The Internet Effect on Buy Side Relations

The Internet Effect on Buy Side Relations

Prepared for Investor Relations on the Internet Conference

London, May 19-20,1999

Speaker: MJ Reilly, President Hally Enterprises, Inc.

[Note: This paper has an accompanying guide to the actual Internet sites that illustrate the points made here.]

I. How have analyst relations changed since the Internet came along? How will they change in the next few years?

Basic relationships with securities analysts have not yet changed dramatically due to Internet communications, but they will. The most significant changes to date have to do with accelerating the early stages of contact when a company offers informed practices in Internet use to the analysts.

By informed practices, I mean the adroit use of the Worldwide Web to create a jointly available medium which both the IR officer and the analyst can consult, while speaking on the telephone, or as an aid in direct contacts. In the first days of an analyst getting to know a company, a well-built Web site with adequate information which responds to analytical inquiry will save a great deal of time for both users. We’ll speak later about some of the tools used by leading Investor Relations practitioners.

Many analysts check the Web for data on companies, but the rate is still relatively low. This is due to a couple of factors:

(1) Vendors such as OneSource, Reuters, Dow Jones, Bridge or Bloomberg are supplying tailored packages of information via reliable, high-speed private networks. The Internet isn’t in that category yet as a network, but it is improving rapidly. And, where speed is not a consideration -- as it usually is for a very busy analyst -- the Internet is rapidly becoming an acceptable alternative.

(2) Companies have not taken the initiative. Generally, corporate Web sites are a mess. They are not responsive to user needs, they are hard to navigate, they are incomplete and they are often untended. Like a garden gone to seed, scores of corporate sites are virtual wastelands of outdated, tired information, overtaken by time and neglected to the point of being offensive.

Slowly this is changing. As more and more companies look at this mechanism for communications, they improve their offerings. Providers such as MARCHcom and 1stNet Technologies in the UK, and PRNewswire and CCBN in the US, offer tools to help IR Officers. Analysts and others have begun to find there are some good sources of corporate data -- unedited by intermediaries; delivered rapidly and easy to use.

But the process is still in its early stages. Some leading sites are listed in the materials handed out at the conference, under "Top 10 Best Practices." They represent a still relatively small group of leaders in the production of useful IR materials.

II. Analyst Views

So, What are analysts saying about all this?

In the first quarter of this year, the main professional organization representing the "buy side," with 80,000 members worldwide -- the Association for Investment Management and Research -- released a study of members’ Internet use. It shows that while research on the Internet is higher than many had suspected, the corporate Web sites they look at are often found wanting for timely information.

Notably, 65 per cent of respondents said the availability of a corporate Web site made it easier to provide accurate analysis of the company. However, a total of 85 per cent found the specificity of information provided was rated between "Average" and "Poor."

Timeliness of data on Web sites was another area for strong criticism by analysts. Many sites are not current, with many carrying information which has lost its value because it out of date. That not only puts off visitors, but hurts your company image and requires significant expenditures in time and resources to draw the target audiences back.

The AIMR recognizes that good site creation is costly, but the group’s President and Chief Executive officer, Thomas Bowman, urged companies to take notice:

"The expense of upgrading the Investor Relations portion of the corporate web site may be high, but companies should deem the benefits of providing information to the financial community sufficient to offset the costs. As seen in our survey, however, corporations have not yet done this, as analysts are disappointed by the quality, timeliness and specificity of financial information provided on the Internet."

In discussions I have had with senior Wall street analysts recently, the level of Internet use is fairly low. One Bear Stearns analyst made it clear the corporate Web site is the last of all sources he checks, using the professional services paid for by his firm first. Nevertheless, he does look, and unfortunately, he said, the results are disappointing.

At Schroeder Wertheim, another analyst said the same was true for him, but he did find transcripts of recent conference calls were quite useful. His response represents a key issue for making the Internet a valuable communications tool. Use its strengths to do things you did not do before. We will look at a few ideas and techniques in a few moments.

III. Expectations

We have looked at the average state of affairs, wherein analysts say they are not very impressed with what they are finding. But, happily, there is a creeping ascendancy of value at work. That is, the practitioners of Internet Best Practices are the leaders that set the pace. Our research at Hally Enterprises points to the fact that any analyst looking to assess what is best will quickly find the leaders.

They tend to be technologically oriented companies, in part because they want to sell more of their products which make use of the Internet, and because many have a long background of supplying data electronically on private networks to customers, partners and others.

Intel has consistently been out in front. They remain my number one choice for demonstrating how best to use the Internet, both generally, and specifically in Investor Relations.

Their paper Annual Report which I recently received shrunk to fewer than 25 pages of traditional AR data (compared with 60 to 70 pages for similar companies), and the entire back page is devoted to what you can find in more detail on the Web Site. And, inside the hard copy report, there are many more references to amplified information at the Web site. Clearly, for Intel investors, mountains of information await on the Internet while just the bare essentials travel to them by traditional methods.

How does your company learn from the leaders? In the conference materials, I have provided a "Top 10 Best Practices" list developed by Hally Enterprises in the many Web projects we have worked on for clients. Appended to it, is a citation of several sites worth looking at to see those practices applied in IR.

The materials also include an article I wrote for Investor Relations Magazine two year ago, called "Wonders of the Web.". Two years is a lifetime in Internet terms, but almost all of the contents still apply. I have listed the types of items most analysts and other investors would hope to find when they go to a top-flight IR Web site. I hope this list provides some guidance to those of you wondering how to get started. Electronic versions of these and more can be seen at: www.hallyenterprises.com.

On April 7, PRNewswire, the leading distributor of Press Releases and a supplier of many Web services, introduced a new modular solution for IR officers in the US. I was the senior advisor to the team which developed the product, which is called "vIRtual IQ". You will see all the features listed in the article, and many more, if you look at the first companies using the service on the Web.

Look at Internet America or at Centex for living examples of tailored IR sections actually managed by PRNewswire, using data feeds supplied by Reuters. I am not aware of a product like this in the UK market just now, but I know provision of such a modular solution has been looked at by several vendors. Details on "vIRtual IQ" are available at: http://www.prnewswire.com/viq/viq_1.html.

There are now six or seven vendors selling such packages to US-listed companies and I expect they will be running portions of IR site for a very large number of companies soon. Indeed, all together, they are serving over 2,000 listed companies today.

This type of solution to creating a useful Web site is a great start and solves many headaches for IR officers, not least of which are the expense and time required to work on building your own. It frees you to do more personalized work, to concentrate on other communications tools and to get on with all the other demands you face.

IV. Techniques you can use with a good Web site

Here are just a few ideas for making good use of the Internet and any presence you create for investors:

Either in person, or on the telephone, prepare analysts by taking them through materials on the Web site like the fact sheet, highlights of investment criteria, or a PowerPoint slide presentation you currently use for roadshows. This works for first timers as well as in preparation for executive one-on-one meetings, where you want to visitor to be right up to date before sitting down with a top executive. You might add a look at a recent speech text or video on the Web site.

Promote what you have. For instance, faxes or direct mail to all constituents on your list can let them know you now have fast access to key data. Show them where it is and how easily they can get it upon release, say at the prelims or when the Annual Report is published. Same day electronic service can be very attractive to constituents and may save you considerably on fax or other distribution, as well as in telephone time.

Tell them about update rates and notification capabilities, such as signing up via the site for e-mail notice a few days ahead of announcements. When crisis situations pop up, whether in the acquisition and mergers category or otherwise, creation of a subsite or separate Web site can help you control the communications flow.

The more you promote and use such techniques, the more analysts will come to rely on them and the more you can enhance the communications in both directions.

V. Future issues?

The key characteristics of the Net are:

Speed/Timeliness/globality

This means the two most valuable features you can use now and for some time are:

E-mail and Document (especially Press Release) publication

The hidden gem:

Essentially limitless space - Use it (judiciously)!

- I do not mean putting all print materials online. That can be a huge mistake as most screen users do not use the net to read. They scan, then probe, then -- if interested -- either move on, read or save material. Thus, any displays should be set up to cater first to each of those three patterns. Print material generally is not.

- Remember that just because information is important doesn’t mean it is interesting. So, be imaginative, but not overwhelming; expand data, archive, give details of concepts, make number into graphs, provide product demos.

The above qualities and characteristics are the ones to use and exploit going forward. You will do well to make good use of them and not get too carried away with being a guinea pig for new ideas unless that is an important aspect of your company’s image.

For instance, Audio and Video on the net is possible and heavily promoted, but take care. The quality of video in particular is poor to bad and will not improve until the entire Internet is significantly upgraded, which will take a few years. Listen and view the products offered and ask yourself how the quality reflects on your company. The US IR director for Novartis told me that after his firm ran a video-on-the-net conference last month, he would not be recommending doing it again any time soon!

VI. A concluding bit of advice

The one of the most important things you can do is: Use experts!!

Design on screens is different from printed work, and information architecture is not a direct marketing plan. Networked communications is a specialty; good use of the Internet’s easy-to-learn code (HTML) is hard! The technical issues are complex

and they will become much more so with a host new standards and technologies being introduced over the next few months and years. This is not something for your cousin or brother-in-law to handle and I would be wary even of in-house staff, unless they are professionals who are dedicated completely to Internet work.

The other top recommendation I make to all clients at Hally Enterprises is "Survey, Survey, Survey." Know you audience’s interests and needs -- each of you has a unique audience based on your investment profile. Get to know what they are doing on the Net and what they plan to do in future. With that information, you can use this new medium to its best and continue to build the Relations in Investor Relations.