Financial public relations

by Terrence Collis

The financial public relations industry is growing in size and role-driven by a demand for corporate transparency and a thirst for information about business. The media’s appetite seems to have no limit. In the UK 10 national daily newspapers and 9 national Sunday papers regularly and increasingly cover business matters. There is also a multitude of satellite, cable and terrestrial television channels, hundreds of radio stations and the result is ever growing coverage of corporate, industrial, business and consumer affairs.

The US does not have comparable national media with the exception of the key financial newspaper, the Wall Street Journal. However, the US does have very sophisticated business coverage on cable television, and a range of financial centers in addition to Wall Street in New York, notably Boston, Chicago and Los Angeles. Europe has not historically had a public market for equities of the same level of intensity as the US and Japan. However, the stock markets in all the major European countries are growing rapidly and drawing closer to the UK and US model.

The financial media in Europe is still dominated to a great extent by the European editions of both the Financial Times, the Wall Street Journal and The Economist. As local markets grow, local media becomes more important as do the European-wide cable and business channels. The economies and stock markets of the Far East and the Pacific Rim are also becoming increasingly important to both companies and investors.

The rules and regulations of the world stock and bond markets, and the complexity of accountancy standards, inevitably make financial public relations a complicated speciality. A few thousand words is not a lot in which to try and explain those complexities. In this article I give a very personal view of the role of financial public relations and the contribution it makes to the companies who use it properly. The emphasis is on the basic communication skills and demonstrates how much financial public relations has in common with the rest of the communications industry.

Comments and examples concentrate chiefly on the UK and London market which is as sophisticated as any in terms of both the equity market and the financial media. Experience shows the same skills approach can be applied elsewhere in the world, even though the rules and regulations may differ considerably.

This article does not examine in any detail areas of specialization within the financial public relations industry, such as privatization or flotation, but concentrates on the basic objectives. New areas for financial public relations specialists to tackle continue to arise. For example, there is a whole new sector developing to advise and support companies in their management of increasingly difficult and controversial annual general meetings.

There is also a significant specialist sector engaged in media relations for personal finance products. This clearly fits within the financial public relations world but as it is sufficiently different and specialist, it would require an article of its own.

How do you define financial public relations?

1 In common with the rest of public relations, financial public relations people suffer from an inability to define their jobs. Some simply like to state that financial public relations all comes down to money – but that could be said for the vast majority of public relations activities. Whether spent in-house or with a consultancy, why should a significant amount of money – an estimated ₤ 1/2 – 1 billion in the UK, and many times this amount in the US and the rest of Europe – be spent every year on public relations activity if a return on that investment is not merely hoped for but expected ? Financial public relations is no different in having to demonstrate that it adds value.

2 It is difficult to discuss any subject without some sort of definition. At its most basic the scope of financial public relations can be defined in simple investment terms as: ‘all communications activity is based around the simple fact that money only has real value as an investment and that investors are people’.

3 Share buyers may be investing their own or other people’s money but in the end investment decisions are made on the basis of the quality of people. In a world of constantly moving money, the clear communication of objectives, achievements and potential is not an optional extra, it is an absolute necessity.

4 More specifically, the skills of financial public relations people is primarily focused on the need for publicly owned and listed companies to communicate consistently and positively with those that own them directly or indirectly, through the media or through City analysts. The majority of the effort put into this specialist area of public relations surrounds the biannual issuing of results by companies.

5 For many millions of companies, large and small, around the world, the prosaic necessity of getting a proper understanding of their full year and half year figures is the most important part of any financial public relations strategy.

6 The hectic activity that surrounds major bid, deals and financial disasters is more dramatic, more newsworthy and more likely to be the subject of airport paperbacks, but it has much to do with crisis management activity as it does with financial public relations. Happily for those who enjoy working in the financial public relations area, the opening up and deregulation of world stock markets and the freeing up of international capital has made merger and acquisition work a significant part of financial public relations, a situation that seems likely to remain for many years to come.

The basic task

Real financial public relations, as opposed to the fizzy and more dramatic takeover bid, is a steady, long-term business dealing with a set calendar of events, the patient explanation of results, and what a company does and does not do.

However, as with any other piece of detailed information, a company’s results are only meaningful against a background of understanding and an idea of what they mean for the future. If financial public relations were to be defined as simply the communication of sets of numbers to a highly specialized audience, it is difficult to explain how a significant number of companies in the UK magazine PR Week’s Top 50 Consultancies are entirely or significantly dedicated to financial or City public relations.

As the majority of shareholders are the major stock holding institutions rather than individual shareholders, it has become accepted that shareholders are talked about in inanimate terms of ‘institutions’ or ‘funds’ or ‘computer programmes’. But even institutions are run and managed by mere mortals, and their computer programmes written by people with still a shred of humanity left: financial public relations has to recognize that the managers who populate the investment institutions are affected by everything they see, read or hear about a company, its management, its reputation and its products. Financial public relations could, therefore, be taken to cover any aspect of public relations for commercial organization.

For large and truly international companies such as Hanson PLC with a range of major businesses in their portfolio the presentation of each set of results requires a tremendous amount of carefully hard-work and planning. Even a company that is as closely followed and well known as Hanson has to be very focused about the messages it puts out with results to ensure those who follow the company understand the full significance of the numbers.

In particular this involves very careful preparation of the presentation to be given to analysts. It is the views and the number crunching of the analysts that will influence the views of the other key audiences, including the financial press and the institutional shareholders.

Such presentations cannot be given in a vacuum and are prepared in response to feedback on what are the analysts’ major concerns and areas of interest. By researching the analysts’ concern in the period leading up to announcements the company can ensure it makes maximum use of the opportunity of its results presentations. The tightening of rules on selective disclosure of information has made set piece presentations even more important to a company’s communications programmes. Hanson, with a significant shareholding in the US, also goes to great lengths to teleconference its briefing to the US so that analysts and shareholders there receive company comment and information at the same time as those in London.

It is pointless to give people detailed information if they do not have the necessary background knowledge about a company’s activity and Hanson, as an international conglomerate, puts together a series of high quality teach-ins throughout the year on their core business areas. While these do not contain significant new information they are extremely popular with Hanson followers who are required to develop a real understanding of a range of companies in order to analyze the company accurately.

Corporate public relations

1 The twin areas of corporate and financial communication are, in most people’s view, inseparable. Corporate public relations and financial public relations are not merely close bedfellows, they are Siamese twins sharing the same vital activities.

2 Corporate public relations is usually defined as the reputation of the entire company, although more often it is the reputation of the head of a company rather than the entire body. It is not that the reputation of some obscure subsidiary cannot affect the much larger corporate body, more that the corporate reputation should be robust enough to cope with the ups and downs of individual parts. Corporate public relations is all about enabling a company to succeed and success cannot always be defined in simplistic financial terms.

3 The extremely high corporate reputation of British Airways in the UK, Europe and the US is based on several key factors: the contentment of its passengers with the quality of its product; the admiration of investors for its management; the financial performance of the company; and the strength of its share price. At different times the relative importance of these factors may vary a little but they are all essential.

4 Those who doubt the importance now given to corporate public relations by the key players in the City need only to consider the example of British Gas. A much respected City commentator, writing in The Times about British Gas following an acrimonious annual general meeting in June 1995, concluded: ‘The failure, as institutions perceive it, is not strategy but public relations. Fund managers have given the Board a few clear pointers about how this might be addressed.’

5 It is one of life’s universal truths – along with the fact that nobody thinks they are a bad driver – that most people, whatever their profession, regard themselves as a public relations expert. Fund managers giving companies tips on their public relations will probably be relieved to hear that public relations people seldom seek to give advice on fund management.

What contribution does financial public relations make to the success of a company?

Some would argue that there is only one – albeit crude – measure of the success of financial public relations: share price or bond price or credit rating. There is no doubt that the majority of financial communications activity is aimed at creating more demand for shares in a particular company. Stimulate more buyers than sellers and share prices tend to rise.

There seems to be no reason why financial public relations should not be regarded as public relations support for a simple financial product – an equity stake in a company. However, although short-term success in increasing a share price may be welcome, ensuring that the City and City journalists have a clearer understanding of a company’s strategy is far more important. The real contribution that good corporate and financial public relations makes to a company is in gaining a clear understanding among financial audiences – what a company does, what it is trying to achieve and then making sure everyone knows when it meets or beats those objectives.

Keeping a company well understood and well thought of can only make a positive contribution to its share price performance. A company’s reputation also helps determine what a company can do: acquisitions, disposals, mergers, share issues. All major changes, whether of strategy, management or simply style, become more acceptable or even possible because of the market’s confidence in a company. In particular, this means confidence in its management and in its financial strength. It is in these areas that much of the hard work of financial public relations and its achievements is concentrated.

If we take the example of a business joining a stock market, good financial public relations is essential to a company’s ability to float and to cope with the intense public scrutiny of its activity and in particular of those who manage the business.

Alongside this, financial public relations has a role to play when a company does nor achieve its objectives. Whether perceived failure is due to external factors, a need for more time, failure to manage expectation or simply getting it badly wrong, clear explanation of what is to be done to put the situation right is a far better response than hiding behind closed doors and refusing to talk.

Managing expectations is clearly a key part of avoiding the perception of failure. However, the rules and regulations surrounding the dissemination of information about a publicly quoted company have made the whole area of managing expectations a public relations minefield.

What are the rules that govern financial public relations?

Like all really worthwhile activities, financial public relations should be a careful combination of the stylishly strategic with the timely tactical and as such should fit in comfortably with every other area of public relations activity. The real difference between financial public relations and its sibling sectors is the rules and regulations that govern it. While there are many areas of activity in which there are rules, it is difficult to think of any where there are so many rules and regulations about what can be said, when, to whom and for what purpose, which are drawn up in such infinite detail, while at the same time leaving so much room for interpretation, argument and misunderstanding.

Taking the London Stock Exchange as an example: the anxious frowns of company directors and their financial advisers do not only come from worrying about how to explain their pay increases to shareholders. In recent years, they have also become understandably anxious about what they can say about themselves, and when and to whom they can or should communicate. Changes in the market and reaction to abuses of information have led to the introduction of new rules, regulations and laws which are in danger of clogging the flow of useful information altogether at a time when an improvement in the flow of information for companies is seen as particularly desirable by those that own them.

The pressure on directors and communications people is to give more information at a time when the rules and regulations make it more and more difficult. The communication of financial information can be a high risk task, and should not be attempted without careful thought and sound professional advice.

It is quite daunting even to list all the key guides and Acts of Parliament:

· the Companies Act 1985;

· the Financial Services Act 1986;

· the Criminal Justice Act 1993;

· the Stock Exchange’s Listing Rules (Yellow Book);

· the Take-over Code (Blue Book);

· the Stock Exchange’s ‘Guidance on the dissemination of price sensitive information’ (Price Sensitivity Guide).

For most UK communications advisers the Sock Exchange publications are most relevant. They address directly the problems of issuing sensitive information. They may be self-imposed rules but the cost of transgressing them both in terms of money and damaged reputation can be considerable.

The Price Sensitivity Guide is an attempt to deal with the confusion of what companies should consider as price sensitive. It is of necessity still open to interpretation but the spirit is very clear, which is to stop a number of activities that were previously common practice, including selective briefing, particularly of analysts on price sensitive issues, briefing individual shareholders ahead of an announcement and using carefully placed leaks in newspapers to excite or tone down market expectations ahead of results or announcements.

The simple rule is that any sensitive information should be disseminated through the Stock Exchange to all shareholders at the same time. The problem remains that one person’s price sensitive statement is another’s confirmation of a well-known piece of public information.

Financial public relations is a specialist business and requires not only a thorough knowledge of all these rules and regulations, but also some experience in how they have been interpreted in the past. The coordination of the issue of information is also crucial if only to stay within the rules. Experienced financial advisers and public relations people are therefore vital.

Why has this business become such a major industry?

1 Financial public relations is often wrongly described as a new Industry. In fact, it has certainly been around since the days of the South Sea Company, the famous financial ‘bubble’ which collapsed so spectacularly in 1720, ruining thousands and causing a political crisis. Anyone interested in studying the way that overactive public relations and hype can lose a lot of ordinary people a lot of money should study this eighteenth-century example that has now entered the language. It is interesting to speculate whether modern ‘South Sea Bubbles’ such as Polly Peck or Maxwell are still scandalous and familiar names in 250 years’ time.

2 Financial public relations may not be new, but it has changed dramatically since the City itself changed dramatically in the mid-1980s. The electronic screen replaced the market floor and small, privately owned firms became absorbed into international banking groups. This process was memorably, but inaccurately called the Big Bang. The deregulation and opening up of financial markets, which has been happening all around the world, has certainly involved rapid growth in stock markets, not to mention salaries and bonuses. The ‘Big Bang’ was not the birth of the financial public relations industry, but could be described as the beginning of its rapid growth, ‘adolescent’ phase.

3 Financial public relations activity in the City has experienced significant growth over the last decade, not least in the numbers of financial public relations consultancies: the great figures of City and commerce have always recognized the need to establish a strong corporate image and communicate with the market. Other factors that have contributed to the growth of specialist financial market public relations have included the changing structure and internationalization of trade and industry generally, and in particular, the technological developments that have led to a communication revolution that manifests itself in everything from local cable television to the world-wide information super-highway.

4 If there is an area that is still being neglected by those claiming to be the experts in financial public relations, it is the growing effect on public relations of the communications revolution. We talk about objectives, messages and audiences at a time when the technologists devise ever more subtle and easy ways of delivering customized messages to anyone anywhere in the globe. Whether all this will enhance or dilute the importance of a comment piece in the Financial Times is a matter for debate.

5 The much talked about Internet is just one example of a new method of communication of which many organizations are already taking advantage. Many companies now have their own web-site, and are providing a whole range of financial and corporate information for the world-wide web, in addition to consumer and product information. The secret of media success in the future may well be to avoid the pitfalls of allowing the medium to dominate the message.

Investor relations – Is it public?

Investor relations is regarded by all correct-thinking people as a branch of financial public relations, but it too struggles to come up with a decent definition of itself.

At its most basic, it could be said to be the direct marketing end of the stocks and shares promotion business. Investor relations centers around the close relationship and two-way communication between the company, its shareholders and those who directly advise them. Those who advise them are principally the stockbroking analysts who were memorably dismissed a few years ago by the then Chancellor, Nigel Lawson, as ‘teenage scribblers’. Analysts can therefore often be regarded, like journalists, as another conduit of information to be the ultimate investor audience, although increasingly, nowadays, investment institutions have their own in-house ‘buy-side’ analysts.

As many market traders will tell you, there is no substitute for direct contact with your customers and it is, therefore, extremely important for public companies to maintain a dialogue with their shareholders. For public relations people, this is potentially a very sensitive area. It is particularly important that those facilitating the communication do not get between the company and its owners. It is the role of a communications adviser to help improve the perception of the company. By getting between a company and its shareholders it is in great danger of becoming part of that perception.

Date: 2015-12-18; view: 1222