THE OVERSEAS MARKET

Until relatively recently, the securities industry outside of the United States wasn’t attuned to investor relations as we here know it. The way for Americans to go into Europe, for example, was through American investment bankers with branches or associates in Europe. Access was limited, and very few American firms Europeanized themselves enough to really make a dent in the market. PaineWebber might have been an exception, at least in London and Paris, but Merrill Lynch and most others made comparatively little impact in Europe. Investor relations professionals who went to Europe and worked through a few local firms fared much better, and maybe even have a little edge today. But the wheel has turned toward bringing European investor relations to a par with the way it’s practiced in the United States. Now, tremendous strides have been made in investor relations in Europe and elsewhere in the world. It’s no longer true that the rest of the world is still generally behind the United States, and in many countries abroad, investor relations is now considerably more sophisticated than it had been. The gradual breakup of old club attitudes in the financial community in the United States allowed investor relations to develop. In Europe, the old school ties existed to a much greater degree than in America, to the detriment of the professional investor relations practice. But in Europe, too, the financial community is changing extensively. Such investor relations firms have made the grade in comparable professionalism, and England, at least, has a thriving investor relations profession. The investment arena is very different in each country abroad. For example, in most countries there is no retail market as such. There are no individual investors as we know them, except in Japan, which is a market very much controlled by the largest Japanese brokerage firms. England is just beginning to develop a retail market. You must work, primarily, with institutional investors or very large individual investors through intermediaries. In London private client brokers work with the investments of extremely wealthy individuals in Europe.

Since the deregulation of the British securities industry in 1986, it has undergone a vast readjustment. From the rush of the first days of deregulation —the Big Bang, as it was known—the industry moved to a high, then a low of disorganization, volume and business. It seems now to be stabiliz- ing. The securities industries of all European countries are adjusting to a new context as the borders between European Community countries have fallen, allowing a new era in international trade.

For the U.S. company seeking to sell stock abroad, there are some major considerations, not the least of which is in the relationships that exist between the corporation and the different European financial markets. Different legal and regulatory frameworks also exist from country to country, although they almost universally subscribe to the same rule of disclosure that obtains here—that potentially price sensitive information be released as soon as possible. Accounting standards and principles differ from one country to another, making international analysis difficult, although this problem is slowly mitigating.

The financial press in Europe, for example, is truly national in each of the major markets, and is more influential, in most countries, than it is in the United States. According to European experts, a symbiotic relationship exists between the press, stock brokering, sell-side analysts, and investing institutions. The press and sell-side analysts trade stories with each other, and in turn, influence institutional investors. This is particularly evident, the experts say, during mergers and acquisitions, where the importance of the press is at its most obvious. There still tends to be some skepticism about investor relations, particularly among British institutional managers, but that seems to be mitigating as the results of effective investor relations efforts begin to emerge.

It’s important, then, that American companies and their investor relations counsels functioning in European and Asian markets fully understand the workings of the financial communities in each of the countries in which they may choose to operate.

Identifying target stockholders should be the starting point of any program, and working with local sources is mandatory. This can be difficult, because there’s no legal requirement to disclose foreign shareholdings. Moreover, in countries such as Switzerland, Germany and France, obsessive secrecy prevails, making shareholder identification doubly difficult. For larger American companies, for whom three to five percent of their stock is in foreign hands, the job becomes a bit simpler, since the shareholders abroad are usually on the company’s lists.

It becomes clear that establishing relationships with overseas financial markets is a task that requires ongoing commitment. It’s not a casual exercise. Nevertheless, it’s important for the growing American company, because Europe and the Orient are sources of capital that can’t be ignored.