Guess Who's Courting The Beardstown Ladies?
Armed with slick videos and colorful charts one recent Saturday morning, investor-relations officials from three medium-size companies gear up for their show. Sitting before them in a ballroom at a Hilton hotel in Austin, Tex., are 200 members of local investors clubs representing all age groups and occupations. They are ready to spend the next six hours mulling over price-earnings ratios and projections of revenue growth as Diebold, maker of automatic teller machines, steel firm Worthington Industries, and Colorado utility New Century Energies go through their show-and-tell.
Their purpose is dead serious: to counteract the growing clout of big institutions such as mutual funds. More companies are regarding them as fickle, short-sighted, and too willing to dump stock because of a bad quarter. Scores of firms, including Abbott Laboratories, Amoco, and Intel, are now hitting the road regularly to lasso more individual investors, since they hang on to their stock longer and are more willing to weather a storm. "You do need big institutions. But you don't want one of them to have such a position in your corporation that it affects your decisions," says David A. Daberko, chairman and chief executive of Cleveland-based National City Corp., who is pushing the small-stockholder move.
BIG RELIEF. Helping the corporations in their quest is the National Association of Investors Corp., which helps educate and organize small investors. As more individuals maneuver to cash in on the bull market, the NAIC has seen its membership triple, to 633,000, since 1993. Companies are taking them more seriously than ever before. Says Kenneth S. Janke, president of the Madison Heights (Mich.) group: "Fifteen years ago, the only way a CEO would meet with investors would be at a financial analysts' meeting. Now, they'll meet with the NAIC."
By hitting the investor club circuit on weekends, companies such as Diebold Inc. have succeeded in cutting back on the institutions' stranglehold. In 1990, institutions held 82% of Diebold's stock, but today they hold only about 65%. That's a big relief to Diebold, a technology company that faces volatile markets. "There are a handful of institutions out there that can really make the market swing with the quick sale of a tech stock," says Donald E. Eagon Jr., the company's vice-president for investor relations. In April, Diebold saw its stock tank from $42 to $28 a share when an institutional investor became dismayed over a dip in orders and sold off 1.5 million shares.
Nor are technology outfits the only ones that are looking for individual investors. McDonald's Corp. has been chasing them for years and now has about a 50-50 mix. "They provide an important balance to institutional holders. Besides that, ours is a global consumer brand, and individual investors can relate to that on a personal level," says Mary C. Healy, assistant vice-president of investor relations.
There's no optimal balance between individuals and institutions, however. At Colgate-Palmolive Co., the mix now is 40% individual and 60% institutional. "We think that's healthy," says Anne Crawford, director of investor relations. Colgate tries to hang on to individual shareholders by picking up their attendance fees and lunch tabs at investor fairs. Thomas A. Richlovsky, National City treasurer, likewise has attended hundreds of NAIC meetings over the past 10 years. In that time, the bank has managed to shift holdings from two-thirds institutional three years ago to about half today.
Corporations can promote stock buys by individuals in other ways. Companies include their stocks in their own employees' retirement plans or give away options on special occasions, such as corporate anniversaries. Some offer discounts for direct stock buys and have plans for individual investors to roll dividends over into new shares. Some 60% of Colgate's shareholders do that.
Club members make investments in two ways. Single members can buy shares in companies they like. Or the stock can be bought in the name of the club, making them somewhat like miniature mutual funds. Members split up the dividends or stock-sale proceeds later.
So long as large institutions dominate the markets, of course, the investment clubs will do little to prevent the kind of institutional-related volatility that hit Diebold and scores of other companies. But for the companies that have come a-courting at investment clubs around the country, this is the beginning of a beautiful friendship.