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HBS Cases: Using Investor Relations Proactively
2008-12-06 打印本页
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How should a company deliver financial news梑oth good and bad梩o a broad spectrum of stakeholders, including investors, customers, government, and environmentalists?

Energy giants Total and BP have learned best practices through trial and error, and are among the first European companies to build strong investor relations (IR) departments, according to HBS professor Gregory S. Miller. Two cases he recently coauthored describe how these different firms in the oil and gas industry梒ontroversial of late for its mile-high profits梙ave carved a path as models in financial communication and IR.

"While the energy industry has been in the forefront of a demand for more information from a broad group of stakeholders, this demand is becoming more and more common across almost all firms. Thus, the oil companies are likely examples of what we will see in many other industries in the future," Miller says.

There is no blueprint for the right way to share information, he adds. A strong IR function is best developed in a way consistent with the firm’s unique operating position. "What is really fascinating is that both BP and Total have been so successful with such different implementations."

In this e-mail interview Miller discusses lessons learned with colleagues Vincent Dessain (HBS MBA ’87) and Daniela Beyersdorfer of the Paris-based HBS Europe Research Center. Dessain, executive director of the center, cowrote "Investor Relations at TOTAL" with Miller while Beyersdorfer, a research associate, coauthored the BP case, "IR at BP: Investor Relations and Information Reconnaissance." (Research associate Anders Sj鰉an was third author on both cases.)

In this interview, Miller, Dessain, and Beyersdorfer identify trends in financial communication, the importance of delivering a consistent message to different stakeholders, and the risks and rewards of introducing external financial information into a firm’s planning and operations activities.

Martha Lagace: What important themes do the 2 cases raise about challenges and trends facing the management of financial communication?

Greg Miller: The French group Total and the British BP are both major players in the oil and gas industry, which is increasingly moving into the center of public interest due to its booming oil and gas prices and profits. In addition, this industry is inextricably linked to politics, economics, and ecology. Any bit of news, such as an oil tanker spill, a technical problem at a plant, or a political crisis in 1 of their sourcing countries, can send their share prices into a tailspin.

Even good news for stockholders can be a negative issue for other stakeholders. For example, pointing out the money saved by tough bargaining with a union could cause a real problem with employees. Announcing a dividend may lead to anger from employees who think it should have been a bonus or from environmentalists who think it should have gone into environmentally friendly upgrades. This partly explains, I believe, why they have been among the first European companies to build strong IR departments. Now they can use IR to explain their business to stockholders as well as communicate to their many other stakeholders.

Beyond this shared incentive for developing a strong IR group, the cases document how both companies share many best practices in IR principles, such as the goal of getting managers directly in contact with investors, the need for consistency in reporting over time, and the desire to be proactive in anticipating questions. However, the different ways in which these principles are implemented shows the need to develop IR that is consistent with each firm’s unique operating position.

For example, both companies know that their investors are very concerned about the large amount of cash generated in oil and gas, but each has committed to explaining its use in a different way. While BP is very willing to state they will have an ongoing policy of paying large amounts of cash to shareholders, Total focuses on explaining how their cash use is prudent. Similarly, BP has a large base of retail investors but in many ways it treats them as just slightly different versions of its institutional investors. That is, BP assumes the objective is still primarily a good return. Total approaches retail investors much more as being like customers or employees of the company梕ven using a computer system to track preferences.

They have both received awards by IR magazine for good investor relations. So in some ways these cases show that there may be universal principles to communication, but the tailoring in implementation is likely to be very different across situations.

Vincent Dessain: There are differences between Total and BP due to their origin and size, but they both face the challenge of building long-term relationships with investors in an industry characterized by fluctuations in prices and the geopolitical and macroeconomic environment in general.

Total, for example, learned the hard way how important it was to be viewed as a stable firm when its shares dropped a total of 22 percent after it acquired the Belgian group PetroFina in 1999, a move that had not been explained to the financial markets nor found consistent with the firm’s previous objectives. Total also learned that it had to be prepared to communicate about accidents. Its slow response when the oil tanker Erika split in 2 and sank in 1999, causing extensive environmental damage to the French Atlantic coastline, continues to tarnish Total’s image in its home market today. An explosion at 1 of their plants in the south of France in 2001, addressed immediately梬ith Total’s chairman going to the site to show support and take responsibility梔id not have the same effect.

Daniela Beyersdorfer: In addition, both companies had to learn how to cope with the increasing interest in their business梟ot only by their traditional shareholders but also by new classes of share- and stakeholders. Total, for example, is followed closely by its investors, employees, customers, and partners, but also by environmentalists, the government, and the general public in France. This made it interesting to investigate in a European context: European companies are traditionally more closely scrutinized by public opinion, and investors need more explanations and attention, especially as share ownership is still less common in Europe than in the United States.

Miller: As business becomes more global, much of this learning will be increasingly valid for companies in any kind of industry. Managers have to explain their increasingly complex firms to different types of external stakeholders. Investors trying to keep on top of things in a more interlinked environment will be asking for more, and more targeted, financial communication. They are gradually becoming more attentive to companies that position themselves as ecological and socially responsible players, and financial communication will have to factor this in. The BP case also illustrates that investor relations is increasingly looking for a more strategic role to play within an organization, trying to take its work to a new level.

Q: "Investor Relations at TOTAL" is set in a particular sociopolitical culture in France, and it shows how, in autumn 2005, the company had to weight its decisions in a controversy surrounding a nearly 6 billion euro profit. How did the company explain the profit to investors, customers, the public, and government? How much was the reaction particularly due to the French context, and how similar or different might the reaction have been elsewhere?

Dessain: By 2005, Total had become the world’s fourth-largest oil and gas company. For the first half of 2005 it showed a profit of 5.8 billion, but also planned to save money to create buffers for future downtur

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