adopt standard operating guidance on what information to release and when, and how to do it. Too often, he says, the only preparation is procedural rather than tactical. ‘Most [FDA] information is proprietary,’ he observes.

IR needs to be aware the FDA and SEC are carefully scrutinizing communications. As Glover says, ‘The agencies are allowed to ask each other for clarifications – and the indications are that they’ll do it more often.’

by Betsy Pisik

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

Mike Reilly says the SEC’s new chairman is a tech head

Twin moves on the technology front late in 2005 were warning shots for any company filing with the SEC. In fact, they’ll have profound effects throughout the securities markets.

In October 2005 the SEC called for an update on the state of XBRL handling mechanisms. XBRL is a software language that makes every number in a document easily identifiable. Unlike a paper document or even an electronic PDF, XBRL lets you find, compare and analyze information at computer speeds. The SEC said it wanted to see what the state of play is on this subject, both to understand the landscape and to uncover new technologies it could put to work.

One of the goals of XBRL – or of an alternative, should one exist – is to give commission staff the ability to analyze company data more rapidly and to identify problems, including fraud, more rapidly and more cheaply. But to get to that point, they have to know what tools are available.

Meanwhile, the SEC has said it is time for a new contract for Edgar, the commission’s database of filings. It was heralded as a major step forward when first brought into play nearly 20 years ago, but is now quite long in the tooth. Fortunately, this is understood by the man heading up technology at the SEC: chief information officer Corey Booth.

Leading the charge
‘Government is usually at the trailing edge: as long as everyone else is doing it, we’ll do it, too,’ notes ex-McKinsey consultant Booth. ‘Now we are a lot closer to leading the charge.’ Booth arrived at the SEC in 2004, just as the commission was showing real interest in what XBRL can do. He is cagey about details of the new SEC push but his boss, chairman Christopher Cox, is far from a wallflower when it comes to using the latest technology.

Cox is new to SEC leadership but he has taken a very active role in promoting and pushing for what the commission likes to call ‘tagged data’: a speech at a fall meeting of the Securities Industry Association urged filers to get into XBRL. Another, at a joint meeting of the American Institute of Certified Public Accountants (AICPA) and the SEC in December praised the accounting industry’s leadership, and even a televised address to technocrats gathered in Tokyo talked the deep mumbo-jumbo of XBRL implementation. This all reveals a technically hip regulator.

‘He sits in on a lot of our meetings,’ says Booth. Having the boss at the table when tech issues are being chewed over is the sort of thing that marks the difference between leading edge and simply riding in the wake of advanced companies in the corporate world. At a government agency, it is almost unheard of.

In addition to ‘getting it’ when it comes to the advantages of using XBRL, Cox knows there is a big bonus for the SEC. Among the onerous rules that grabbed headlines under Sarbanes-Oxley is a requirement that the SEC audit all listed companies once every three years, causing a major drain on staff and the budget. The new automated software processing will massively streamline that.

Freeing up the human and financial capital also means more resources to apply to the task of finding fraud and acting on it. Thus, when fully implemented, a new Edgar with XBRL will mean a commission with more teeth.

Beating the drum
All this makes some observers say a real sea change may be at hand after years of circling the issue. Accountants and some international bodies have been active in pursuing XBRL but the vast majority of US companies have been slow to act. Fewer than a dozen have been involved in the SEC’s test of XBRL filings, begun last April.

But change is in the air. ‘We have spent the last year laying the core technology in Edgar, as well as pursuing the rule-making and beating the drum to get more momentum, increasing the number of filers and getting industry behind it,’ explains Booth.

IR officers may well hear the message from their company secretary or finance department. In December the president of AICPA, Leslie Murphy, told a joint SEC-AICPA meeting, ‘Over the last year we have focused attention on how XBRL actually improves registrants’ communications and connection with their investing public. The question you should be asking yourself is, Why would my company not support making investors better informed? Next year, we should be reporting that hundreds of companies are filing using XBRL.’

Frank Fernandez, chief economist at the SIA, was there when Cox made a call for action at the late fall SIA meeting in Boca Raton. ‘This is a migration that has been going on quietly for years,’ Fernandez says. ‘Yes, I think we will see companies in their hundreds using XBRL for filing by the end of 2006.’

Faster, easier, cheaper
Cox is noted for his can-do work on Capitol Hill. And he knows how to make people sit up and take notice. While his evangelical work on XBRL includes points about speed, efficiency and usefulness of data that can be parsed by computers, he also throws in a line that grabs C-level attention. ‘It can make it easier, less expensive and less time-consuming for companies – and their accountants – to comply with SEC reporting requirements. It is not mere wishful thinking that interactive data would make it possible for a significant part of the 404 work to be automated,’ Cox told a Washington gathering.

At a time when 404 requirements, which companies have complained are very costly to meet, are starting to become somewhat more routinely seen as a cost of doing business, Cox’s pointed comment on savings isn’t likely to be ignored. But just how fast will things get moving? The new contract for Edgar will be awarded by mid-2006. Obviously getting the replacement system underway will take more time. But the SEC could move more quickly on XBRL rule-making, perhaps getting it parallel to the technical development.

In a November news release, Cox said: ‘During the next twelve months the SEC will move beyond the Edgar concept of electronic filing of paper-based forms to an interactive data concept in which investors can have instant access to data that’s ready to use in many software applications on their desktops.’

No-one at the SEC will be drawn on when XBRL filings might become mandatory, but change is in the air. While vested interests often obstruct new initiatives if they fear closer perusal or added costs, the commission says its early feedback is encouraging. ‘I don’t think we have any political problems,’ says Booth. ‘The issue is how to proceed, not whether. The day I will know we have won is the day you have hedge funds making money in trades from SEC filings.’

by Mike Reilly

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

Betsy Pisik reports on web-based tools for tracking news and analysis

One of the many things that can keep investor relations and corporate communications experts awake at night is wondering how their companies are perceived. Do investors and fund managers believe your company is well run? Is your industry stable? Is your stock fairly priced? Are your top executives respected?

Trading activity gives some answers, but it’s only the beginning. Are suppliers and customers confident of their relationship with the company? Do local lawmakers, journalists and union leaders view it positively or with some suspicion? Is the business a likely candidate for takeover? Would it make an attractive merger partner? How do market participants view your peers?

The answers are crucial for IROs wondering whether their message is really getting out there. After all, there’s more to any company, regardless of size, than its quarterly earnings. Beyond the IR department, banks, brokerage firms and investment managers are undergoing a transformation. Driven by regulatory demands, their need for data for risk evaluation, due diligence and compliance is growing.

Beyond the search engine
For an outside view of your company and your peer companies, you could just use Google, of course. But that picture would be superficial, a grainy snapshot taken from far away. Experts say the service, while free and omnipresent, is not omniscient. Google and other search engines trawl only what’s available on public web sites that are already widely trafficked.

And for all the information floating around, there is surprisingly little available on private companies, a blind spot many publicly traded corporations, banks and other businesses can no longer ignore. Some proprietary services are beginning to offer insight into these often powerful companies.

Free online aggregation services offer little history, updating records so frequently that finding basic information – such as a stock price on a particular date – may be nearly impossible. There is also a problem with accuracy and credibility, as anyone who has meandered across cyberspace for stock tips or just reliable corporate information has noticed.

Few companies have the resources to check the credibility of an internet posting, which would require immediate scrutiny by experts in the marketplace. In any event, many periodicals don’t publish web sites to trawl, or don’t post complete content to non-subscribers.

Knowledge universe
To be fully invested in the knowledge universe, companies need proprietary information tailored to their specific needs. To be sure, open source information has value – it is, after all, the currency of public discussion, and even rumors have a way of becoming true. But a more focused search of all relevant periodicals and web sites can yield a trove of real-time information that can benefit a variety of officers in any company.

A premium, fee-based service such as FPinfomart, a product of CanWest MediaWorks, can offer relief from the deluge by tailoring the information to the user. These services can save time squandered on searching for information, while providing access to relevant, qualified sources.

With that level of information, IROs can respond immediately to misinformation or news leaks, or tweak the investment story if it’s not being received the right way. CFOs can reevaluate their business landscape as it changes and make better informed decisions. Other members of senior management may need to be apprised immediately if the firm is rumored to be a takeover target or at risk of falling foul of regulatory changes.

In the financial services industry, in particular, it’s about managing risk – legal and regulatory risks, business disruption, challenges to public reputation, and so on. This is where proprietary information-gathering services come into play. Some offer bare-bones products that are slightly more targeted versions of a Google search. Others provide analysis and historical context to create a detailed portrait of your own company or any other.

That is what Beatrice Kerr decided Deloitte & Touche’s Toronto office needed. As Deloitte’s senior manager of business information services, Kerr works with experts who are often asked to evaluate a company’s stock price or long-term value – looking back five or even 20 years. Deloitte also keeps an eye out for companies or divisions worth acquiring by its clients, seeking management strength or other attractive assets that are not spelled out in publicly available quarterly filings.

Kerr, an FPinfomart subscriber, says: ‘Historical data is very hard to get with web-based products. FPinfomart offers standardized financial statements, benchmarking and comparisons, so the whole package is more useful and more authoritative.’

Knowledge workers and networkers know the value of sharing information. FPinfomart allows for collaboration among colleagues while respecting copyright obligations, which can in theory be a problem with free search engines.

Fine-tuned information
Kerr’s information needs are not unique, according to Arturo Duran, president of interactive services at CanWest MediaWorks. FPinfomart offers everything from a user-controlled electronic clipping service of 275 predominantly Canadian publications to highly customized information that can be finely tuned to the needs of different departments within a company.

‘It’s a holistic product from several sources,’ says Duran. The service produces its own proprietary content and partners with third-party media, market data and financial data providers.

FPinfomart is part of CanWest MediaWorks Publications, which publishes the National Post, the Financial Post and other leading newspapers across Canada. FPinfomart subscribers receive product line as well as third-party newspapers, trade journals, magazines and broadcast transcripts.

Unlike many web sites, which post only the top few inches of a selection of stories, FPinfomart captures all articles in each issue.

Most content is published online on the day of release. Several companies offer competing news services, including US-based Bloomberg, LexisNexis, Hoovers and Factiva (a Dow Jones/Reuters joint venture), but none focuses on Canadian firms. Thomson has a Canadian news division, but it gets much of its content from FPinfomart, Duran says.

The service provides deep coverage of Canadian companies and issues and includes information from experts in national and regional regulations and markets. That is useful to firms north of the border but can also benefit foreign firms with Canadian subsidiaries.

Any researcher, analyst or IRO will attest that there is now more information available than ever before. But sifting through all the words and charts to find the most accurate and focused content can make the difference in today’s ever-faster marketplace.

For more information contact:
E-mail: helpdesk@canwest.com
Tel: +1 800 661 7678
Web site: www.fpinfomart.ca

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

The independent equity research industry may be at an early stage of growth but there are already signs it will take the shine off sell-side equity research. Regulatory changes on both sides of the Atlantic are helping raise the profile of independent research. Similarly, the layoff of scores of sell-side analysts in recent years is spawning an industry that will soon be a force to be reckoned with.

In the US, home to the biggest stock market in the world, the number of independent research firms more than trebled between 2001 and 2004 to 425, according to US equity research consulting firm Integrity Research Associates, a Connecticut-based independent research company. Europe has witnessed a similar rise with the total number of firms now pegged at around 350, according to Eden Financial, a London-based brokerage firm.

Independent research that focuses on equities has historically lurked around Wall Street but the concept is newer in Europe, where independent companies have traditionally tended to concentrate on areas like macroeconomics and strategy. But now firms such as Clear Capital (see Research revolution), Objective Capital and Independent Minds in the UK, Osaketieto in Finland and Redeye in Sweden are picking up buy-side customers.

This year saw the launch of an organization called Euro IRP to bring together independent research providers that sell their goods directly to the buy side. So far there are 15 members. ‘Independent research is quite fragmented [in Europe] because the whole sector is at an early stage,’ says Hans Plugge, senior account manager at Independent Minds and director of Euro IRP.

‘The profile of an independent research firm is now solidifying. It is becoming cast in bronze as a permanent feature in the marketplace,’ adds Jamie Stewart, head of institutional marketing and research at Eden Financial.

The buy side is getting hungrier for this research – and its appetite is expected to increase further. ‘The big shift we are seeing is where institutions are increasing their budgets to build internal research teams, paying for more independent research but paying less for sell-side research,’ points out Michael Mayhew, head of Integrity Research Associates.

Ongoing regulatory changes further support a boom in independent equity research. In the UK the unbundling of soft commissions paid by institutions to brokerage firms is the main driver of this trend. Two thirds of UK fund managers say they are cutting the number of brokers and the amount of brokerage research they use as a result of the requirement to separate out commissions paid for different brokerage services, according to a recent study by Greenwich Associates. This study further shows that 70 percent of fund managers plan to increase their use of independent research.

US regulators are closely watching how unbundling pans out in the UK, and may devise similar rules. Stateside buy-side firms may also follow Fidelity Investments’ lead and voluntarily unbundle fees paid to brokerage firms. In Fidelity’s case, it’s separating trading and research costs paid to Lehman Brothers and Deutsche Bank.

Revenue streams
So far there are two business models for this research. Some research firms are choosing sectors and companies they want to cover and selling their research directly to individual and institutional investors. The other group is producing paid-for or corporate-sponsored research. Clients of companies in this group are under-covered firms that pay for the research company to either commission out or produce research that is then distributed through various channels (see Paying to play).

London-based Objective Capital, which belongs to the latter group, opened for business a year ago and now has analysts writing reports on 20 companies. ‘Our job is to create liquidity for the stock and to detail the strengths and weaknesses of a business,’ says Gabriel Didham, chief executive of Objective Capital.

According to Didham’s business model, the sponsoring companies pay up to £20,000 ($35,000) for guaranteed research for a fixed period. Objective Capital chooses analysts to produce the research. Companies cannot dictate the choice of analyst or discuss details of anything material to the company’s future performance that has not been widely disclosed. Research is distributed free to more than 10,000 financial institutions and high-net-worth individuals who may choose to invest in the stock.

Unlike brokerage analysts, Objective Capital does not stamp a buy, sell or hold rating on stocks but instead talks about the valuation of the company. It goes into details of valuation, such as cost of capital. ‘We worry more about the quality of the report than the analyst’s opinion,’ explains Didham.

Will the sell side survive?
With a growing trend toward buy-side firms spending on independent research, some are questioning the future of sell-side research. Integrity Research has studied the revenue model for investment banking research and questions its long-term viability. Big banks have already cut down their spending on research following the global settlement in 2003 that split banking and research arms. In 2004 sell-side companies spent around $7.2 bn on research compared with $10.3 bn in 2000, according to Integrity Research.

The Integrity study further shows that the cost structure of sell-side research is very high compared with independent or buy-side research. It finds the average cost (including analyst salaries, bonuses, technology, market data and other overheads) per company under coverage is approximately $175,000 per annum for investment banks and brokerage firms compared with $10,000 for independent and buy-side companies.

‘Sell-side firms need to continue to rein in their research costs and find a way to turn around the recent decline in research revenues. In the absence of this, we believe the long-term financial viability of Wall Street equity research is severely threatened,’ the study concludes.

More and more sell-side firms appear to be struggling to hold on to their research arms: Dutch bank FBS Bankiers, Belgium’s Puilaetco and German bank Bankgesellschaft Berlin, for example, have all pulled out of equity research. Bridgewell Securities bought Robert W Baird’s European operations, and Nordea Securities decided to outsource its research to Standard & Poor’s in 2004. In the US, Wells Fargo exited the equity research business in August 2005, while JP Morgan and Morgan Stanley have each merged their equity and fixed income research arms.

Kicking tires
Stewart says analysts at sell-side firms will have to move away from the template style and write more insightful research. Indeed, what has been making independent research stand out among fund managers is its depth and innovation, two qualities that win favor among hedge funds that have increasingly been dominating global stock markets in the last couple of years.

One independent firm providing innovative research is New York-based Criterion Research, founded by Neil Baron, a former fixed income analyst with Fitch Ratings. Criterion’s research model tracks various accrual items, such as receivables and payables, and liabilities like leases to make an educated estimate of a company’s ability to maintain its forecast earnings. Every quarter some companies are showing higher accruals while others are reducing theirs. Hedge funds, which follow long-short strategies, have started buying Criterion’s model, which has been back-tested over nearly two decades of data. Today Criterion Research has around 45 clients – including such Wall Street biggies as Fidelity and Lord Abbett.

One issue independent research firms selling directly to the buy side face is that it takes a long time to sign up institutions: Baron says Fidelity took nine months before it accepted Criterion’s research. ‘But with more Wall Street firms shedding analysts, the demand for independent research can only increase,’ he predicts.

by Arindam Nag

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

Elizabeth Judd examines the reasons behind a flurry of Chinese technology companies listing ADRs

Editor’s note: This special feature is sponsored by JPMorgan

From September 2004 to September 2005 ten new Chinese companies listed on Nasdaq, according to Silvia Davi, a spokesperson for the exchange. Many of the newcomers from China are technology companies, or have an internet orientation. Experts believe there are another dozen or so Chinese tech companies preparing to list on Nasdaq in the coming months.

Nasdaq trades 19 mn shares a day in companies based in China, mostly in the form of American depositary receipts (ADRs). JPMorgan created the first ADR in 1927 to enable Americans to invest overseas. Today, the ADR is an instrument widely used by non-US companies to access the American equity market.

Why are so many Chinese technology companies listing ADRs in the US market right now? The answer, says Kenneth Tse, JPMorgan’s head of ADRs for the Asia-Pacific region, lies in the Chinese market itself. ‘China has a booming economy, a growing middle class and a fledgling e-commerce sector,’ he points out. ‘It is attracting investments from venture capital firms worldwide.’

Attracting capital
A US listing can be a smart exit strategy for venture capitalists, providing them with valuations in line with the international markets. The largest venture capital-backed IPO of last year was Semiconductor Manufacturing International Corporation (SMIC). This Shanghai-based company dual-listed in Hong Kong and on the NYSE, raising a whopping $1.8 bn and surpassing even Google, which listed in the same year.

Last year venture capitalists invested $1.3 bn in Chinese companies, up 29 percent from 2003, according to research firm Zero2IPO. Nine Chinese technology companies also listed their ADRs in the US in 2004, with JPMorgan acting as ADR depositary bank for four of them. ‘China is one of the most important markets in our global franchise,’ says Tse.

Eric Ho, chief strategy officer at Ninetowns Digital World Trade Holdings, based in Beijing, points out that listing in the US can help an Asian company attract the best and brightest talent because it enables a Chinese company to grant stock options for Nasdaq-listed securities, which are highly attractive to employees. He also says a Nasdaq listing enhances a company’s image and reputation because Nasdaq is so well regarded and its listing standards are so stringent.

Sam Qian, president and CFO of Beijing-based China Finance Online Company, which went public on Nasdaq in 2004, agrees. He says the ‘prestige’ of a Nasdaq listing is what led his company to list in the US.

Asian technology firms are flocking to the US, and the stars in the group have been known to triple or quadruple their share price on the day their IPOs launch. Such early triumph can prove a curse, however. Executives need to recognize the importance of regularly meeting institutional investors, something the leaders of the premier IPOs don’t always focus on, especially when their judgment is clouded by astronomical valuations.

Seizing the moment
How the stock price performs in an IPO depends on how well a newly public company can tell its story. The market is naturally eyeing Baidu.com, which listed on Nasdaq in early August at $27 per share and closed that day at $122. Baidu.com, often referred to as ‘the Google of China’, has the kind of catchy hook that appeals to investors, says Franki Lai, head of JPMorgan’s Asia-Pacific ADR sales team.

Similarly, China Finance Online describes itself as China’s cross between Bloomberg and Dell, according to Qian. Like Bloomberg, the company specializes in providing financial information and boasts the most popular web site of its kind in China, with 3 mn daily visitors and 2.5 mn registered users. Unlike Bloomberg, which has numerous offices and employees worldwide, China Finance Online depends solely on the internet for distribution and so has a direct sales model more like Dell’s.

A Nasdaq ticker symbol can be useful when communicating a story. When 51job, a Chinese internet employment site, went public, for example, its trading symbol was the memorable JOBS. Similarly, Ninetowns, which is seizing the niche market of electronic services for importers and exporters in China, is known on Nasdaq as NINE.

The problem is that a company’s story has to be told succinctly. ‘When you go on a roadshow, how much time do you get?’ asks Tse. ‘Maybe half an hour – so you need to convince a group of people in the first 20minutes.’

Happily, many have found that language is not necessarily a serious barrier to telling their stories in China. For companies like Ninetowns, which Ho describes as serving the B2G – or business-to-government market – the greater challenge can be explaining the intricacies of the Chinese market to American investors. In China, for instance, a slew of customs documents needs to be filed before a product can be imported or exported. In order to explain the significant role Ninetowns plays in making these transactions more efficient, investors need to understand some of the bureaucratic obstacles Chinese companies face during the course of a business transaction.

Best foot forward
The roadshow is a vital part of the listing process. And time is of the essence, as underwriters meticulously plan roadshows to maximize their coverage in the limited hours they have. For Asian companies, major destinations typically include Hong Kong, London, New York and San Francisco, with optional detours to such destinations as Boston, Edinburgh, Frankfurt and Singapore.

At the end of a roadshow, the company and the underwriters usually have a good understanding of the level of interest in the offering. And it is not until after the roadshow ends that the offering price is finalized.

After the IPO, though, a company shouldn’t slacken its IR activities. ‘For companies that successfully list on Nasdaq, the roadshow is just the first step,’ says Tse. ‘To succeed, they will have to compete with international companies for investment capital and investor attention, as well as research coverage. And they will have to continue to learn from global best practices in IR.’

Ho agrees. ‘We’re constantly in talks with fund managers,’ he comments. ‘Because we’re in China, we’re not physically located close to our investors, so we need to continue to attract their attention. As a newly listed company, our developments may be overlooked by many larger institutions – so we have to make more effort to let people know what we’re doing.’

For more information contact:

Kenneth Tse
E-mail: kenneth.k.tse@jpmorgan.com
Tel: +852 2800 1859
Web site: www.adr.com

by Elizabeth Judd

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

Betsy Pisik reports on the perils and payoffs of selling an early-stage biotech story

Editor’s note: Last month we looked at how IR at life sciences companies is complicated by having two regulators overseeing the industry. This month, we continue our coverage of this growing sector with a look at early-stage biotech IR.

There are wags who say biotechnology is the industry of the future, and that’s where it will always be – in the future. Its products can take a decade to dribble down the pipeline, and a lack of funding can hold up the devilishly complex regulatory process. All of which makes investing in a radically new drug or novel medical device an act of faith or folly. As such, doing IR for these early stage companies is a careful balancing act where managing expectations can be very challenging.

The payoffs for funds and investors savvy enough to sniff out biotech winners are legendary, and it’s that Genentech-sized hope that keeps investors and inventors in the game. ‘No-one is interested in curing cancer in mice anymore,’ says Bruce Babbitt, a drug development expert at Parexel Consulting, a firm that works with biotech and pharmaceutical companies to accelerate product development and secure financing. ‘People expect miracles but experienced biotech investors know it’s going to be a long process.’

While it’s not easy to run investor relations for a manufacturing, mining or service-oriented company, it’s less speculative and more lightly regulated than the highly volatile world of the life sciences. In these industries, the competition is more clearly defined and the roadblocks to success are usually easier to define.

But the world of biotech is very difficult to predict. When your product is a machine that breaks up cellulite with sound waves, or a drug that shrinks a rare fatal kidney tumor, selling your story is more complicated. This is the scientific revolution, after all, and revolutions aren’t cheap. Nor, for the most part, can they be scheduled.

Getting on track
It’s not easy to bring a new life science product to the market. There is the bold and experimental science behind the effort, the deep regulatory overlay and the price tag: as much as a few hundred million for a new drug with basic science, and $1 bn for small-molecule, cutting-edge, ‘oh wow’ technology.

The highly speculative nature of the new life sciences can put a nascent company’s CFO, who often heads IR, in something of a quandary. How do you whip up excitement about a product that may be five years away from human trials? How do you present extremely complex science to the financial community? How do investors value a company that has not a single product on the market? And what happens when an expected ‘value event’ – an injection of cash, merger or acquisition, or sale of a product to another company – falls through?

Later, what happens when the successful medication is taken off the market because of questionable side effects? And how does a company keep the money spinning when the patent on the golden egg – or the little blue pill – expires? The answer is to have a winning sequel already in the pipeline or a strategic partnership that allows you to develop another winner.

At the start, however, those problems are the stuff of dreams, not nightmares. At the beginning, it’s all about funding and credibility. The important thing is to give the financial community a way to gauge your success, such as through financial officers who deal with venture capitalists, scientific foundations and investment funds.

‘You have to hit the marks to make investors comfortable,’ says George Elston, vice president of finance at Elusys Therapeutics of Pine Brook, New Jersey, which is developing a vaccine for anthrax, among other products.

That means developing a roadmap of scientific research on the drug or technology including details on research, clinical trials and what the likely sources are for funding to help a firm expand to the next level. By hitting the markers, experts say, a small company with an experimental product can build the confidence of potential investors.

‘You should fail early and fail often,’ exhorts Steven Burrill, who founded San Francisco-based merchant bank Burrill & Company, which invests in biotech companies. He notes with pride that life science is the one field where investors are not turned off by failure. Rather, they know that at least 90 percent of ideas will fail, so they like a company to work out the kinks early on.

Venture capitalists and fund managers are, understandably, more interested in creating value than in easing suffering or prolonging life. But what is value to this group? A company with no products on the market, and possibly a long Food & Drug Administration (FDA) approval process ahead of it, does not conform to standard business models. ‘We wrestled with this, because the traditional models didn’t work,’ says Elston, whose company is developing new therapies to treat a variety of bacterial and viral infections.

Step one
Some investors measure value by looking at the IPOs of comparable companies and adjusting their targets. This is tricky, however, with the IPO market being dry for so long.

The initial IR goal for early-stage biotechs is to score enough capital from foundations and ‘angel investors’ to develop the product. When it’s farther along in trials, venture capitalists and funds may buy a piece of the firm. Ultimately these companies either merge with or are acquired by another company with deep pockets, or issue a wildly successful IPO.

‘Investors don’t ask about valuations, but probabilities,’ says Babbitt. There are rules of thumb, of course: a device or drug that’s farther along in clinical trials is worth more than one that isn’t. Officers with a track record don’t hurt, either, and a larger market is better than a smaller one. An obscure condition that afflicts the wealthy few will probably get faster funding than a treatment for conditions that plague the poorest. And developing a drug for a condition that doesn’t yet exist isn’t crazy – it’s a marketing triumph.

Biotechs mature in any number of ways. At the very beginning, the CEO might be a scientist or doctor trying to develop a product and the CFO is the one in charge of bringing in the funding. Sometimes biotechs start off as virtual companies that subcontract the research, animal testing and production of products as well as the communications function. Then as the product winds through the FDA pipeline, the company may take on a more traditional shape, including physical offices and staff.

Angel investors might see their own early money diluted as the next wave of private investors or underwriters comes along. At this point, the company is almost never public and valuation is still very speculative, contingent on factors that add to and detract from the overall appeal. If the company has a good product and strong leadership, it might flirt with the idea of going public, partnering with a strategic ally, or allowing itself to be acquired by a larger publicly traded company.

Elusys, for example, had intended to go public but now its partners are thinking about an eventual merger. The company is well along in developing a vaccine for anthrax, a biological weapon that closed several US post offices and a Senate office building in 2001. The company’s first treatment is Anthim, which uses new technology to deliver an anthrax vaccine that will cure illness even after exposure.

The hype factor All industries are subject to unreasonable expectations, but there is something special about biotechnology, which, in the public mind, produces both miracle cures and cloned celebrity babies. Today’s life science firms are magnets for gossip, their products often in the news before they’re on the market, as fodder for a 24-hour news cycle desperate for ‘serious’ good news. Victims’ groups, for instance, can compound expectations in their eagerness to win grants or attract members.

Jeffrey Krasner, the biotech reporter for the Boston Globe, advises companies to respond to unofficial news as best they can. ‘To me, rumors are news in nascent form,’ he says. ‘Good reporters will treat them the same way they treat a hundred press releases – pressure test them, run them past sources and try to find the five worth pursuing.’

The idea is to contain a false rumor by refusing to dignify it or downplay a true rumor as much as possible without saying anything that could be considered material. Either way, be sure to get back to reporters immediately in order to keep your finger on the pulse of a story that will be written with or without your comment.

‘Sometimes you have to remember that investors are not the most important audience,’ says Alison Marquiss, director of corporate communications at California-based Chiron. The company made headlines last fall when production of its flu vaccine was suspended at its Liverpool, UK plant after authorities cited contamination problems, which contributed to a shortage in the vaccine at the height of flu season.

‘If you’re withdrawing a drug, there are doctors and patients to consider,’ Marquiss adds. ‘Remember: investors look at these stocks not just for growth potential but also because they believe in what the company is doing.’

This is true – to a point. When disaster strikes, communications experts say it’s vital to have internal lines of communication open and a clear policy in place that forbids employees from talking publicly, especially informally.

This is where pre-IPO biotech IR is similar to heading the function at an established blue chip: the goal is to make sure all messages to key stakeholders are aligned. And, at the end of the day, if you can maintain your cool through the highs and lows of early-stage biotech, there’s a lot to be said for the experience of being able to sell a story that’s always about tomorrow.

by Betsy Pisik

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

Never mind the bells and whistles – IROs still want peace of mind when it comes to audio conferencing, finds Matthew Gower

Talking to IROs about audio conferencing can be a bit like pulling teeth. They don’t care – or know – much about the process behind it and even less about the technological features available to them. What they do know, however, is that they want their conference calls to be free of glitches and the sort of embarrassing mistakes that are commonly associated with live events of this kind.

Companies might be competing for the opinions of analysts who are listening to 20 other audio conferences in the same week, so it is essential they present an image of competency to their investors and all other stakeholders within a short period of time.

For the vast majority, technological features and price-competitiveness are not decisive factors when it comes to choosing a preferred conferencing provider, and many are willing to pay a premium to ensure a better quality service.

Handholding
Good service providers will simplify the process behind a major conference call, mostly on the planning side, which isn’t something IROs can always do by themselves. For example, some providers may offer to ‘market’ your event by sending out invitations and reminders to your target audience via e-mail or text messaging (SMS) some days before and again on the day itself. However, not all companies feel comfortable with this arrangement, and may prefer either to contact investors and analysts themselves or ask their brokers or financial PR consultants to do it for them.

Either way, the conferencing company should be involved in as many planning stages as possible, and even offer helpful checklists explaining what companies must do one week, one day or just 30 minutes before the event. Rehearsals are also necessary to check sound quality and the smooth flow of any presentational material. Most providers can offer a pre-recording facility for key parts of the event – so if your CEO is not an especially good live speaker, for example, an earnings announcement can be recorded beforehand.

Although it’s meant to minimize the potential for problems, pre-recording does not suit everybody, often because of concerns that price-sensitive information could leak out. ‘If we did pre-record, the service provider would be involved with the script before it’s announced – and that’s something we wouldn’t want,’ explains Elizabeth Corse, who heads the IR function at Missouri-based IT business solutions provider Savvis.

For Peregrine Riviere, IRO at UK mobile communications retailer Carphone Warehouse, it’s less a question of safety and more one of style. ‘Pre-recorded announcements would take away from our company’s communications style,’ he says. ‘Spontaneity is what we’re about. In fact, our CEO Charles Dunstone is at his best when he’s being spontaneous.’

Event control
Conferencing providers say IROs are usually very keen to have as much information as possible on those signing up for an event. Controversially, this information makes it possible for companies to manipulate the Q&A session. When Deutsche Börse’s management barred activist hedge funds from asking hard-hitting questions about the exchange’s attempted takeover of the London Stock Exchange on a conference call in April, the incident was portrayed by the media as yet another example of corporate arrogance and lack of sensitivity to investor concerns. Press reports also suggested it would ultimately lead to the ousting of then Deutsche Börse CEO Werner Seifert.

Even so, in most cases this registration information is used to prioritize, not dodge, questions during the call. Thomas Richlovsky, senior vice president and treasurer at National City Corporation in Cleveland, Ohio, says it’s common sense for companies to be critical about how they allow senior management’s time to be used by listeners during a conference call. ‘It would be completely understandable if preference were given to a well-known Wall Street analyst who has been covering us for some time over someone from a hedge fund whose name we’ve never heard before,’ he points out.

Riviere, though, says it’s a waste of time to keep too close an eye on listener lists as most analysts are more than capable of slipping by unnoticed if they want to. ‘A company only knows who you are if you tell it,’ he states. ‘It’s very easy to register for one of these events as johnsmith@johnsmith.com – in fact, I might have done that a few times myself in my analyst days. I don’t think it’s possible to stop a rogue caller from joining in if he or she is determined.’

That said, better information about your audience does help improve the quality of your company’s response. ‘It’s worth monitoring if there’s an analyst or investor you know who is riding a particular hobbyhorse,’ says Corse. ‘That way you can warn management. Or, if time simply runs out and someone hasn’t had a chance to participate, you can follow up with him or her afterwards, one on one.’

Quality support
Because conference calls are a form of corporate branding, companies value intelligent and attentive event operators. Operators typically welcome conference callers, introduce the main speakers and often act as moderators during the dreaded Q&A sessions. For a global company with shareholders and employees of different nationalities, operators also need the necessary language skills to support a good service, and a basic understanding of IR needs.

‘The worst possible start to a conference call is the operator not knowing how to pronounce the chairman’s name,’ says Keith Irons, founder of UK financial communications agency Bankside Consultants. ‘Even when that doesn’t happen, you can always tell when operating staff haven’t been properly trained.’

Eugene Truett, vice president of IR at Harsco Corporation, the engineering products and services company based in Philadelphia, says he never forgets a good operator when he finds one. ‘We typically have from 50 to 60 people on a single call for our quarterly announcement so it’s important to make a good impression,’ he explains. ‘Occasionally we get an exceptional operator and in those cases we will ask for that person to be kept on as the moderator or operator for future conference calls if possible. The conferencing company is usually happy to oblige.’

Similarly, James Kerr, IRO at Unisys, the US information technology services and solutions company, values a good operator service as much as he does the price. ‘We’ve used a number of different firms in the past and we check them out thoroughly beforehand,’ he says. ‘Of course they have to be competitive in terms of price, but we want good operators, too. They should have a good voice and very polished manners – listeners must feel comfortable with them.’

Conferencing providers have realized they can maintain a competitive advantage through better-trained operators, especially when it comes to their IR clients. As a result, some have begun building a more formal structure around this by training dedicated teams of operators to become proficient at handling the most typical IR conferencing needs.

Bells and whistles
There are very few conference calls these days that don’t involve some form of multimedia. Calls are typically linked to the internet to allow them to be accompanied by slides or other visuals that can help executives reinforce their message. However, there has been a much slower uptake of the full suite of multimedia and interactive features on offer than some providers had predicted.

Some of the reasons for this are entirely practical. When it comes to using live video, for example, issues of bandwidth and firewalls are often beyond a company’s control. ‘We have looked at the possibility of using video, having a PowerPoint presentation running alongside the audio conference, but this only works if everyone has broadband, and the people receiving the conference call don’t always have it,’ says Keith Irons, founder of UK financial communications agency Bankside Consultants. ‘The system will always be limited by the lowest common denominator, and listeners often don’t want things to be too complicated.’

As it stands, media-rich presentations linked to audio conferencing are seen by many as a new opportunity for something to go wrong. However, service providers say conferencing will become more of a collaborated experience between the audio and the visuals as companies begin to feel more comfortable with technology that is already available. This means more web-based visual elements such as slide shows and videos will feature alongside audio presentations.

Tips for choosing a good conferencing provider

1. Find a conferencing company that allows you to work with the same people at each event. They are more likely to be familiar with your needs and preferences and this will provide peace of mind.

2. Choose a provider with a proven track record, instead of a newly operational firm. Ideally, your prospective service provider should be able to offer references from other companies.

3. If your company is reaching out to a global audience, make sure your conferencing operators are able to support different languages.

4. Be wary of low-price offers as the quality and training of operators is likely to be reflected in the cost. Fortunately for companies, many service providers say the conferencing market has become so competitive that prices are constantly falling.

5. Find out what works best for your technological needs. Try not to be sold on every feature you are offered but might end up never using.

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

A godsend, stroke of luck, divine intervention, call it what you will but I felt a sense of huge relief when I got the email announcing the Webinar – Web Back in the Spotlight. I work for a small publicly traded company and I had been tasked with completely redesigning our company’s website, including the investor relations section. What an amazing opportunity; this will be awesome in my portfolio, I thought. A big challenge, sure, but one I could handle and was excited to take on…until I actually started work on the project. I was overwhelmed. We weren’t just changing the look of the site but all the messaging as well – and we were doing it all in-house. I recognized that what we had wasn’t working, but I didn’t know where to start. My resources included two IT people and a really ugly website.

The Chinese government’s hand in business makes IR in China a complicated affair. Caroline Thomas reports

As Western companies, particularly internet firms, look to expand operations into China, the issue of government interference and control is something IROs need to understand.

WASHINGTON – With state-run Chinese firms raising increasing sums in US markets, there's growing speculation that US regulators may step in to protect investors.

The tech market meltdown of recent years was one of the comparisons made at this month's hearing on China and the capital markets, held by the US-China Economic and Security Review Commission (USCC).

One worry is that China continues to experience financial scandals in its banks, even as it rushes to overhaul and list state banks such as the Bank of China and China Construction Bank to meet the WTO’s financial market requirements by late 2006. Citing poor transparency and other problems at banks and other state-owned firms expected to list in New York, USCC chairman Richard D'Amato warned of a prospective China 'bubble'.

USCC members have suggested the Securities Exchange Commission (SEC) could scrutinize new China offerings for risk and standards of corporate governance. But what steps might US regulators take? According to Commissioner Michael Wessel, who co-chaired the hearing, 'Sarbanes-Oxley and other securities laws on the books provide substantial authority to the SEC and other authorities to ensure greater scrutiny of Chinese banks seeking to raise funds in the U.S.' And, he adds, 'If the law does not provide adequate authority, the SEC should provide guidance to Congress about what additional tools they may need.'

It was suggested at the hearing that US regulators avoid driving Chinese companies to list elsewhere. Still, says Wessel, 'The SEC has the duty to ensure that US investors have the information they need to make informed decisions – and they need to ensure that any material information is available and scrutinized.'

One wild card is the expected shift of SEC policy now that Republican congressman Christopher Cox has been confirmed as head of the Securities and Exchange Commission (SEC). Many predict a much more relaxed regulatory regime than under predecessor William Donaldson.

Even if this is the case, the SEC may not relax when it comes to China listings. 'It's too early to prejudge what the SEC will do under Chairman Cox,' cautions Wessel. 'He has a strong record on China as it relates to economic and national security. I have confidence that he’ll use the legal authority and tools available to ensure that investors have the information they need or – if he needs additional authority – that he will ask for it.'

LONDON -- A growing number of UK large-cap companies are webcasting their annual general meetings via their corporate web site, while others are using video and dedicated web sites to offer stakeholders a richer multimedia experience.

NEW YORK -- Companies choosing to send out financials using the XBRL (Extensible Business Reporting Language) format may be interested in a new XBRL Smart Release service launched by Business Wire. The service essentially incorporates the XBRL format into the newswires' releases, which already have the ability to add multimedia elements such as video and audio clips.

'The XBRL standard can be applied to a wide range of business and financial data, including internal and external financial reporting, and to all types of regulatory documents,' says Michael Lissauer, Business Wire's senior vice president of marketing and business strategy. Regulators and exchanges around the world, including the SEC and the Tokyo Stock Exchange, support XBRL formatting in corporate reporting.

'Since XBRL has the potential to revolutionize business reporting as we know it by providing significant benefits in the preparation, analysis and communication of this information, we created the XBRL Smart News Release to make it easier for Business Wire members to send their XBRL news release to myriad sources,' adds Lissauer.

It’s hard to see why something as beneficial to market liquidity as stock lending is generating such bad headlines. In the UK, a government-backed report by Paul Myners, a former fund manager and chairman of retailer Marks & Spencer, warned recently that stock lending threatens to offset improvements made to share-voting practices through the adoption of electronic voting.

In the ever-evolving corporate arena, the weight of new disclosure rules is leading many companies to realize they have to do more than just provide their shareholders with endless pages of dull financial and legal information. Designers and creative consultants are helping companies turn their IR web sites and annual reports into effective marketing, advertising, recruiting and PR tools as well.

According to the IR magazine-commissioned Investor Perception Study, US 2005, company IR web sites continue to be the primary information source for retail investors, while institutional investors put more stock in the printed annual report. But companies are moving beyond a bare-bones compliance approach to one that seeks to maximize the potential of their communications.

LONDON -- In an effort increase accounting transparency, international accounting standards are now in play. While new International Financial Reporting Standards (IFRS) tighten up some formerly confusing and convoluted reporting standards, it's also causing confusion in some areas.

NEW YORK -- The movement behind adopting Extensible Business Reporting Language (XBRL) appears to be gaining steam. Michelle Savage, vice president of IR services for PR Newswire, is now vice chairperson of the steering committee and chairperson for XBRL-US, which includes over 300 companies that support the adoption of XBRL as a global financial reporting standard.

SAN FRANCISCO -- Investors are willing to pay significant sums for added filters that signal potential red flags at companies they're following. San Francisco-based proxy advisory Glass Lewis & Co has one such product called the Monitor, which sells for a starting price of $25,000 to institutional clients. This web-based tool warns of potential problems like poor earnings or litigation developments at companies that investors follow or hold. Lynn Turner, former chief accountant at the SEC, heads the research team that developed the product.

Newsline lead article Volume 14 issue 5 September 2004

The Globe & Mail ran a series of articles today regarding Investor Relations. Suzanne Wintrob's article on communicating with investors through technology may be found online at GlobeInvestor.com

The Globe & Mail ran a series of articles today regarding Investor Relations. Michael Lewis' article on Internet rumours may be found online at GlobeInvestor.com