CEO access to the highest bidder, WTF?

SOMETHING about this story troubles me deeply.

National Investor Relations Institute (NIRI) board member and Regal Entertainment Group VP of IR Don De Laria recently wrote an enthusiastic blog post detailing how a certain firm, Hanley & Associates LLC, is charging buy-side investors a fee to have one-on-one meetings with company top brass.

According to De Laria’s post, pricing for access is based on how keen the investors are to meet with management. De Laria says five current or past Directors of NIRI National have first-hand experience marketing through H&A. He lists companies such as Colgate Palmolive, Campbell Soup Company, United Parcel Service, Inspire Pharmaceuticals, JC Penney, Genzyme, Invesco, Verisign, Forest Laboratories and Occidental Petroleum as being among 26 companies that have worked with H&A.

The post about the service was subsequently removed from De Laria’s blog without explanation, but not before it was captured in my RSS reader and cached by Google. It seems to have been posted on the blog from December 20 to December 26.

After reading the full post, which neatly lays out the pros and cons of the scheme from the corporate perspective, I’m left wondering why something about this concept leaves a feeling of dread in the pit of my stomach.

The Google cache copy of De Laria’s post December 20, 2007 post headlined The New and Improved Non-Deal Roadshow

I can’t quite put my finger on what exactly bugs me about it, but here are some thoughts:

1. If they’re paying, what are these investors expecting to get?

Since companies are barred by law from selectively disclosing information to some investors and not others, what exactly are these investors getting for their money? What is so valuable about one-on-ones that investors are willing to pay a middleman hard dollars to set up a meeting with executives?

And since investors are paying for the privilege, aren’t IROs setting up their executives to come under intense pressure from investors who feel they’re owed something more than the CEO’s usual sales pitch?

2. Why would an investor pay for access anyway?

In his post, De Laria says H&A markets its one-on-ones to the “top 300 largest institutional money managers and hedge funds, of which approximately 187 are currently clients (90% long-only funds and 10% mainstream hedge funds).”

I’m sorry, but I don’t understand why investors of this stature can’t just call up the IR department or the CEO’s office and ask for a meeting. And what kind of company would deny a top 300 institution access to its senior executives?

And if management would typically say “no” to a direct meeting request, why are they then saying “yes” if the investor pays a middleman a fee? Something is wrong with that picture.

3. Why is this even a viable business?

I have a sense that the investor relations profession is doing something wrong if investors feel that they have to pay hard dollars to secure a meeting with executives. Obviously there is a demand from investors that the IR profession is not currently meeting.

But there has to be a better solution than auctioning access to the highest bidder. Perhaps we need to ban one-on-ones so that there is no market for this type of thing. I know that sounds radical, but if we continue on this path, where will it lead?

4. Why is a NIRI board member writing about this firm?

The post reads a lot like an advertorial for H&A. It calls the approach “a revolutionary demand-based non-deal roadshow model” and says H&A have done something to “significantly improve the quality of the traditional one-on-one meeting.”

It doesn’t seem right somehow that a member of the NIRI board should be so enthusiastic about a particular firm, especially one whose business is in somewhat uncharted territory. Perhaps that’s why the post was deleted.

So these are the questions that sprang to mind while I read the piece, but I’m not sure they actually cut to the heart of what troubles me.

What might be troubling me more is that I could very well be the only person on the planet who thinks there’s something just a little off about this.

That’s a really frightening thought.

The original post by Don De Laria follows:

Thursday, December 20, 2007

The New and Improved Non-Deal Roadshow

Over the past several months, I’ve spoken with Rick Hanley and Tom Butler from Hanley & Associates, LLC who have developed a revolutionary demand-based non-deal roadshow model that utilizes economic incentives to maximize company management time and significantly improve the quality of the traditional one-on-one meeting.

The primary components of the Hanley model are as follows:

• Buy side pays for the meetings (based in interest level) as companies realize the same minimal cost as they would with a brokerage sponsored roadshow (i.e. air/hotel).
• The IRO and management commit to a day(s) on the road assuming H&A can generate interest from 4-5 accounts per day.
• The IRO can opt (with H&A’s assistance) to develop a 7 minute Web-based Executive Roadshow Briefing to introduce or update investors and set the tone for the upcoming meeting.
• Hanley combines the presentation with other company provided materials in a marketing campaign aimed at the top 300 largest institutional money managers and hedge funds, of which approximately 187 are currently clients (90% long-only funds and 10% mainstream hedge funds).
• Approximately 2-8 weeks in advance, H&A sends a Company Meeting Request Form to its client base. If a client has interest, they reply and indicate their interest on a scale of 1 to 4
  4 = must meet management as a buy/sell decision is imminent
  3 = meeting would be very timely
  2 = maintenance meeting
  1 = introductory meeting
• H&A also collects information about the current state of the clients decision making process and allows them the opportunity to comment in an effort to gain a meeting.
• The company is presented with information from all the accounts that have interest and are then able to determine in what cities their time will be best spent. Since cost of the meeting increases with its urgency, the buy side is economically motivated to only ask for the type of meeting that is in their best interest.
• H&A handles all the details and coordination.

The advantages of this model include:

• Maximizes efficiency – only visiting accounts that have a quantifiable bon-fide interest
• Minimal/no cost to the company (except normal travel expenses)
• Objective Buy-side feedback is collected and tracked by Hanley. They tend to collect better feedback from a higher percentage of accounts because money managers are confident their responses won’t create a conflict of interest as is commonly the case with sell-side firms.
• Executive Roadshow Briefing in advance of the meeting sets the tone and maximizes communication during the meeting.
• Hanley has a presence in every North American financial center except Denver, the Southeast and Toronto (at this point).
• The buy-side avoids tipping their hand to the sell-side by virtue of either the meetings they take or don’t take or the feedback they offer.
• H&A does not tier it’s investors. As a result, all institutions have equal access to a meeting based on the merits of their investment case and priorities for a meeting and not on their commission flows

The disadvantages of this model include:

• Not all funds are willing to pay for a meeting outside of the traditional brokerage vote process.
• This is a C-suite product at this point – IRO only roadshows are not yet offered.
• You may or may not have as many meetings in a particular city as you management might expect. Hanley points out that you won’t have any wasted meetings with their service as is frequently the case with sell-side arranged roadshows.
• Not all funds are clients of H&A. Funds that are not yet clients are monitoring the model. Some funds feel that certain companies are on the road so much that they don’t need to pay for the meeting while others are simply interested in building their general research and may not have a specific interest in the company –which again, maximizes management’s time on the road. Regardless of whether an investor is a client, H&A will accommodate any investor that you feel is important to include in your roadshow.

Perhaps the most significant validation of the model is the companies and IRO’s who have first-hand experience marketing through H&A (including five current or past Directors of NIRI National). After less than a year in operation, they have conducted 36 roadshows with 26 companies and coordinated 151 one-on-one’s for the likes of Colgate Palmolive, Campbell Soup Company, United Parcel Service, Inspire Pharmaceuticals, JC Penney, Genzyme, Invesco, Verisign, Forest Laboratories and Occidental Petroleum just to name a few.

Len Griehs, Vice President of Investor Relations, Campbell Soup Company

“Our roadshow had the ‘look & feel’ of a traditional Wall Street sponsored event but was more effective in terms of helping us target our potential incremental investors.”

Charles Triano, Vice President of Investor Relations, Forest Laboratories

“Perhaps the most impressive aspect of the day was that all of the meetings included senior portfolio managers (as well as the industry analyst).”

More information on Hanley & Associates, LLC can be obtained at http://www.hanleyassociatesllc.com/

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