Many companies don't take questions from regular shareholders on conference calls, and annual shareholder meetings are much the same. To be fair, the questions and answers are sometimes too detailed to be handled right on the spot, but overall, both companies and their shareholders would be better off if all questions could be heard in these settings. To address this problem, two companies are taking a step that others should copy: written shareholder Q&As.
Why not take questions?
Many conference calls only allow questions by analysts of the company's choosing. This means that management gets questions from experts who know their industry. However, many analysts are more concerned with their short-term financial models than with the long-term trends affecting the business and the industry. Some companies, including Coca-Cola (NYSE:KO) and Starbucks (NASDAQ:SBUX), are going so far as to have extra conference calls for answering only financial modeling questions. That's great for the analysts, but it does nothing for investors with a longer time horizon.
What's more, because analysts try to maintain good relations with management in order to protect their access, the tough questions sometimes go unasked.
That leaves the annual shareholder meetings for regular investors to ask questions. While Berkshire Hathaway, Markel, Sears Holdings, and others are known for having open-ended question-and-answer sessions, most companies don't offer their shareholders the opportunity to ask management questions, so shareholders' questions go unanswered and management teams don't know about shareholders' concerns. It all leads to a big disconnect between the two groups.
The two companies bucking the trend are turning to the written word. Neither conference calls nor annual meetings lend themselves to the kind of detailed questions and answers that can be discussed in written correspondence.
Morningstar (NASDAQ:MORN) and Expeditors International of Washington (NASDAQ:EXPD) both regularly publish answers to questions their investor-relations departments receive from shareholders. Morningstar does so monthly, while Expeditors publishes its answers every few months as warranted.
Not every question is monumental. The Expeditors team may get asked something as basic as "When are you available for us to meet with you in Seattle?" But the exercise does open up some more in-depth discussions, sometimes requiring a longer reply than a call could accommodate. For example:
- On financials:
Your capital expenditures have been very high over the past two years compared to historical levels. Is this due to higher capitalized software development costs related to your recent software upgrade/IT infrastructure projects? Do you expect your capital expenditures to decrease to a more normal rate once these projects are finished?"
- On business models:
Your competitors such as K+N and DHL have expressed their interest in targeting the SME [small- and middle-sized enterprise] business, which has not been easy for them to address till date. You have been very successful in addressing that segment historically. Why are forwarders good in the larger customers not good in Small and Middle-Sized Enterprises customer pool? Are the go-to-market strategies and the business process very different for the two segments?
- On competitive advantages:
Do your advisor-targeted products [Morningstar Advisor Workstation and Morningstar Office] offer advisors software or features that they are unable to get from competitor software products? What is your competitive advantage in this area?
- On industry trends:
In an 8-K filed on November 11, 2006, you said that "over the past 25 years, unitary pricing has changed very little. Certainly there has been some variability, but after seasonality and one-time incidental traumas have had their way with the market, the pricing settles back down to what are some very stable patterns." To clarify, did pricing move with inflation over the period in question, or were unitary prices about flat in nominal terms? Can you update your take on the stability of long term pricing patterns? Would you make the same statement today?
While investors may not be curious about the specific issues that these questions raise, you can still learn a lot by reading the responses, especially as they build up over time.
I reached out to both companies on their motivations for doing the written Q&A's from shareholders. A representative from Morningstar, Carling Spelhaug, responded:
We've always felt strongly about providing a level playing field for investors in terms of access to information. We describe these policies in more detail in the investor relations area of our corporate site [here] and [here]. Our goal in establishing this policy is to allow all investors equal access to information about Morningstar's operations, strategy, and ongoing business plans. In addition, we believe this policy will allow our management team to spend more time managing our business and building the value of the company over time.
Better for everyone
It's said that companies get the shareholders they deserve. If more companies copied Morningstar and Expeditors by doing written shareholder Q&As, shareholders would be better informed and management would better understand the concerns their investors have.