The following article appeared in the Globe and Mail, Canada's National Newspaper, on October 22, 2003.

IR pioneer takes the long-term view

With 30 years under his belt, Richard Wertheim understands the big picture

By TONY MARTIN

Special to The Globe and Mail
Wednesday, October 22, 2003 - Page B12

If anybody has the big picture of investor relations in Canada, it's Richard Wertheim.

The managing partner of Toronto-based Wertheim & Co. Inc. started working in investor relations and corporate communications about 30 years ago, when the industry in Canada was in its infancy. He developed one of the country's first comprehensive IR programs with Northern Telecom in the late seventies, and founded the first Canadian chapter of the U.S.-based National Investor Relations Institute, which evolved into the Canadian Investor Relations Institute.

Freelance reporter Tony Martin spoke with Mr. Wertheim.

What role did IR play in the investment bubble of the nineties?

One of two things went wrong. Either the investor relations people did not do an efficient job of keeping themselves apprised of what was going on, or they did know and they didn't do their jobs. There is no question that at some point the IR officer is being given information by people they should be able to trust such as the CFO, the senior legal council, and the auditors. When the CFO himself or herself is implicated in alleged fraud, the IR person as much as anybody else is hanging out there to dry.

You've said investor relations can have a substantial impact on valuation. How do you operate a sound IR department that investors can take at face value given the impact the IR person can have on the valuation of a company and the pressures they must feel from corporate management to do all they can to see the share price higher rather than lower?

The first thing is that in building shareholder value, I think it is important that companies generally take a longer-term perspective. [And] if you are looking at building, for the long term, value for the investors, value for the company, the kind of place that people want to work as well as invest in, then you are talking about credibility and creating the profile and the messages that tell the company's story effectively and achieve recognition for that.

It may mean in some cases that you're going to sacrifice the stock price for the short term.

I like to tell people that the most effective job I did when I was with Northern Telecom was in 1980 when I managed the orderly decline, a 50-per-cent decline, in the stock price.

Why do you call that the best job?

I was aware that we had significant problems with a couple of acquisitions that were made back in the late seventies that were disasters. My concern was insuring the investing community knew we had a problem, that we were addressing it, and to lead them to recognize that we would probably need to take a writedown. Within less than two months of 1981, we had recovered everything we had lost and set a new high for the stock price because our credibility was so high that when we said we had cleaned house, it was an aberration, we've taken care of it and moving on, we were believed.

You talk about the need to take the long view and build credibility, but how would you argue that to management who says, 'Look, we're going to just keep our heads down for another 10 years and wait for another bubble because look at how much money those people that ran those companies pocketed, regardless of whether what they did was right or wrong?'

I don't think you would find many of those types of management around anymore. My argument would be if you choose to take that tack, you will be ignored. Investors will not want to invest if you don't meet governance standards.

You've said investors are demanding better investor relations, and management is understanding the value of meeting that demand. Why have we not seen any real proactive use of modern technology? For example, it would be relatively easy for a company to ensure that the public -- institutions and retail investors alike -- had all but real-time reporting in terms of insider trading?

In some respects, we have seen great use of technology. Five, six, or seven years ago, relatively few companies even did quarterly conference calls, and when they did they were usually closed -- either invitation only, or for analysts and institutions, and almost without exception they excluded the media.

Today the majority of companies do Webcasts for their calls. Any one can access them. That alone has been an enormous step forward in terms of transparency or openness.

But some of the things you are referring to are a reflection in part of the difficulties that the securities commissions and exchanges have had keeping up with the technology curve.

For example, it's only recently that the electronic filing regime was finally launched after more than two years of delay. But then again, why is there any lag at all? I don't know. Why not make that immediate? I completely agree.

What would you advise investors to do in terms of the best way of putting a company's IR resources to work for them?

Certainly make full use of Web sites and I don't only mean the company's Web site but things like Sedar. Second, don't be afraid to send a company e-mails with any questions you have, and expect an answer. Third, be very wary about chat rooms. Why people who would not necessarily take advice from somebody sitting next to them on the subway would give greater credibility to something written in a chat room is beyond me, but it happens.

I'm impressed sometimes by the level of research and work being done by some people but you have to verify and check and read it with a skeptical eye. And I have to blame the media a little bit, too. Some media . . . seem to think in writing a story about what happens to a company's stock they should quote some of the blather going on in the chat rooms, and it gives them credibility and it drives me just insane when I see that.

How can an individual or institutional investor discern the difference between good IR and bad IR, and therefore interpret the message accordingly?

Good IR is when a company is responsive to inquiries, when they are active in communicating with investors, when the material being released is comprehensive in terms of the information being provided, when things like the MD&A [management discussion and analysis] is more than boilerplate, and it includes things like executive compensation, when they can look at the board of directors and see true good governance involved, in terms of the composition of the board and committees and the level of independence of the directors. When the company tells you what its objectives are, how it performs against those objectives, and explains, again in more than boilerplate, about why it didn't meet, did meet, or exceeded those objectives. Bad investor relations are when you don't do those things.