Nothing to Hide

Eager to be more transparent, companies are using a range of technologies to communicate with shareholders.
Laton McCartneyJune 16, 2003

Grouse all you want about the costs and headaches of Sarbanes-Oxley compliance, but the new regulations are having a major and largely positive impact on the way many publicly traded companies view their investor relations (IR) function. CFOs and other senior executives, in fact, are now enlisting IR as a primary means by which to restore investor trust and drive shareholder value. These efforts are being aided by new technology that greatly expands what IR can do.

Traditionally, IR “has been a fairly static function,” says Stephen Schultz, director of corporate governance programs at, a company that supplies its clients with Web-based technologies and services for disseminating information to shareholders. Beginning in the ’90s, CFOs did take a more active interest in how company information was presented to investors, but their enthusiasm for technology tended to be slight.

At best, “you had IR using the ‘push’ approach to generate information out to shareholders,” says Eric E. Olsen, a senior vice president of Boston Consulting Group (BCG). “That approach doesn’t get you clear information about your investor base. It tends to ignore the fact that your investor base is segmented and doesn’t allow you to establish a dialogue with investors.”

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Today, however, many corporate IR departments are adopting technologies that allow investors to access multiple levels of information in innovative, interactive formats. They are targeting specific information to investor segments to better align corporate objectives with those of their shareholder base and are employing a range of IT solutions to obtain feedback and other data involving investor concerns.

At the same time, IR continues to gain more executive mind share. “There is a lot more emphasis on IR these days,” says Brian Miller, treasurer and vice president of finance at Tyler Technologies, a small-cap firm that he says must “go the extra mile in IR” in order to get visibility among investors.

“IR as a discipline is beginning to escalate within public companies,” agrees Schultz. “And because of its increasing importance, it’s attracting interdisciplinary teams — investment-relations officers, CFOs, chief legal officers — who work together as a disclosure committee and are active in determining what needs to be communicated.” Given that most of the technology solutions aimed at senior executives are Web-based, they provide an economical way (usually priced by the month) to manage the increasing volumes of information that companies are eager to convey to shareholders.

Sarbanes-Oxley comes on the heels of a number of developments that have propelled IR, including the unprecedented bull market, Reg FD, and early experiences with Web conferences. Progressive companies are not only complying with the new regulations but also adopting best practices in IR, such as those established by Pfizer and General Motors. At the heart of those efforts is a desire to do more than merely disclose information. “You can disclose a lot of information that’s buried in footnotes and [therefore] meets all of the regulatory requirements. But until that information is presented in a clear, understandable manner, it’s not transparent,” says Louis M. Thompson, president and CEO of the National Investor Relations Institute (NIRI).

The Internet — or, more specifically, using the Web as a venue for investor relations — is quickly proving to be a valuable tool for dealing with transparency and governance issues. Of course, companies were using the Internet to communicate to investors well before Sarbanes-Oxley enforcement was imminent. A 2002 survey by NIRI underscores how important the Web has become as a source for investor information. Of the 200-plus members surveyed, 99 percent used the Web for quarterly earnings releases, 95 percent for annual reports, 92 percent for Securities and Exchange Commission filings such as 10K or 10Q reports, and 68 percent for stock price information.

That usage is increasing markedly as a result of Sarbanes-Oxley. “With Sarbanes-Oxley, the providence of Web disclosures came to the fore,” says Greg Radner, vice president of marketing at CCBN, which builds, manages, and hosts the IR sections of Web sites for more than 2,500 companies. It also hosts live and archived conference calls for some 3,000 companies each quarter. Radner explains that in conjunction with the passage of Sarbanes-Oxley, the SEC officially sanctioned the Web as a venue for disclosure.

The Web’s suitability as a communication channel is fairly obvious, but some companies, including Pfizer, Cisco Systems, and American Express, are also using it to address corporate-governance concerns raised by Sarbanes-Oxley. “We have a corporate-governance Web site where, among other things, we display Form 4 filings electronically,” says Peggy Foran, Pfizer’s corporate secretary and vice president for corporate governance. Form 4 details “changes in beneficial ownership of securities,” including stock purchases and sales, as well as the exercise of options on the part of company executives and directors.

Thanks to the governance site, Pfizer investors are privy to these transactions almost immediately. The site also provides CEO/ CFO certifications, company charters, and other governance-related information. recently added a Whistleblower Hotline service to its array of Web functions; the service gives would-be whistle-blowers several ways to communicate confidentially with a company’s audit committee.

Drilling Down On Rig Counts

In addition to the expanding services of companies such as and CCBN, a number of other technology vendors now offer products that bring enhanced transparency and other benefits to IR.

Recently, more than 1,000 companies tried out new software from a company called Enumerate that replaces the usual static financial charts presented on Web sites with what enumerate calls interactive data views (IDVs). Investors can visit a company’s Web site and create a variety of views of corporate data, drilling down for details that could help them to, for example, draw more-accurate comparisons between one company and another. “The software enables IR to present information in a more meaningful way,” says Jeffery Erber, director of marketing at enumerate. “Transparency builds credibility.”

Enumerate’s customers include public companies such as Sallie Mae, Wilson Greatbatch, and Baker Hughes, a large-cap oil-field services company. According to Gary Flaharty, director of IR at Baker Hughes, the software boosts both communication and transparency by, for example, enabling his firm to provide a weekly summary of so-called rig counts, one key measure of the industry’s drilling activities around the globe. Investors can click on the rig-count data and the underlying IDV technology will allow them to create tables and charts that can be transported into other presentations.

Interactivity is at the heart of many new IR technologies, in large part because, as’s Schultz says, “companies want to provide greater business context around complex financials.” Software maker MicroStrategy, which parlayed its business-intelligence prowess into a boom-and-bust ride that typified the dot-com era, now seems to be stabilizing and sees plenty of opportunity in winning sales by stressing the demands of Sarbanes-Oxley compliance.

The company claims that providing “live reports as opposed to static printed reports” represents one of the best practices for ensuring financial transparency and that live reports enable investors to drill down to “really understand the root cause of any problem or anomaly.” MicroStrategy, which says the latest version of its software was designed specifically to meet new financial reporting and analysis requirements, claims that more than 60 percent of CFOs believe that their existing financial applications are inadequate to meet such requirements.

No doubt there is marketing spin at play in some of this. MicroStrategy’s new Sarbanes-Oxley-friendly release, for example, reached the market just a little more than a month after President Bush signed the act, and is labeled Version 7.2.1 — hardly a massive overhaul. Of the many companies hoping to leverage Sarbanes-Oxley as a sales tool, in fact, few have made any substantial changes to their products. But that doesn’t mean they can’t play a major role as companies enhance their internal controls and processes regarding disclosure, transparency, and risk management.

Board Gains

An overarching concern addressed by Sarbanes-Oxley is the frequent disconnect between the objectives of shareholders and those of management and the board. As Gerry Hansell, a vice president of BCG, notes, “The board is supposed to represent shareholders but rarely has direct contact with them.” Pfizer’s Foran says that at the least, a CFO or investor-relations officer should communicate shareholder sentiments to boards on a regular basis, and BCG’s Olsen says, “Information from [investors] needs to get into the corporate dialogue more explicitly and earlier, when plans are being made rather than implemented.”

Here again, new Web-based software and services may help by aligning investor and management/board objectives and providing management with an accurate and timely assessment of shareholder expectations. As an example, b2i Technologies offers a full array of corporate-governance online software applications, not with the aim of giving investors a clear view into corporations but vice versa. The products allow companies to see what investors are doing on corporate Web sites, and graphically displays investor understanding, reaction, and expectations in real time. The software captures information about site visitors, for example, and automatically adds them to a contact list while also prompting them to sign up for E-mail alerts.

The software puts a premium on E-mail contact, allowing companies to push out feature-laden E-mails (including pictures, hyperlinks, embedded financial data, and polling questions) while receiving and categorizing feedback from current and would-be investors. “These capabilities allow investors to participate in a two-way dialogue with the company and provide information that can be incorporated into management decisions,” says Troy A. Ussery, president and CEO of b2i.

“We brought in b2i to enhance our investor-relations Web site,” says Tyler’s Miller. “It’s enabled us to set up different kinds of distribution, and provides content-management capabilities so we can target our information.”

Tyler allows investors to create their own customized portals so that they can receive the information they’re most interested in, be it charts, E-mail alerts, or various presentations. Tyler also gives investors easy E-mail access to headquarters so that Miller and other executives can answer any questions investors may have, and posts questionnaires on the site to gather additional information from site visitors. Miller says he uses all the data about investor impressions and concerns when he makes quarterly reports to the CEO and board.

While many companies are using Sarbanes-Oxley as a selling aid today, experts say that long after meeting those requirements becomes second nature to corporations, the role of IR should continue to benefit from new capabilities. BCG’s Hansell and Olsen say that from the perspective of the financial markets, equity drives the company. “Equity funds the company to do its business, serve customers, and provide value to the economy,” says Hansell. “The company must be run in a fashion to give competitive returns to equity shareholders.”

Investors As Customers

Hansell and Olsen believe that most corporations have some pieces of technology in place to effectively treat investors as customers, profile their objectives, and tailor outbound information to suit their specific interests. “Some of the infrastructure is already there,” says Hansell, who cites, for example, global research services from Thomson Financial, which offer a means of “knowing who is buying and selling [and] how their styles line up with your objectives.”

Still missing, Olsen says, is “a system that enables you to gather and control all the information you need to talk to your investors about the issues that concern them.” Which is to say that despite the flurry of activity in IR-oriented IT, technologies have tended to come onstream piecemeal — an “ERP of IR” is a murky concept some way off. Even if it did exist, says’s Schultz, it would need to be matched to a new skill set within IR. “Soon IR will have to develop expertise in marketing,” he says. “This is all about fine-tuning the information flow to specific investors.”

Laton McCartney is a New York­based writer and editor. His most recent book, Across the Great Divide: Robert Stuart and the Discovery of the Oregon Trail, will be published later this year.

Sidebar: Compliance — Who’s At The Internal Controls?

The Sarbanes-Oxley stipulation that management must have effective internal controls over financial reporting in place (Section 404, the requirements of which were approved by the SEC in late May) has given rise to a miniboom in Sarbanes-Oxley controls-oriented technology. Scores of vendors and consultancies are rushing to develop solutions or position existing technology as a means of enabling customers to meet compliance requirements. For example, BearingPoint and Hyperion now provide a suite of out-of-the-box solutions that support disclosure-control processes. Other players in this emerging market include KPMG, Ernst & Young, and Deloitte & Touche, as well as various business-process management (BPM) and workflow software vendors such as HandySoft in Vienna, Virginia, and OpenPages in Westford, Massachusetts.

The former offers BizFlow, a BPM and workflow solution. “The technology allows customers to streamline and automate business processes throughout the enterprise,” says Daryn Walters, HandySoft’s vice president of worldwide marketing and strategy. BizFlow, he claims, enables corporations to leverage existing financial, ERP, and other legacy systems to minimize the cost of compliance. It also provides the project and task management capabilities for defining significant accounts, processes, risks, and internal controls that conform to the standards laid out by Sarbanes-Oxley. In addition, BizFlow identifies problems and improvement opportunities in auditing and internal-control processes, including real-time monitoring capabilities to assess the status and performance of controls, the company says.

The OpenPages solution, SOX Express, is made up of a controls-design module and an operational-deployment module, and works with enterprise software from Oracle, BEA Systems, and others. Its approach is to create a centralized and secure home for the documentation of internal controls and to enforce financial reporting and internal-control workflows while providing audit trails and archives of internal-control processes and the required testing procedures. “One of the big challenges,” says OpenPages CEO Michael Duffy, “is to document those accounts where there is risk and show that controls are in place to deal with that risk.” Like Thomson Financial, Hyperion, and other vendors, OpenPages also provides management dashboards that CFOs and investor-relations officers can use to monitor internal controls.

Some of the controls-oriented Sarbanes-Oxley technology is targeted at chief legal officers as much as financial executives. For instance, Steelpoint Technologies has come out with what it calls compliance and litigation risk-management software, which company vice president Mark Jesser claims enables customers

to monitor critical internal-information flow — both paper-based and electronic — through workflow and document-management capabilities. Using the company’s litigation-support software, Introspect eCM, a user can place all this information in a common repository, locate conflicting information and problem areas, and assess potential risk. “The customer has to be able to access compliance and litigation risks and manage the documents involved in larger case and enterprisewide litigation,” explains Jesser. “There may be 50 [million] or 60 million pages of information being accessed by 20 or more law firms concurrently.” Steelpoint is partnering with both Filenet and IBM to develop Sarbanes-Oxley-related content-management applications.

Risk concerns are clearly one of the prime drivers of this market. A recent PricewaterhouseCoopers survey of 137 large U.S. multinationals indicates that 65 percent of the respondents believe that Sarbanes-Oxley represents increased risks for CEOs, CFOs, and other key executives who are required to certify financial reports. PwC says that a more-mature system of internal controls is key to risk mitigation.

Sidebar: Setting Sites On Better IR

With so much investor-relations activity moving to the Web, usability becomes a key concern. Nielsen Norman Group, a consulting firm that specializes in Web-site usability, recently studied how dozens of consumers and investment professionals sought IR information on 20 corporate Web sites and found the following:

  • The overall success rate (finding answers to specific IR-related questions) was 70%, compared with 55%­65% for other usability studies, indicating that IR is often handled well.
  • But 35% of users couldn’t locate the most recent quarterly report, and 77% couldn’t find high/low share prices for earlier quarters, suggesting that essential investor information is often buried.
  • Professionals (institutional investors, financial analysts, and journalists) deplored the marketing and promotional aspects of many IR sites but said they did welcome management comments on where the company is going; that is, they want the story behind the numbers.
  • PDF files and interactive stock charts often impede fast access to basic information.

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