Preface

A Brave New World

of Investor Relations

If a chief executive officer or chief financial officer wanted to hire an outside

agency to help management more effectively interact with sell-side analysts,

investment bankers, and portfolio managers, it would seem obvious that the

best person to hire, especially if the shareholder implication of the decision

were really thought through, would be someone who had senior-level, firsthand

experience as a sell-side analyst, an investment banker, or portfolio

manager. At least that’s our view, one that seemed obvious. Yet, almost every

day, corporate America’s best management teams make the decision to put

investor relations in the hands of professionals who don’t have the appropriate

background.

Choosing the wrong investor relations support can add risk to the already

risky business of dealing with Wall Street. After almost a decade of

seeing corporate communication blunders that lose shareholders billions of

dollars in value, we became convinced of the tremendous need for a more

professional, strategic, and capable approach to IR.

Along with John Flanagan, our lawyer and founding partner, we started

Integrated Corporate Relations in 1998 in a small office above an antiques

store in Westport, Connecticut. We’d both been senior-level equity analysts

on Wall Street and covered exciting industries while enjoying the opportunity

to become experts on specific companies and industry sectors. Similar

to most equity research analysts during the 1990s, we worked long hours

under stressful conditions to be the go-to guys who knew the companies, the

management teams, and the underlying fundamentals that would presumably

move our stocks.

As analysts, our job was to take information, both distributed by the

company and that which we uncovered, and conduct in-depth analyses of

these businesses and their earnings potential. During that process, however,

we often found a costly communications disconnect that invariably penalix ized the companies (in terms of valuation and cost of capital) and investors

(in terms of declining share price).

The culprit? The problem was nothing more than a general lack of expertise

on the part of management teams with regard to dealing with The

Street and managing the nuances of the stock market. All too often, there

was unnecessary confusion, uncertainty, and caution, leading to an arbitrage

between reality and perception.

During that process we frequently witnessed management teams struggle

with interacting and communicating with The Street, and we realized

that if we were privy to the details of any given situation, we could really

make a difference. That’s why we crossed the capital markets divide, so that

we could help transform not only the perception of investor relations, but

also its importance to a company’s long-term success.

As former analysts, we saw the complicated relationship between corporations

and the investment community and realized we were probably the

best-qualified third party to give counsel on strategic IR issues. This type of

advice was certainly not the job of legal counsel, who most likely never had

spoken to an analyst or portfolio manager as part of his or her job. Nor was

it the task of the big accounting firms that advised CFOs on other important

reporting issues. Most importantly, we strongly believed that it wasn’t the

job of a third-party public relations firm, staffed in all likelihood with PR experts

and communications majors. While these professionals may be at the

top of their game in many communications-oriented situations, they simply

don’t have the background to advise management teams on complex capital

markets–based, strategic IR issues. Nonetheless, this type of firm was dominant

in the business of investor relations although there is no guarantee that

the landscape will remain that way.

We came to IR because we believe that former sell-side analysts and

portfolio managers have the unique experience to advise CEOs and CFOs

on how to deal with the markets. As analysts, we understand how research,

investment banking, and sales and trading coexist and interlock to drive

profits at investment banks. Understanding this point is critical to positioning

a company and advising management on how best to approach any sellside

firm. We also understand exactly what portfolio managers are looking

for, and how it can change from quarter to quarter. In essence, we package

the product for the sell-side and the buy-side (the buyers) because we’ve sat

in those seats.

Currently, many CEOs and CFOs dismiss IR as too costly or unnecessary.

That’s a precarious stance on a communications function that, at its

best, can lower a company’s cost of capital and, at its worst, can destroy

management’s credibility, as well as hundreds of millions of dollars in sharep0

holder value. The new world of corporate affairs must position IR at the tip

of the spear, leading the communications strategy to preserve and enhance

corporate value.

We created our company to improve the IR equation. In the past six

years, we’ve gathered an exceptional team of Wall Street sell-side and buyside

professionals, including our president Don Duffy, a former portfolio

manager, and James Palczynski, a former sell-side analyst. We like to think

that we’re redefining investor relations, and despite a mixed market over the

last few years, our business has flourished. Why? We believe it’s a direct result

of the value proposition a group of former capital markets professionals

can bring to the IR process.

We have also taken a fresh look at the practice of corporate communications

in general and launched a PR group run by Mike Fox and John

Flanagan. We’ve challenged the established practices of many of today’s

largest corporate communications firms that see IR on a lower rung of the

corporate communications ladder. We strongly believe in shaking up that

mind-set. Our view of the world is that IR strategy, focused on long term equity

value, should be a force in all corporate communications decisions, providing

a check and balance to PR issues that, if not handled properly, could

erase market capitalization, and raise a company’s cost of capital.

All of our senior professionals come from Wall Street. We understand

the science and the art of the stock market, and we help corporate executives

better direct their time and money to optimize performance, increase profitability,

and spur growth. In our view, the transformation is beginning to

take hold and was accelerated by the bear market in 2000, 2001, and 2002;

corporate malfeasance; stepped-up government regulation; and a renewed

commitment by many to fix the system.

This book is about our approach. We believe that every company executive

and investor relations officer must understand certain basic communications

essentials in order to facilitate efficient capital markets understanding

and optimal equity valuation. IR can also play a decisive role in the

competitive performance of private companies. We have helped many private

companies find a voice on Wall Street without sacrificing the privileges

“Our view of the world is that IR strategy, focused on long-term

equity value, should be a force in all corporate communications

decisions.”

of being private. Any private company that does not utilize IR in its strategy

is missing out on an opportunity to affect its competitor’s cost of capital and

bolster its reputation with investment banks that could eventually take it

public.

In the following pages we relay the tools we employ to help our clients

maximize equity value. We call it “capital markets advisory,” but in reality

it’s what investor relations ought to be. It starts with definition. In order to

help a company reach its best possible level of performance, one must have

a thorough understanding of what adds value to, and what detracts value

from, a stock. It continues with delivery. Corporations must understand

how sales and trading, research, and investment banking work together, and

how they can take advantage of this understanding to best benefit shareholders,

employees, and the company as a whole. Dialogue rounds out the

process. This book is for the corporate executives, investor relations officers,

analysts, bankers, and investors who want a better understanding of the

process.

As we see it, management needs to gather advice from very experienced

analysts and portfolio managers when trying to navigate the choppy waters

of Wall Street. IR practices at larger agencies have become exposed for what

they are: namely a commodity service frequently incapable of providing solutions

for complex capital markets issues. We believe that we’ve come up

with a better mousetrap for IR, and we’re pleased to share our thoughts with

you. We hope you enjoy the book.

Tom Ryan and Chad Jacobs

Westport, Connecticut

May 2004

A Brave New World

of Investor Relations

If a chief executive officer or chief financial officer wanted to hire an outside

agency to help management more effectively interact with sell-side analysts,

investment bankers, and portfolio managers, it would seem obvious that the

best person to hire, especially if the shareholder implication of the decision

were really thought through, would be someone who had senior-level, firsthand

experience as a sell-side analyst, an investment banker, or portfolio

manager. At least that’s our view, one that seemed obvious. Yet, almost every

day, corporate America’s best management teams make the decision to put

investor relations in the hands of professionals who don’t have the appropriate

background.

Choosing the wrong investor relations support can add risk to the already

risky business of dealing with Wall Street. After almost a decade of

seeing corporate communication blunders that lose shareholders billions of

dollars in value, we became convinced of the tremendous need for a more

professional, strategic, and capable approach to IR.

Along with John Flanagan, our lawyer and founding partner, we started

Integrated Corporate Relations in 1998 in a small office above an antiques

store in Westport, Connecticut. We’d both been senior-level equity analysts

on Wall Street and covered exciting industries while enjoying the opportunity

to become experts on specific companies and industry sectors. Similar

to most equity research analysts during the 1990s, we worked long hours

under stressful conditions to be the go-to guys who knew the companies, the

management teams, and the underlying fundamentals that would presumably

move our stocks.

As analysts, our job was to take information, both distributed by the

company and that which we uncovered, and conduct in-depth analyses of

these businesses and their earnings potential. During that process, however,

we often found a costly communications disconnect that invariably penalix ized the companies (in terms of valuation and cost of capital) and investors

(in terms of declining share price).

The culprit? The problem was nothing more than a general lack of expertise

on the part of management teams with regard to dealing with The

Street and managing the nuances of the stock market. All too often, there

was unnecessary confusion, uncertainty, and caution, leading to an arbitrage

between reality and perception.

During that process we frequently witnessed management teams struggle

with interacting and communicating with The Street, and we realized

that if we were privy to the details of any given situation, we could really

make a difference. That’s why we crossed the capital markets divide, so that

we could help transform not only the perception of investor relations, but

also its importance to a company’s long-term success.

As former analysts, we saw the complicated relationship between corporations

and the investment community and realized we were probably the

best-qualified third party to give counsel on strategic IR issues. This type of

advice was certainly not the job of legal counsel, who most likely never had

spoken to an analyst or portfolio manager as part of his or her job. Nor was

it the task of the big accounting firms that advised CFOs on other important

reporting issues. Most importantly, we strongly believed that it wasn’t the

job of a third-party public relations firm, staffed in all likelihood with PR experts

and communications majors. While these professionals may be at the

top of their game in many communications-oriented situations, they simply

don’t have the background to advise management teams on complex capital

markets–based, strategic IR issues. Nonetheless, this type of firm was dominant

in the business of investor relations although there is no guarantee that

the landscape will remain that way.

We came to IR because we believe that former sell-side analysts and

portfolio managers have the unique experience to advise CEOs and CFOs

on how to deal with the markets. As analysts, we understand how research,

investment banking, and sales and trading coexist and interlock to drive

profits at investment banks. Understanding this point is critical to positioning

a company and advising management on how best to approach any sellside

firm. We also understand exactly what portfolio managers are looking

for, and how it can change from quarter to quarter. In essence, we package

the product for the sell-side and the buy-side (the buyers) because we’ve sat

in those seats.

Currently, many CEOs and CFOs dismiss IR as too costly or unnecessary.

That’s a precarious stance on a communications function that, at its

best, can lower a company’s cost of capital and, at its worst, can destroy

management’s credibility, as well as hundreds of millions of dollars in sharep0

holder value. The new world of corporate affairs must position IR at the tip

of the spear, leading the communications strategy to preserve and enhance

corporate value.

We created our company to improve the IR equation. In the past six

years, we’ve gathered an exceptional team of Wall Street sell-side and buyside

professionals, including our president Don Duffy, a former portfolio

manager, and James Palczynski, a former sell-side analyst. We like to think

that we’re redefining investor relations, and despite a mixed market over the

last few years, our business has flourished. Why? We believe it’s a direct result

of the value proposition a group of former capital markets professionals

can bring to the IR process.

We have also taken a fresh look at the practice of corporate communications

in general and launched a PR group run by Mike Fox and John

Flanagan. We’ve challenged the established practices of many of today’s

largest corporate communications firms that see IR on a lower rung of the

corporate communications ladder. We strongly believe in shaking up that

mind-set. Our view of the world is that IR strategy, focused on long term equity

value, should be a force in all corporate communications decisions, providing

a check and balance to PR issues that, if not handled properly, could

erase market capitalization, and raise a company’s cost of capital.

All of our senior professionals come from Wall Street. We understand

the science and the art of the stock market, and we help corporate executives

better direct their time and money to optimize performance, increase profitability,

and spur growth. In our view, the transformation is beginning to

take hold and was accelerated by the bear market in 2000, 2001, and 2002;

corporate malfeasance; stepped-up government regulation; and a renewed

commitment by many to fix the system.

This book is about our approach. We believe that every company executive

and investor relations officer must understand certain basic communications

essentials in order to facilitate efficient capital markets understanding

and optimal equity valuation. IR can also play a decisive role in the

competitive performance of private companies. We have helped many private

companies find a voice on Wall Street without sacrificing the privileges

“Our view of the world is that IR strategy, focused on long-term

equity value, should be a force in all corporate communications

decisions.”

of being private. Any private company that does not utilize IR in its strategy

is missing out on an opportunity to affect its competitor’s cost of capital and

bolster its reputation with investment banks that could eventually take it

public.

In the following pages we relay the tools we employ to help our clients

maximize equity value. We call it “capital markets advisory,” but in reality

it’s what investor relations ought to be. It starts with definition. In order to

help a company reach its best possible level of performance, one must have

a thorough understanding of what adds value to, and what detracts value

from, a stock. It continues with delivery. Corporations must understand

how sales and trading, research, and investment banking work together, and

how they can take advantage of this understanding to best benefit shareholders,

employees, and the company as a whole. Dialogue rounds out the

process. This book is for the corporate executives, investor relations officers,

analysts, bankers, and investors who want a better understanding of the

process.

As we see it, management needs to gather advice from very experienced

analysts and portfolio managers when trying to navigate the choppy waters

of Wall Street. IR practices at larger agencies have become exposed for what

they are: namely a commodity service frequently incapable of providing solutions

for complex capital markets issues. We believe that we’ve come up

with a better mousetrap for IR, and we’re pleased to share our thoughts with

you. We hope you enjoy the book.

Tom Ryan and Chad Jacobs

Westport, Connecticut

May 2004