Talking the language of FTSE
Does a change in index listing necessitate a change in communications strategy?
What do America’s mighty General Electric and British High Street darling Marks & Spencer have in common?
Probably only that GE is no longer that mighty, while M&S has long lost its status as a benchmark for middle Britain. GE’s drab stock market performance and mooted demerger saw it evicted from the Dow Jones Industrial Average in June. It had been a key constituent since the creation of the index in 1896.
In the latest quarterly FTSE100 reshuffle in May meanwhile, M&S only just clung onto its iconic continuous membership of the FTSE100 since the foundation of that index in 1984. Cue business section features on both companies’ heydays and current gloom. But does anything change for communicators when companies enter and depart major stock exchange indices? Does it affect communications strategies? Or are the indices simply dated representations of old power structures that have long been superseded by a new order?
After all, Amazon.com and Facebook, two of the largest companies on the planet, are not even members of the Dow 30. In the UK, Unilever Group is likely to lose its FTSE100 eligibility when it moves its headquarters to Rotterdam, while household names such as the John Lewis Partnership, Virgin Atlantic and Thames Water are omitted due to their lack of a UK stock market listing.
The answer starts with an understanding of what the indices are for and how they are compiled. The Dow is famously decided upon by a committee, which meets irregularly and sometimes goes years without making any changes. Membership is decided by sector weighting, with the aim that it should reflect the nature of the US economy.
The FTSE100, by contrast, is a pure list of the top 100 companies by stock market capitalisation, determined at quarterly reviews when relegation to the FTSE250 reflects major declines in fortunes over the period, replacing them with outperformers from the second-line index.
Bobby Leach has experienced life on both sides of the divide, working at the top of the FTSE100 as director of communications at Vodafone Group for a decade before taking up his current role as vice-president of corporate affairs at medical technology specialist ConvaTec Group.
ConvaTec’s experience of the FTSE100 was all too brief, with the company promoted to the benchmark index two months after its October 2016 flotation but relegated to the FTSE250 a year later following a profits warning that knocked 20 per cent off the share price.
He explains: ‘It hasn’t changed our communications strategies. From an investor relations perspective, clearly your shareholder register changes and the index funds are compelled to re-weight.
‘But we are still in the FTSE250 and other indices so there is not an automatic diminution in value because people have to sell your stock. In our case, it was lowering our guidance that dropped the share price. For our investor relations, that meant changing the subject matter because there were issues specific to our production and our investors became much more interested in those. But that was more tactical than strategic.
‘The work that I do is heavily oriented towards brand, performance and customers. None of that changes because we are no longer a FTSE100 company.’
At food ingredients business Tate & Lyle, meanwhile, executive vice-president for corporate affairs Rowan Adams says the group’s periodic movements in and out of the FTSE100’s lower reaches pale in communications impact compared to its sale of its famous sugar manufacturing arm eight years ago.
‘In my 15 years at this company we have moved in and out of the FTSE100,’ he says. ‘But a much bigger change was in 2010 when we stopped being a sugar business. When that happened, we had such a drop-off in calls that we laid off a member of our team.
‘When you drop out of the FTSE100, you do see a little bit of a difference. If you’re doing lots of virtuous stuff and going above and beyond on corporate governance, unless you self-promote you’re less likely to get noticed. But if you have got a hot story against you for whatever reason because of an industry or product issue or an activist shareholder, I don’t think being in the FTSE100 or 250 is going to save you from the media.’
It is undeniable, however, that the FTSE100’s existence in the UK does act as a magnet for the attention of the media, politicians and non-governmental organisation pressure groups. Lisa Attenborough, communications director at Arla Foods, experienced a switch down from the FTSE100, whilst group head of communications at paper and packaging company Mondi which demerged from mining giant Anglo American in 2007.
As a FTSE100 company, the level of scrutiny you are under from all stakeholder groups increases substantially
The new company went straight into the FTSE100 but later fell out and Attenborough admits: ‘I think we felt as a business that the pressure was off a little bit. We still had to deliver the numbers but that pressure of being at a FTSE100 company is difficult to describe unless you’re living and breathing it.
‘Everybody is always watching everything you do. Unless you have other measures of success, it makes you work that little bit harder to prove the value of your business in other ways. From a communications perspective, it’s a lot harder because you’re really stretching yourself. It’s very challenging.’
Some companies seem to really relish the achievement and the iconic status it bestows. Take Rentokil Initial, the pest control group otherwise known as the ‘royal rat catcher’. The company was so thrilled with its success in returning for a fourth stint in the FTSE100 in March 2017 after an eight-year absence that it created a special logo declaring FTSE100 – Back where we belong.
The logo thanked employees for their ‘hard work and dedication’, while the group also pushed out a press release announcing that it was donating £10,000 to charity Malaria No More. The release stated that the donation was being made to mark its return to the blue-chip index and to ‘prove that it is possible to do good and do good business’.
‘Our focus was on internal communication, taking a moment to celebrate the successes of the previous years and then go again,’ says head of communications Malcolm Padley. ‘It was a moment of pride for employees around the world.’
Achieving FTSE100 status also seems to be regarded as a major deal at Ocado, the online grocer whose future and high stock market rating are still matters of high controversy 18 years after its formation in the original dotcom boom. At that time, Ocado was derided as a loss-making company that would be squashed when the established supermarket groups got their act together.
Its claim to be a technology platform, rather than a retailer, was treated with scepticism and the off-the record conviction of its then agency PR man that the company would one day reach the FTSE100 was disbelieved in newspaper editorial conferences.
With all that in mind, it is perhaps not a surprise that David Shriver, the group’s present-day communications director, says its entry into the FTSE100 status in May this year has brought enormous change.
‘As a FTSE100 company, the level of scrutiny you are under from all stakeholder groups increases substantially,’ he says. ‘This has important implications for managing reputation. From a communications point of view, business as usual is not an option.’
Adams agrees that there is a great deal of externally-generated media to deal with at FTSE100 companies, as surveys are created, medians taken and general observations made about the state of corporate Britain.
‘When you’re in the FTSE100, you do seem to be part of every survey that ever gets done,’ he observes. ‘Remuneration is a very good example. There are lots of surveys about the highest-paid CEOs in the FTSE100. The same is true for sustainability and environmental issues.
‘There are very few companies or NGOs who do a huge trawl of the FTSE250. They focus on the FTSE100. There is just a much more natural focus on you because you’re in the top index and one of a strictly-defined number of companies.
‘It brings a high profile and you do notice a drop-off in requests and just general visibility when you come out. Around the time of the annual meeting, for example, it is noticeable.’
If you come out of the FTSE100, you drive less volume in terms of queries
Attenborough, who also had FTSE100 communications experience at Marks & Spencer and SAB Miller and FTSE250 exposure through her time at Premier Foods, believes there is a difference in scale, size and responsibility between the average FTSE100 and FTSE250 company.
‘In fast-moving consumer goods companies, I think moving from one index to the other really does make a difference. If you come out of the FTSE100, you drive less volume in terms of queries,’ she says. ‘The level of interest is different from that of just being in a PR function. In the FTSE100, the scale of what you’re doing tends to be much greater so the press office tends to be extremely busy.
‘The spotlight is always on you; there’s more information required and it’s much higher-profile. The job just has a different complexion.’ Despite general consensus on that, there is still scepticism over whether FTSE100 membership is something that fundamentally changes PR strategy.
‘I can’t think of a company where you would change your customer proposition or want to communicate differently because you are no longer in a specific index,’ comments Leach. ‘A lot of the work just doesn’t change. I don’t think it even changes your engagement strategy with your employees. But one of the biggest risk areas is that there is something iconic about membership of the FTSE100, so when companies go into the index it is very often a cause for internal celebration.
‘It’s a matter of pride to management and employees that the group has arrived and is now one of the 100 biggest companies in the UK. It’s an endorsement of the strength of the business and the perceptions of external stakeholders about your future success and companies do mention FTSE100 status in their communications.
‘We were proud of going into the FTSE100 and the converse is that when you drop out, your employees may read too much into it as some sort of commentary on the business and its prospects and external perceptions.’ That may indeed be the case as General Electric reins in its sprawling former empire to focus on aviation, power and renewable energy and M&S tries to find its way back into customers’ hearts.
However, it is also worth remembering that the raison d’etre of indices is to reflect performance and track change. If new GE dominates in the way that the old conglomerate did at its peak and the spark gets put back into Marks, investors and customers alike will not care much about their membership of any stock market index.