Corporate Management and the Analysts

Abstract

1 N THESE TIMES of rapid growth in the analyst profession and in diversified, publicly held corporations, it is hard to overestimate the value of improved understanding between financial analysts and corporate management. In the past seven years, more than 1,000 corporation executives have attended investor relations seminars sponsored by the American Management Association. Presumably they have come away with a clearer view of the need for closer attention to this aspect of their jobs. Last May the question was examined from its other dimension at a Financial Analysts Federation Workshop in San Francisco, hopefully marking the start of continuing and fruitful conversations. that point, the situation was reminiscent of the story about one of baseball's most celebrated umpires, Bill Klem. On an especially close call at the plate, the runner emerged from a cloud of dust demanding to know whether he was safe or out. Until I call it, Klem announced, You ain't the analysts initiated a parallel discussion at San Francisco, the absence of real efforts to hold joint discussions bore some resemblance to Klem's nothing. The point is that analysts and management travel together on a two-lane avenue of responsibility. Its destination is a better informed community of investors, and it is in the interest of both sides to develop as constructive a relationship as possible. Certainly this is preferable to coping with a relationship imposed upon them by outside agencies or events. Let's look at the key aspects in an effective working relationship between analysts and management, taking a management view as a start. Today, we at RCA base our efforts on two fundamental objectives. The first is to provide full, accurate and timely information to the investing public and their representatives in order to provide them with sound information and to minimize the chance of judgments formed on rumor or speculation. The second is to encourage the investment community to disseminate this information as broadly as possible among investors. In other words, we view the investment community in a sense as a vital communications network reaching out to any and all who have an interest in the progress and prospects of the company. And consequently, we maintain an open-door policy for analysts who seek to know more about us. Many corporations have now designated one executive as the contact point for the financial analysts. Both widespread information-gathering resources and access to other key executives throughout the company should be among his greatest assets. On appropriate occasions, he can arrange for analyst programs and first-hand contact with other executives to afford analysts the opportunity to probe more deeply into the philosophy and personality of the corporate management. At RCA, these discussions are not necessarily limited to the affairs of the company alone: we recognize the need of the analysts for information about the industry as a whole, and we try to provide this as well whenever it seems appropriate or helpful in the discussion of our own business. The title or position of this executive may vary from one company to another, but his function is basically the same wherever he may be. He is in the best position to recognize the interest of the analysts, to develop the required information, to organize special programs, and to answer specific questions. The analysts' basic concern should be with how well the designated individual can serve all of their legitimate interests, rather than where he is in the corporate structure. If this executive is doing his job, he is representing the analysts' viewpoint to people within the company. Often, he may need the understanding and support of the investment community in order to carry out this aspect of his job among his associates in the corporate structure. It follows that his work can be hindered by the handful of end-run analysts who, in their predatory ways, create an unfortunate impression among corporate management in the process of obtaining information. If a firm's investment research approach permits untrained analysts to call upon management as a method of providing experience, it may be contributing to the same undesirable situation. Furthermore, there is nothing calculated to close the corporate doors faster than the seeker of hot tips, and I trust that the renewed interest in performance will not emphasize this approach. No reputable corporate management is in the business of furnishing such tips-but it definitely should be interested in providing valid information to those who seek it for valid purposes. Let's turn now to the other side: what should we expect from the investment community? I believe the responsibility of the analyst entails thorough coverage JOHN A. GEARHART is Manager of Investor Relations, Radio Corporation of America, New York City.