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Helping public companies and their suppliers deliver better and more cost-effective programs since 1994

Really Reaching Out To Individual Investors…

The Game Really Is Worth The Candle, As Our Panel Of Expert Practitioners And Innovators Will Prove

This fall your editor had the good fun and even better learning experience of moderating two panels of experts on “the care and feeding of retail investors” - first at the annual conference of the Shareholder Services Association (SSA) in San Diego and later at the annual Broadridge client conference in NYC.

The OPTIMIZER had been reporting on the much-reported death of retail investing, so we, as retail investors ourselves – and also on behalf our six grandchildren – were delighted to find so many public companies that still value – and respect – their individual investors, and who are willing to allocate high-quality resources toward their proper care and feeding.

The panel of experts at the SSA conference really jump-started our desire to do more digging, and more reporting, when Tom Boin, Manager of Shareholder Relations at Exelon, challenged the audience with the thought that so many years of corporate budget- cutting programs seem to be sending retail shareholders a perhaps unintended message – but one that runs the risk of coming through loud and clear – that they are just not important in the corporate scheme of things...so we’ll lead off with him:

OPTIMIZER: Tom; please give us a recap of the current corporate landscape as you see it when it comes to “really reaching out to investors.”

Boin: As I mentioned at the SSA conference, I think that every single year – for at least the past ten years – senior management has been ‘reaching out’ to all of us on the corporate staff to come up with additional budget cuts. Thank goodness for technological improvements, which really have generated some good savings. But I do think that currently, we managers need to question whether we haven’t gone too far in some areas. If we look at the way most companies have cut back on the form and content of their annual reports, aggressively pushed the Notice and Access model, and cut way back on dividend inserts and other printed information sent to shareholders, I think we have to worry a lot more about our communications efforts – and to be particularly wary about inadvertently sending investors a message that we don’t care much about them at all.

OPTIMIZER: Tell us a bit about Exelon and about the way you see your job.

Boin: Exelon is an electric utility, with roughly 145,000 share- holders – almost all of whom have some sort of connection to the company – either as customers, employees, retirees – or their heirs. An added wrinkle, Exelon arose from mergers of Chicago-based Commonwealth Edison, Philadelphia Electric and Baltimore Gas & Electric - and many of our shareholders go way, way back with ‘the company’. I need to be sure that we are able to serve them properly – as they expect to be served – and as they deserve to be served – and also to be sure that we, the company, are getting good value for what we spend.

OPTIMIZER: Tell us about some of your “really reaching out” efforts.

Boin: This year we made some major revisions to our Dividend Reinvestment Plan – so that interested parties can buy their first share of Exelon through the plan if they’d like – and we also con- verted to a “qualified” plan, so that we can raise equity capital through the plan should that seem desirable, and even to offer a discount on newly issued shares, should that ever prove to be desir- able. We now have a national presence – through our subsidiary - Constellation which sells energy around the U.S. So a customer in Wyoming, let’s say, might very well want to become an Exelon shareholder, and can now do so through the plan.

OPTIMIZER: You mentioned Notice & Access. What have you been seeing on this front?

Boin: Last year, only 55,000 of our 145,000 retail investors asked to receive printed materials, so N&A has been a very good money saver for us. Interestingly, only 15,000 requests came from reg- istered holders – but this number has been creeping up by 5,000 people a year. It seems that each year, more of our registered inves- tors are realizing that they have not been getting the A-R and proxy materials, and are ‘reaching out’ to get them. Last year, we actually ran short of our projected quantities of printed matter.

OPTIMIZER: Where do you plan to focus your efforts in 2013 to be sure you are not inadvertently sending messages that investors are not important - while managing to meet your budgetary goals?

Boin: We plan to work much harder on making our website the first place to go – and to actually find the information they most need and want. We want to focus in particular on cost-basis info, which is a huge source of inquiries, given our shareholder demographics. We have worked very hard with our transfer agents over the years - to preserve as much historical information as possible – and with the phone reps, to make sure they let callers know that this info can be obtained. We also want to make sure that visitors to our website know they can call our office directly if they need help, which is often the easiest and quickest way to get needed information.

OPTIMIZER: Anything else you do to make sure that sharehold- ers – and you – are getting the kind of service you want them to get?

Boin: Yes, we are great believers in metrics – and in obtaining hard data about turnaround times, and shareholder experiences when they reach out to any of our agents. We had a regular, monthly call- monitoring program - which I cut back a bit during my own busy times - but I plan to get back on track very soon. I monitor the num- ber of “dropped calls” very closely. It is an excellent early-warning signal that something may be up – and that more resources may be needed.

We pay an outside service provider – Group-5 – to survey a sta- tistically valid sampling of shareholder interactions each month. I review the scores and all the comments before passing them on to our transfer agent for review and discussion, to be sure we all stay very comfortable with service levels. One last thing; I plan to pay more attention to dividend inserts this year – to try to focus on things that retail shareholders most need to know about – which is no small task, given all the things that compete for our time and attention these days.

Another active participant in the discussion at SSA was Maritza Vicole, the Manager of Shareholder Services at PepsiCo. Full disclosure: The OPTIMIZER’s editor has been a very happy investor in PepsiCo since the early 1990s. Aside from liking Pepsi – and those Frito Lay salty snacks – he admired the way Pepsi respects its retail shareholders, which it still does. It has been one of his very best investments. He has also bought PepsiCo stock through its DRP for one of his grandkid’s college fund accounts – at a time when it was rather pricey – but where he still expects it to out-perform long-term.

OPTIMIZER: Maritza, tell us a bit about PepsiCo and about your role there.

Vicole: Approximately 30% of PepsiCo’s outstanding shares are held by retail investors. We want to be sure that we are engaging these investors effectively. They make up a stable, long-term ori- ented and very loyal shareholder base. Since we manage the busi- ness for the long-term, it’s especially beneficial to attract investors who are interested in a long-term investment. Additionally, Pep- siCo’s position as a global food and beverage company is highly attractive to retail investors, since these investors are inclined to invest in what they know, and buy products from the companies they invest in.

My job is to represent PepsiCo in the shareholder relations function and to project a favorable and responsible company image through consistent communication and open dialogue with current and potential shareholders. Other responsibilities include building and maintaining relationships with retail investors, effectively commu- nicating the company’s financial performance and strategic direc- tion to them, and acting as a channel to senior management and our Board of Directors to communicate shareholder feedback and any concerns they may have.

OPTIMIZER: Do you do anything special to attract retail investors?

Vicole: Yes; in 2011 PepsiCo started to increase its exposure to retail investors - by participating at BetterInvesting and InvestEd regional and chapter conferences. I reside within the IR department of PepsiCo. The rest of the IR team mainly deals with institutional investors and analysts and don’t have the resources to dedicate more of their time to retail investors. Also, they tend to speak in “finan- cial talk” that can make it hard for some retail investors to under- stand. I try to participate in at least 3 – 4 retail investor conferences per year. Our presentation and exhibit booth, when we have one, are well received by the attendees. I try to develop a presentation that focuses on PepsiCo’s rich history, the many brands offered by PepsiCo, shareholder returns – and that offers financial informa- tion that is easy to understand. Many of the attendees express their gratitude for PepsiCo’s involvement at retail investor conferences and are pleasantly surprised to find out all of the products that are available under the PepsiCo umbrella. Many of the “older” inves- tors have shared with me that they purchased PepsiCo stock for their grandchildren because it’s a company that they can relate to. In fact, in March 2012 PepsiCo was ranked as #8 in the BetterInvest- ing’s Top 100 Companies held by its members. Although I always receive positive feedback from attendees, it’s very hard to measure the success of presenting at these conferences but I like to think that it helped us to get to that #8 spot.

OPTIMIZER: What else do you do to ‘go the extra mile’ for retail investors?

Vicole: PepsiCo offers a lot of hand-holding. If someone contacts me regarding a stock transfer I will personally complete the stock transfer forms for them, or at least as much that I can complete, and mail them explicit instructions on what else needs to be done. If they call to sell stock, I’ll conference in a CSR from the call center instead of simply giving them the number to call. Many sharehold- ers are surprised that they can contact PepsiCo directly for help. If beneficial shareholders contact me for assistance, I explain that I cannot view their account information but I can work out any issues directly with their broker if they provide me the information. I don’t simply help registered shareholders. I’m here for all of our share- holders.

To make certain our registered shareholders receive best-in-class service from the call center, I continually perform call monitoring with the Quality Assurance team at our transfer agent, Computer- share, to identify opportunities to improve CSR performance. I try to visit the call center at least once a year to work with focus groups and ask the CSRs what I can do to make their job easier. Also, I part- nered with Computershare and our call center to create a program that recognizes CSR’s that go above and beyond while servicing a shareholder. Each week we pick the “best call of the week” winner and the “best call of the month” winner is picked each month. Out of the twelve “best call of the month” winners, I’ll pick the “best call of the year” winner and have an awards dinner to announce the winner. All of the monthly winners, and their guests, are invited to the awards dinner along with some folks from Computershare and management from the call center. Since the inception of the pro- gram in August 2010 call center quality scores and CSR confidence have improved and continue to do so. There have been several CSRs that have been promoted to floor supervisors because of their recognition through the program. Selecting the winners continues to be increasingly difficult because all of the calls are exceptional. The 2nd annual awards dinner was held in August 2012. Should I receive a shareholder complaint, I make sure to have all calls and correspondence pulled so I can research. I always get back to the shareholder with an apology – and a fast and good resolution to their concerns.

PepsiCo uses the services of UPRR to locate lost shareholders, as well as to locate shareholders that have yet to exchange shares of companies that PepsiCo has acquired. We take a proactive approach in hopes of preventing the shares and dividends to be sent to the state as unclaimed property.

OPTIMIZER: Tell us about your use of printed communications with shareholders.

Vicole: For annual meeting materials, the communications team has thought of doing a 10-k wrap before, but decided against it because our “traditional annual report” is an effective marketing piece. Many shareholders really like to receive the report. In our proxy statement, we make sure to include my direct dial so that any share- holder can contact me with any questions or concerns they have.

We used to send out a bi-annual shareholder newsletter but stopped because of budget cuts and sustainability efforts. PepsiCo invested in its website and we are trying to use it as a tool for retail investors to get historical and present information. Plus, as noted, they can always contact me directly…and they do.

Another very active participant in the discussion of “really reaching out to shareholders” at the SSA conference was Karen Danielson, the current SSA president, and the Shareholder Services Manager at The Coca-Cola Company… so we wanted to loop back with her too: lease tell us a bit about Coca-Cola’s use of online “shareholder forums”: What made you launch them and how has it worked out?

Danielson: We first provided an online shareholder forum two years ago – in advance of the Annual Meeting - and will almost certainly do so again in 2013. Coca-Cola has 1.6 million sharehold- ers and we are truly interested in getting them to know more about us. We are equally interested in knowing more about them; what is important to them, what they think about the company and how it is being run. This really proved to be an excellent way to reach out to validated shareholders – and to engage them – and we have learned quite a lot.

OPTIMIZER: How did you go about launching the forum?

Danielson: We started in connection with our 2011 meeting – which was our 125th Anniversary year –and with a paper insert in the proxy materials, promising an anniversary booklet to those who registered with the forum. We were pleasantly surprised to have 2300 takers – and the next year - without a freebie - the number grew to 4600. We got 156 questions the first year, and 177 this year, which helped in our meeting preparation. We answered some of the questions at the meeting and posted most of the others on a FAQ page on our website, then sent a blast email to tell shareholders about the FAQ page – and to point them to other useful areas of our website, like our sustainability report.

Visitors to the forum were invited to take an online survey, which gave us very useful information -- like how long they’d been share- holders, where they go to find information about us – which pro- duced a surprisingly wide array of sources – and what kinds of things are most important to them as investors. The top two things were new products and new brands – and more information about business strategy, which was mentioned by more than half the respondents.

OPTIMIZER: Your proxy materials have been getting a lot of favorable notice of late – and we want to point our readers there for a look-see. Tell us about how that got started.

Danielson: Our Corporate Secretary wanted to have a much more “engaging” document; something that would be easier to read, more useful to shareholders - and simply better than what we had before. So we took a totally fresh look, inside the company, to come up with it. We also took a fresh look at our website, with the same goals in mind - and made lots of improvements there too.

OPTIMIZER: I also know that the quality of shareholder services is extremely important to Coca-Cola: Tell us a little about what else you do to keep tabs on things.

Danielson: We do monthly shareholder satisfaction surveys, using Group-5, and my assistant and I go over the results very carefully. We also monitor live phone calls – and very often we will reach out ourselves, with a phone call just to ask if they were satisfied. It is an amazingly quick and easy thing, and an amazingly  rewarding thing to do. People are so surprised – and so happy to hear from us. It only takes a few minutes – and it’s always the highlight of our own day.

We have also been concerned about those abandoned property audits – and about the rules that many states are passing saying that if there has been no contact from a shareholder after some period of time, their property should be treated as abandoned. We had sev- eral hundred DRP participants on the list for Illinois, who had not responded to form-letter warnings, and we hired Keane to reach out to them by phone, to try to prevent escheatment. We ended up with only seven people where we had to escheat!

Our second deep-dive into successful efforts to optimize the costs and benefits of serving retail investors took place at the annual Broadridge client conference in November, where your editor moderated a discussion with Ed Ballo, the Vice President, Shareholder Services at Prudential Financial – with roughly 1.8 million individual shareholders – and Dorothy Flynn, Director of Shareholder Services, Investor Relations at The Walt Disney Company – serving 1.7 million investors. Here are a few highlights of the conversations on managing a really big base of shareholders:

OPTIMIZER: Ed; the individual investor outreach program at Pru- dential has gotten a fair amount of attention. Please give us a little background.

Ballo: We started about 3 ½ years ago, so our upcoming annual meet- ing will mark our fourth year of “really reaching out” to our indi- vidual investors. Currently, we have 1.8 million of them, which is a very big number – and this is down from 4.7 million in 2001, when virtually all of our policy holders became shareholders of Prudential. They represent about 25% of our total shares outstanding. Most of them still have insurance policies in force with us, so they are a very important constituency to us in every way.

Back in 2009, our quorum at the annual meeting was only 57.8% - which is not at all what we wanted to see. But in 2012, thanks to our reaching out efforts, it was up to a much more comfortable 70.1%. Our goal was, and still is, to get all our shareholders engaged, and all of them - or as many as humanly possible - to be voting. We realized that moving the dial would not happen overnight – and that we would have to have a consistent, multi-year effort to achieve this goal. Our feeling was that we could either “pay now or pay later” to get this to happen, and that it would be a lot more effective – and would cost less in the end – if we started earlier rather than in a pinch.

OPTIMIZER: Tell us about your “trees or totes for votes” cam- paigns, and how you think it has paid off for Prudential.

Ballo: This was our initial idea about a good way to get sharehold- ers to become engaged - and we are still at it. Shareholders who vote their proxies can select either a Prudential tote-bag or opt to have a tree planted for them as our way of saying thank you for the time they took to cast their votes. We have been very careful to take a very neu- tral approach, and not to be ‘electioneering’: We want shareholders to be engaged, and to feel that they have a good relationship with us, so we focus on the voting process, and on the importance of voting..

OPTIMIZER: Tell us about the work you have done on your proxy statement. We have been telling our readers that it is the gold stan- dard - and to review a copy with care before they start on their own.

Ballo: A big part of feeling engaged – and whether or not someone actually casts a vote, we believe - is related to the proxy statement itself: How reader-friendly it looks – and is – in terms of clarity and overall readability. So we work very hard on it. And people actually do notice - and send us notes, complimenting us on the plain lan- guage, on the overall layout and the charts and graphs, for example. We invite shareholders to send us comments and they do. We have had over 7,500 comments over the past three years, all of which we acknowledge, and send to the board. Interestingly, we get a lot of let- ters thanking us for our response to their letters.

OPTIMIZER: Any other initiatives or practical tips on engaging shareholders you’d like to mention?

Ballo: This year we have replaced the little buck-slip we’d always enclosed with our dividend checks with a more personalized note, signed by my boss, Peggy Foran, our Corporate Secretary and Chief Governance Officer. A lot of calls and letters come to her directly, and we are always sure that each one receives a personalized, individual- ized response. Often, we reach out via the phone, which surprises and gratifies people who may need a bit of extra attention. Our transfer agent knows our feelings about reaching out, and partners with us accordingly to provide ‘Prudential-like service.’ Recently, we, and our T-A, have been making special attempts to reach out to the heirs of deceased shareholders, to get them to transfer the shares, and to make it as easy as possible for them to do so - with FAQs, simplified forms and human help, where needed, from a team that is thoroughly familiar with estate transfers.

The biggest practical tip I’d offer is to use all the resources that are at your disposal. When we started to brainstorm about improving engagement, we had folks from Corporate Communications, IR, our Procurement and Corporate-Sustainability groups on the team, and we still do. One shareholder wrote in that the handles on the totes were too short, so we lengthened them next year. It’s very important to realize that one size does not fit all; you need to know your num- bers, your corporate history, the makeup of your own shareholder base. But the most important takeaway, I think, is that you need to treat people right when you don’t need them for something in particu- lar if you want them to feel engaged, and favorably disposed to you when you do need them for something.

Full disclosure here too: Your editor has been a very happy investor in The Walt Disney Company since the 1990s – and in 2003 bought Disney stock through their DSPP for his first grandchild. Since then, the $5,000 invested in five stocks for little Emily has nearly doubled, while the $1,000 invested in Disney, with all dividends reinvested, had grown to $3,449 by the 3rd quarter of 2012.

OPTIMIZER: Dorothy, you are fairly new to Disney I know, so give us a little overview of your role there – and about some of the top priorities you see where your role is concerned.

Flynn: The Walt Disney Company has just over one million registered shareholders, and about 700,000 street name holders – and 240,000 of our registered holders have just one share. I think it’s fair to say that every one of our shareholders is a consumer of Disney products and services – and very many of them have been and will be lifetime consumers. They get engaged in our parks, get married there and celebrate birthdays, anniver- saries and other special occasions in Disney venues. Clearly, they have helped us create a truly iconic brand, so they are extremely important to us. One of my own personal goals as the Director of Shareholder Services is to see that we get even more value out of our existing relationships with our individual owners.

OPTIMIZER: I know you serve as your own transfer agent. Tell us exactly what you do, and why you have been doing it in-house.

Flynn: Yes; we process all the transfer requests – many of which are related to gift-giving by grandparents, as you might imagine – and we answer all the phone calls and letters with our own staff. We take a great deal of pride in the way we treat our shareholders. They are our best guests – so we need to do everything we do with the same care and high quality they have come to expect in one of our parks, or on a cruise ship, or at any of our destinations.

We listen very carefully to our shareholders. This year, for example, an eight-year old stood up at our Annual Meeting to offer some advice on new things we could do and when we could do them to make more money for Disney stockholders. What an example of “shareholder engagement” I’d say – and we take all such comments very, very seriously. Not long ago we got comments from callers about the music they were hearing when they phoned in. Many callers – and I do think it is a “generational thing” – did not like modernized or rock and roll versions of classic Disney songs. They wanted us to stick to the old standard versions, so we’ve done so.

OPTIMIZER: In your earlier career, you were very well known in the abandoned property space. Has this been an area of importance in your new job?

Flynn: Yes, a very large number of those one-share holders never seem to cash their dividend checks. So we reach out to them before the checks become stale-dated, and constantly remind holders to update their email and street addresses, consider direct deposit of the checks – and to be sure to cash them. It’s not our job to do nothing. Those due-diligence form let- ters are mostly ineffective. So we have become much more proactive to prevent escheatment.

OPTIMIZER: Any closing thoughts on the role of a Shareholder Services Director?

Flynn: Among the most striking and important things to me are all the ways that shareholder service people should be raising their own profi within their own organizations. The links between customers and share- holders are very clear and powerful ones. Many corporate people are missing out on big opportunities to strengthen these links and to create additional value for their companies. Shareholder Services staff should be working hand-in-glove with the Investor Relations people - and with the Corporate Governance folks too. Shareholder Services professionals should get more deeply involved in our professional organizations – the Shareholder Services Association (SSA) of course, and NIRI, and the Soci- ety of Corporate Secretaries and Governance Professionals. These organi- zations provide Shareholder Service professionals with a continual stream of money-saving and value-creating ideas – that can greatly enhance our own value to the company, let’s not forget.