NEW CONKERS3 FEATURE : An article by Tim Rogers,
Former CEO of AB Dynamics Plc, now owner and Non Exec director of a number of companies involved in SME new business development and advanced engineering technology. For the past 20 years I have been operating at CEO, senior director and board level with private and public companies including NASDAQ and AIM listed businesses involved in the advanced engineering and environmental sector.
I was often asked when I was CEO of an AIM plc, what my thoughts were with respect to dealing with Retail Private Investors. Specifically, the opportunity to give them direct Q&A access and face-time with the CEO and management team.
Interestingly, not much advice is given to the CEO on how to handle Retail Private Investors by either the LSE or the Company advisers. Ask them about Institutional Investor matters on the other hand and you can’t get them off the phone but on Private Investors….. In their defence the company’s advisers: Broker, Nomad and Accountants are heavily geared towards serving the needs of the City regulators and Institutions and there is no money in dealing with Private Investors so it is understandable. However, it is a shame, as a good balance can be struck when it comes to investing in small caps where both sectors actually need each other.
The argument goes that healthy Private Retail Investor participation in a company can drive liquidity and share price. Where Institutions (if picked correctly) can provide the base funding, become long-term holders and fund the Company’s future growth. Numerically speaking, there are a only handful of Institutions but a whole load of Private Investors. As no one seems to champion the cause of the Private Investor in the City, then it is down to the company and its directors to decide if it wants to engage with them directly. So how can the CEO adapt their communications policy to deal with both, in a way where they don’t spend too long away from actually running the Company.
In my own opinion there are many small company CEO’s who look at Private Retail Investors as if they are a spider in the same room i.e. ok when it’s sitting in the corner minding its own business, but bloody scary when it’s running towards you. So best to keep them at arm’s length and just deal directly with the Institutional Shareholders and let the Private Investor find out what’s going on from posting information on the company website, RNS’s, Share chat, the occasional financial news video or a touch of “friendly” Twitter banter with the CEO. So, are the Private Investors really being left out?
Well I think they are. I have always believed that when companies come to the City to present their year-end Final results, that they should make time for at least one open presentation at a venue open to all shareholders who register, and one which is videoed and posted.
Apart from that when it comes time for actual face to face interaction with the CEO and the management team are the Private Investors getting a fair crack of the whip? They see that the AGMs are usually formulaic and annual city presentations are scripted, so it’s possible that Private Investors perceive that the Institutions and Fund Managers seem to get all face-time with the management where they get none. So, what is being said that they are not party to?
I will jump straight in here. I don’t believe that the Institutions are party to any more information than the Private Investor is. It must be remembered that the AIM rules do not allowed information to be conveyed that is not already in public domain. Furthermore, if inside information is divulged then there is an obligation to make that information public either via and RNS or another method. This is equally true when dealing with the Institutional Investors as it would with Private Investors.
That’s not to say that the Fund Manager/Analyst doesn’t push very hard for information, after all they are in competition with other funds and they are always looking for different angle to give them an edge. Institutions can become insiders but that is for another day.
As an aside, a CEO can in some cases come across as a bit cagey when he’s being grilled on a particular juicy part of the business strategy in closed session. Normally it’s because the CEO is mindful what can and can’t be said that isn’t already publicly known.
So back to the Private Investor. The advent of and posting of in-depth video interviews with CEOs and leaders published by companies like ShareSoc, MelloEvents, PI World, Conkers3 and others go part way to addressing the problem where the interviewer poses questions pertinent to those of a Private Investor. It’s a start and I have high hopes for the medium in reaching out to the many Private investors and small institutions but it’s not the face to face that is desired by many.
So how does it work now? With Institutions you get to meet them – accompanied by the broker – in their offices in London, Leeds or Edinburgh, you drink tea and eat their biscuits and get to understand them and they you and their thinking over time. Conversely if a CEO wants to interact with Private Investors then because of the numbers, they can meet them in open investor presentations or a general PI event. For many this might be the first and only time of acquaintance.
When a CEO can be persuaded to speak at a Private Investor event, he will inform the company’s advisers who usually go on high alert. So, on the day of the event if the CEO was nervous before they sure are now.
Now here is a secret. Not all SME company CEOs are groomed to be public speakers! That is most likely not the skill that got them to where they are now. Having said that and judging from what I have seen recently, that probably wasn’t much of a secret. But I have seen very polished CEOs give excellent company presentations on bad businesses. Conversely, I have also seen companies I know to be great…. die on the stage, so do not think a word-perfect performance = world class company.
My own experience to date is that whilst it is enjoyable to engage with the retail sector, you do need to be very careful about what you say and how you respond to questioning in open forum. For one thing the type and nature of questioning and enquiries a CEO will receive will be totally different from that they get from the Institutions. I have heard it said that CEOs often do not seem to understand their own numbers. I will let you into another secret they often don’t! That is because quite often unlike large FTSE companies, the CEO himself hasn’t come from an accounting background, and they are more likely to be an entrepreneur with a good business head. Ultimately, they possess an accounting knowledge that is sufficient to see their way forward in running his or her business and converse knowledgeably with their CFO.
I have observed that the retail investor is very well informed and usually has a steel trap understanding of the balance sheet and the accounts to such a detail that is usually beyond the CEO’s ability to ask answer questions that are relevant to the Investor. That’s what a good CFO is for and if a CEO has any sense, they should bring them along to the event.
As for the presentation and Q&A it is twofold. It is the CEO’s opportunity to share their vision of the business and explain its value proposition. It is the Private Investor’s chance in turn to quiz them on the business opportunity and get behind the numbers not just go through them.
That’s not to say that all SME CEOs are poor accountants or have poor numeracy skills, you have to remember their job is running the company and that involves People, Business Strategy and Business systems etc. They are the bits you want them to do well in.
I will leave you with this. Some years back I was once asked a question by a member of the audience that was so specific that I was lost. It was along the lines of “what’s your ratio of capital x to the outstanding inventory y with respect to the % of z.” I flicked through the annual report as my trusty CFO was not with me (mistake) and rather than wing it I said i would get back to him. I saw him frown and scribble in his notes. Later at drinks in the bar I overheard him say he would never invest in a company whose CEO didn’t know his numbers. I was sad to have let my company down and that I hadn’t been able to convey the soundness of the business and I was put off to say the least. I knew my business well, which was trading at the time at £1.50 and today it’s £16.35. However, I learned a valuable lesson from that experience – don’t underestimate the value of your communication to Retail Private Investors.
This article by Tim Rogers is very timely as companies, CEOs, CFOs, leaders of FTSE, AIM, globally listed and innovative companies and Fund Managers will be presenting and showcasing their potential to around 5000 private investors at the Master Investor Show in London on 6th April 2019.
The MasterInvestorShow have kindly asked Peter Higgins @conkers3 of Conkers3 to conduct some interviews during the event. These interviews will then be published at a later date, however as special treat, those of you that wish to attend can do so by obtaining a FREE ticket using the discount code CONKERS via this link http://ow.ly/6hFH30nHwQC
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