Chapter I

The story of the National Investor Relations Institute's (NIRI) creation would be simpler for all if the Institute had sprung full-grown like Athena from the brow of Jove.

Organizations, however, have a perverse way of developing like people: Slowly, unpredictably, from a few seminal ideas or sensed needs that take their own time to become clearly defined.

So it was with NIRI and with its predecessor, the Investor Relations Association (IRA). The ideas from which they germinated went through a period of gestation, then evolved in seemingly unconnected ways until, as if by magic, Motivation met Opportunity and the deed was done.

We need to begin in 1953 when the Chairman of General Electric Co. (GE), Mr. Ralph Cordiner, made the first systematic effort to formalize a corporation's relationship with its shareholders.

Under his urging, a new department was created and the term investor relations was coined. The first in-depth research was undertaken into who the shareholders were, what they perceived their needs to be and how best to communicate with them — and for them to communicate with management.

This was, indeed, real pioneering. It set the pattern for the profession of investor relations for years to come. To this day, it provides both the intellectual and ethical foundations that are essential to this activity.

Mr. Cordiner was not acting in a vacuum. He was responding, early and most perceptively, to a growing challenge: The sea-change then taking place in the ways wealth was being created and deployed.

The manner in which GE approached this tidal shift was typically well organized and thorough. More on this later. First, it is necessary to grasp the scope of these emerging trends, for they created a challenging new environment for corporate management, for investors and for the financial community. Together, they also provided the driving forces for the creation of NIRI and of investor relations at large.

Economics provided the primary thrust. As World War II was winding down at the end of 1945, many high-placed forecasters were prophesying a repetition of the post-war depression that hit the early l920s. Events seemed to be tracking this dismal view when, after a brief burst of activity, the economy slumped sharply in 1949. The slump, however, proved only to be a brief inventory correction. By the start of 1950, recession was ending and America set forth on one of the longest economic expansions in history, lasting 20 years.

The Korean War broke out in June of that year and caused many dislocations, including a reversion to price controls. But it did little to damage the powerful uptrend then in place, fueled by the huge personal savings piled up during the World War II (WWII) years.

Millions of returning veterans were entering the work force. Within months the famous baby boom began and continued into the mid-l960s. Wealth started to be created on a large scale and deep down in the social fabric.

Business was booming. Capital investment surged as companies pressed to rebuild, replace and expand capital equipment and facilities ignored during the Depression and WWII. New, often WWII-born, technologies were coming into play. Electric and telephone utilities needed vast sums of capital to expand their networks and add new capacity. New pipelines, houses, autos and a broad array of consumer goods were finding ready, growing markets. For a dozen years, America accounted for up to 85 percent of the entire world economy, to which it was contributing huge amounts for the Marshall Plan and for aid to other areas of the world.

Fiscal and monetary policy were benevolent, too. At Eisenhower's inauguration in 1952, interest rates on long-term government bonds stood at 2 percent. The Federal budget soon ran a surplus! There was no inflation. Financial markets were stunned when, later that year, Treasury Secretary Humphrey issued long bonds at 5 percent! The so-called Humpty-Dumpties. Dividend rates on electric utility stocks immediately jumped to 6 percent — higher for less credit-worthy companies.

With low interest rates on bonds and no inflation, the logical choice for investment was the stock market. There, one's money stood a fair chance of growing in value and would pay a higher return. By now, the public appetite was whetted, and it continued to grow, urged on by the realization that the country was well-launched on a long period of sustainable economic growth.

The decades to come were not merely fun and games in a soaring economy. The forces that made these bountiful trends possible were rooted in very serious personal histories.

Most of the returning warriors from Europe and Asia had matured beyond their years. Both the duration of the war and the complexity of its fighting machinery provided an intense learning experience.

Creation of the G-I Bill enabled thousands, if not millions of veterans, to return to college, or enter it, or continue training programs begun under various military education programs. The result was a huge leap in the educational level of the young people entering a job market crying out to be supplied.

[Congress, displaying its customary wisdom, was so preoccupied with peacetime politics after WWII that it almost torpedoed the G-I. Bill. A Congressman was awakened from his sleep in a Georgia town and hustle back to Washington by the Bill's backers to cast the one decisive vote by which it passed. Deja vie? The wartime draft was renewed at the end of its first year by one vote — three weeks before Pearl Harbor!]

Most of these veterans had been born in the 1920s and grew up during the Great Depression (1929-1940). Recovery of sorts had begun in 1939. The onset of wars overseas and the need for American production provided some additional lift. The real boost did not come until the United States started spending massively on its own military production in 1941-42.

So the lasting memory for most was one of poverty, near-poverty or very straitened circumstances even among the better-heeled citizens of that era. One could not forget that as late as 1938, over 25 percent of the population was unemployed.

The motivation was intense and pervasive to climb out of this dismal past, to realize hopes one had not dared to contemplate a decade earlier. The dominant themes were dedication to work, learn and prosper, strengthened by the natural optimism of youth.

Cynics are quick to remind us that stock markets thrive on fear and greed. The analogs here are escape from fear of economic insecurity and a greedy hunger for a more affluent life.

A Cleveland investment advisor once said, The stock market flies on wings of money! And so it did. The public, for the first time, began to get into the market. True, individuals had played the market in the 1920s, but nothing to match the numbers and trading volume of the 1950s and '60s.

Where the markets of the pre-Depression era were financed largely by credit (no margin requirements!), sad memories and new laws governing securities markets stirred post-WWII investors to favor cash.

It is not surprising that this confluence of forces found expression in rising stock prices. Corporate earnings rose strongly — but price-earnings multiples expanded even more. The circumstances were made-to-order for successful investing, no matter how speculative it was inherently. The rising tide was lifting all boats.

There were Bear movements along the way, to be sure. But the long-term trend remained sturdily intact. Its effects on individuals' investment behavior is expressed statistically in the results of a study commissioned by G. Keith Funston, Chairman of the New York Stock Exchange and conducted by Lewis H. Kimmel and the Brookings Institution.

Published early in 1952, this study found there were 4.5 million family units owning common stocks. They held 6.49 million shares in total and constituted 4.2 percent of the total population.

Within only 13 more years, the shareholder number had soared almost five-fold to 20.1 million — one in six adults or 15 percent of the total population, exceeding the combined populations of New York, Los Angeles, Chicago and Philadelphia.

Daily Big Board trading volume, which had been less than one million in the previous two decades, climbed to about two million in 1952 but was soon to climb past nine million in 1965 and higher in the next few years — so high as to clog the back-office operations of Wall Street and bring on early New York Stock Exchange (NYSE) closings to handle the paperwork.

While the number of individual shareholders was multiplying furiously, the institutions were still quiescent. A 1954 study by the National Bureau of Economic Research showed that in 1949 these financial intermediaries held 23.6 percent of the total amount of shares outstanding. This was a sizable increase from 14.2 percent before the Crash of 1929, and 7.9 percent in 1900. But it pales to insignificance against the massive holdings of institutions today.

In dollar value, the 1949 total came to only $131.6 billion. Today it is pushing toward $3 trillion. The primary reason for the change is the advent of pension funds — which were instrumental in raising the total for 1949 — when they were just beginning to appear among corporation balance sheets. The afterburner for their subsequent acceleration was the passage of the Employee Retirement Income Security Act (ERISA) in the early 1970s mandating these funds and governing their investment standards.

For our purposes, the small size and relative inactivity of institutional investors in the period 1950-1970 stands in sharp contrast to the rapid growth and rising activism of individual owners. It is they who fostered investor relations at its outset.

As their numbers grew, corporate America was tussling with a difficult paradox. In previous years it had not been required to pay attention to individual shareholders, particularly small ones. Their stockholders had been, for the most part, wealthy individuals and few in number, perhaps a million or so. These were the customers of investment banking and brokerage partnerships, of banks, trust departments, investment counselors, with whom they commanded attention and cultivation.

These affluent shareholders did not complain. They rarely attended an annual meeting. If they did not like the way the company was run, they — or their emissaries — sold the stock. But now corporations suddenly found their transfer sheets swelling daily with new shareholders owning small amounts of stock —100 or 200 shares, often less than 100. A strange new experience and no traditions or precedents to guide them.

The first and most obvious feature of these new holders was their potential as purchasers of company products. Major companies like General Foods, Proctor & Gamble, General Motors (GM) and Chrysler, Exxon and Mobil, American Telephone, Gillette and a host of others, particularly those in consumer product industries, seized on this captive market.

In 1950, the Ford Motor Co. made a large public offering of its common shares. It required its underwriters to focus their sales efforts on buyers of 200 shares or less, and provided extra incentives for them to do so. Their goal was to create a new pool of customers for Ford cars and trucks — and to put themselves on an equal footing with GM and Chrysler1, who were long since taking full advantage of their shareholder base to boost sales.

Occupants of the executive suites were quick to see, too, that all of this demand for stocks was helping to push prices up and up. This helped immensely to finance growth, enhance empires. Perhaps just as important, it was especially helpful in making options or other share-based compensation pay off.

But all was not entirely rosy. The new shareholders saw themselves as owners and wanted to be heard. Though many were quite unsophisticated about business and stocks, they actually attended annual meetings and asked questions (often ridiculous ones in the eyes of management). The gadflies had been born right under management's nose!

At the outset of the Bull Market, a large chunk of the new money going into stocks came from those WWII-time savers who had had little to spend their war industry wages on. These were not youths fresh from the field of battle, but many who had suffered through the Depression and the cataclysmic closing of the banks in 1932. They were determined to keep a close eye on the funds they had entrusted to management and the stock market, neither of which they really trusted.

They soon had their champion, in the form of Lewis D. Gilbert. An affluent bachelor, son of the Gilbert Toy Co. founders (electric trains and other well-regarded products). Lewis was rebuffed several times when in the early part of this era he had attended annual meetings and attempted to get management to answer questions about such hallowed things, for example, as their compensation, or how many relatives had been placed on the board of directors.

The late, great Benjamin Graham paid him honors in the 1951 edition of Security Analysis.

In recent years, considerable attention has been given to the matter of relations between shareholders and managements. . . On the one hand, management has felt it desirable to cultivate the good will of stockholders. For this purpose, many have engaged public relations counsel, or similarly styled agencies who issue press releases. . . and advise on the preparation of annual reports and proxy material. On the other side, agencies have sprung up to represent stockholders. The most widely publicized have been identified with a few colorful figures who take a prominent part in numerous annual meetings.

In a footnote at the bottom of this page (663) the author(s) continue:

The best known of these has been Lewis D. Gilbert. For an excellent statement of his views, see his article Management and the Public Stockholder in the July 1950, issue of The Harvard Business Review.

In 1956, Gilbert published his Dividends and Democracy (American Research Council). In it America's Number One Stockholder discussed his crusade for corporate democracy and his efforts to get leading corporations to pay more attention to the interests of individual shareholders. In the words of Glenn Saxon, one of NIRI's founders and its first president: Gilbert has suffered far more criticism than he deserves, and this book is even today helpful reading for anyone interested in the investor relations field.

Making the Best of It

As shareholder democracy poked its inquisitive head into the boardroom, management found itself without any experience in dealing with it, no traditions and no precedents that suited the circumstances.

Clearly, this new force was challenging management's authority, not to mention threatening its perks. Despite the gadflies, it did not give up easily on the idea that it, and it alone, ran the show. That is the way it always had been in the current management's experience. They were accustomed to a long history of captive boards. They were not at all sure the small shareholder needed to be taken seriously. Their thinking tended to favor the idea that if they needed money, they could rely on their long past associations with banks, investment bankers and insurance companies. They were not convinced that small shareholders would ever be organized into a serious pressure group. Their hope was that they could bring these people under their control, or that, better yet, they would simply wear themselves out and go away.

Meanwhile, the shareholders were a problem that had to be dealt with. The question was how to turn the problem into an opportunity — how, in essence, to give the small shareholder the sense that he or she was being taken seriously without, of course, really having to do that.

Managements were generally annoyed, frequently just bewildered, and very unclear as to what path would be the right one for themselves and their careers, for the corporation and, yes, even for the shareholders.

As the pressure built to communicate with this large and growing audience of putative owners, managements turned to the experts in mass communication — their public relations departments (in the larger and more seasoned companies) or outside counsel for most. Internal staffs were relatively few in number in the early 1950s.

The large, well-managed companies had become familiar with public relations during the anti-business period of the 1930s. They were generally well-equipped to deal with this new addition to the list of public constituencies they needed to tend.

But many companies were undergoing radical change, often in the form of mergers and acquisitions, with new businesses and new executive personnel appearing on the scene. In these fluid situations, public relations often fell to the person nearest at hand — an administrative officer, a personnel chief, the senior lawyer or corporate secretary. Many managers didn't really know what it was or what to do with it. They found solace in turning the work over to outside agencies.

Companies that chose to deal with shareholders internally had adopted the term shareholder relations as that part of their public relations departments assigned this responsibility. This new office was responsible for preparing annual and quarterly reports and, sometimes, financial news releases — although that often fell to the press relations part of the department. Shareholder relations would become involved in the annual meeting, but usually this was managed by the corporate secretary and the legal staff, with the aid of outside proxy solicitors.

One must acknowledge that there were many great names in the public relations counseling field — names like Hill & Knowlton, Carl Byoir, Ivy Lee, Earl Newsome, Selvage & Lee, Edward Bernays, Pendleton Dudley, Farley Manning and many others. Their role with their clients — usually large, blue-chip companies — was often as much strategic counseling as it was day-to-day public relations. Many smaller firms in the field focused primarily on press relations — there being very little yet in the way of electronic media except radio.

The upsurge in shareholders also created a large new demand for the services of proxy solicitors, notably Georgeson & Co. and D.F. King. Georgeson was an outgrowth of a Wall Street investment firm and understood the Street mentality well. In addition, it initiated an advisory service on shareholder relations, headed by William E. Chatlos, who wrote a monthly letter called TRENDS in Shareowner Relations. Georgeson could, and did, conduct press relations for some of its clients, as did the two principal Wall Street advertising agencies, Doremus & Co. and Albert Frank-Guenther Law.

The public relations functions based in Wall Street firms generally knew the mind-set of the Street, how information flowed and how sensitive it could be. This was not generally true of agencies that devoted most of their public relations effort to general subjects. Managements, however, seldom saw or knew of the subtle distinctions and tended in their minds to house all public relations under one tent.

In concrete terms, shareholder relations became transformed into publicity, promotion and pageants.

The annual report suddenly blossomed as a 48-page, glossy sales brochure for the company's products. The financials were there, mandatorially, but the sell was in the sizzle, not the steak.

• The annual meeting became a huge, gala free-for-all. A large eastern railroad put together a special train for stockholders and carried them first class to a company-owned hotel in the southern Appalachians for the meeting.

• An international telecommunications company held a large gathering under two large tents in central New Jersey. A bountiful lunch was served, and there were several open bars. Members of the press were delivered in limousines from New York and returned the same way. Products were richly displayed. The chairman, himself a noted gourmet and bon vivant, addressed the gathering. Reactions were enthusiastic — but absolutely nothing of substance was done.

Companies made gifts or gift boxes of products available to shareholders, sometimes free. Liquor companies also provided their products under advantageous purchase arrangements.

If less elaborate meetings were held, they were still often situated at good hotels, often providing a light breakfast and coffee or a buffet lunch — and products, if appropriate. Slide shows and other product demonstrations were frequently provided.

This very sketchy list is intended to describe the atmosphere, not criticize or poke fun at management. It certainly is not complete. The burden of it is that management tried to give the shareholders a nice warm feeling at the least, keep them happy and calm, avoid any difficult confrontations, and, too often, avoid telling them anything that wasn't legally required to get the vote taken and the meeting ended. Perhaps it could be compared more to entertaining a blind date than developing a relationship.

In the same vein, great attention was focused on the press. In the early 1950s there were three large newspapers in New York City with financial coverage in some depth: The New York Times, the Herald-Tribune and the World Telegram & Sun. The tabloid Daily News used small business news capsules and a column by Bill Doyle that answered investor questions The Wall Street Journal, of course, was a broad-based business and financial publication. The Journal of Commerce was a specialized paper, but ran financial news and some statistics unique to itself.

There was no television coverage of financial news. There was very little on radio. If you wanted to get a message out to investors, you had to use the press, or the growing number of analysts briefs being published by Wall Street brokers like Merrill Lynch and Bache, both of which had news wires to their many offices. Market letters proliferated, and some of the authors, like Walter Gutman, became famous enough to have the New Yorker magazine describe him as the Proust of Wall Street.

The press has always been used by someone — attempts to do so have been legion and from time's beginning. This was certainly true in the 1950s. In one example, a one-time bootlegger from southern New Jersey persuaded a Wall Street Journal reporter that he had formed a genuine committee to oppose a merger being sought by Textron and its legendary chairman, Royal Little. A visit to the man's office in New Jersey revealed the truth.

During an attempt to win a proxy battle for control of American Motors, Louis Wolfson, chairman of an engineering company that he had taken over in a raid, persuaded one of the most senior members of the New York Times financial news staff that he was truly going to proceed with the offer and that he would win. In fact, Wolfson was selling out his position as he talked, and the New York Times story helped him clear out the tag ends.

The reporter was put in an almost impossible position with his editors, but forgiven. Wolfson went to jail, for this and other egregious violations of securities laws.

A man named Leopold Silverstein raided and won control of Fairbanks Morse, a splendid manufacturer of diesel and other industrial engines. He proceeded to plunder it, keeping up a barrage of positive news releases. He fled the country with his millions, as did one Edward Gilbert.

Eddie Gilbert won control of a high quality lumber and flooring company in New York called E. L. Bruce. He also plundered it under the shadow of repeated, glowing press releases. His exercise would have made a fine movie called First Flight to Brazil. Persuaded by his family and his lawyer, Ray Cohn, Gilbert later returned to face the court for his embezzlement. Meanwhile the shareholders had been defrauded, the press had been skillfully used by him and his public relations counsel, and the word public relations became increasingly a pejorative in Wall Street.

The last example of this sort of chicanery involves the behavior of Tex McCrary. Married to a beautiful model ,Jinx Falkenberg, he and wife were a very successful pair of breakfast talk show hosts on a major New York radio station.

Perceiving no conflicts of interest, Tex also opened up a public relations firm. He began issuing releases for clients of doubtful lineage. Details are lost in the mists of memory but could be resurrected from the New York Times, morgue. Eventually McCrary's welcome in the newsrooms wore thin as his credibility dissipated.

The principal significance is that financial communication was receiving a very bad name at the hands of what purported to be the public relations business.

It is also evident, as Cordiner had seen so clearly, that the manner in which a great many corporations were dealing with shareholders was structurally unsound. If delegated to public relations the skills were not there. If delegated to outside public relations counsel, not only were skills lacking but the outsider had difficulty keeping well enough informed. If given to finance, the numbers were there but the communication skills were lacking. Corporate secretaries were experienced in managing the shareholder list, but not the shareholders. Legal counsel saw everything as a potential court case.

No consideration was present in these organizations for the needs of the security analyst, whose role also was new and just becoming large enough to command stature in Wall Street, let alone the executive suite.

Perhaps the worst flaw in management's approach to shareholders was that it was a reaction, not an action, more a matter of heading the Indians off at the pass than finding a way to deal with them constructively. A flaw Mr. Cordiner had most particularly anticipated.

Further, the shareholder was seen more as a nuisance than as someone who was providing capital and ignoring the first tenet of finance that access to capital and optimum cost are essential to survival, not to mention growth.

It missed the point that large numbers of shareholders making active markets in the stock provide liquidity, itself a vital consideration in the price of the company's securities.

Finally, this approach turned the responsibility for shareholder relations over to personnel who, however gifted in writing press releases, speeches, annual reports, presentations to customers or putting on trade shows had little or no understanding of finance or of financial markets.

They tended strongly to see their job as creating sales messages, with little comprehension as to how negatively selling would be received by professionally trained investment analysts. These taciturn denizens of Wall Street instinctively reacted in horror at the very idea of being sold anything, let alone stocks.

They could not be immune, however, to the idea that the secretary presented to them might, in fact, represent a genuine money-making opportunity, or that others, less skeptical, might bite on it.

Security analysts, then, were caught in a Catch 22. Their role in the brokerage firm was to help the brokers sell stocks. Although this was temperamentally distasteful to many, and clutching their objectivity with white knuckles, they could not ignore a new idea just because it was presented to them by a public relations agent or executive in the company. If it were sound, and they missed it, their bosses and their customers would be upset. The only available way through the woods was to be cautious and keep an escape hatch handy.

Thus, saying under their breath saying we don't like you and don't trust you, the analysts still admitted the public relations types to the financial party.

Information is the life-blood of the markets. Wherever it came from, and whether surgically clean or not, it had to be taken into consideration. The scene was thus set for the public relations practitioner to claim credibility, whether authentic or not. Some were. Many were not.

For more than 20 years, security analysts have been taken for granted as an integral part of the communications flow from corporations to investors and from the Wall Street to management. In the early 1950s, this was not yet the case.

The first Analysts Society had been founded in New York barely a decade earlier, with 20 original members. By 1945, this number had climbed to 700, and it grew even faster thereafter. Business school MBA's began flocking to Wall Street because there was excellent money to be made.

So, along with the newness of the individual investor phenomenon, there was also a rapid change taking place in the way stocks were being evaluated and marketed. People in brokerage firms who for years had been labeled unflatteringly as statisticians were now metamorphosing into research analysts.

As with the new breed of shareholder, there was no established process by which corporations communicated with analysts. The job fell to a financial person — not necessarily the chief financial officer or even to the shareholder relations person. It was delegated well down the scale in part because senior management did not know who these people were, nor what they did, nor why they were in any way important to them.

When exposed to analysts, it was uncomfortable to find they asked serious questions, often questions that management had not asked itself, or for various reasons did not want to answer. The more recently put together the company was, or the more political its executive atmosphere, the less likely top management was to want to talk to the analysts. So the task was delegated far enough down to keep them at bay. Many senior people regarded them secretly as pests or worse.

Where analysts did, indeed, gain respect was when they were associated with an underwriting. In this connection there was not only the desire of management to put the best foot forward, but also the need to pass the due diligence screening required by law. Underwritings were not that frequent. The market played every day, and the analysts danced to its tune, with or without management's sincere help.

Managements in these formative years were inclined to brush off the analysts. In a vague sort of way, analysts fell into the same category as small shareholders — not seen as carrying any real weight, and making life uncomfortable. Eventually the creation of the investor relations function served to vault analysts into a much higher status in management's eyes. The investor relations position was itself an acknowledgment of their importance, while also providing them with better access to more reliable information.

Coinciding with the burgeoning demand for financial public relations, the New York Stock Exchange launched an all-out campaign to get individual Americans to buy stocks. The ringing title to this effort was People's Capitalism. (A very fine phrase it was, too. Respected experts reported from Moscow that no phrase in the Western political vocabulary so scared the astute ideologists of the Kremlin.)

With this label went a slogan: Own Your Share of American Business. Given such blessings from the Holy Grail of Capitalism, the American public went hell-bent to market the stock market.

The question had long ago been asked of Wall Streeters "Where are the customers' yachts?" So it is not out of line to observe that with all those lambs stampeding down that narrow canyon there were many canny shepherds waiting with shears to clip a bag full of wool.

True shepherds wear humble clothing and carry crooks. The newly minted financial public relations shepherds were dressed by Madison Avenue and carried attache cases, possibly filled with press releases.

Punctilious attention to financial details was not one of their strong suits. The story was. They were skilled in using the media, and the brokerage community, to propagate stories about their clients best calculated to arouse investor attention. Often they did not really understand more than the bare rudiments of what they were trying to sell.

As early as 1950, the earnings-per-share magic had already seized both Wall Street and the public. Over-optimistic earnings outlooks were the standard fare. Not real predictions, generally, but very strong hints. A word dropped in a hushed voice to a journalist about the probability of a dividend increase, or a new product, or one company likely to get together with another, unnamed one. A new oil or mineral discovery was sure-fire cannon for these troops even when it didn't go off! The Wall Street rumor mill was as eager as ever for some new tidbit to feed its ravenous maw. And control over inside information was very lax, at least until 1963.

We have dealt here with the purveyors of financial information, in the form of public relations and of Wall Street operatives. The media did its best to avoid becoming an unwitting party to the game, but, as indicated earlier, that was not always certain. Most, if not all, editors — certainly The Wall Street Journal and Dow-Jones, the New York Times and AP as examples — refused to print any story received from a public relations person until it had been checked directly with the source — and a credible executive at the source.

The trend to producing, peddling and promoting half-truths and untruths, even if cloaked in hedged language, was increasing at an accelerating rate — a sort of monkey see, monkey do syndrome.

The tenor of the times was wide open, with ebullient optimism and a ready willingness to wink at behavior that worked. At the same time, there were many serious investors out there who were in the line of fire and likely to be hurt. If enough of them were, the clear and present danger was a loss of credibility by Wall Street, by corporations and by the business system itself. A reversion to the anti-capitalist attitudes of the early 1930s was not impossible.

By 1953, at least for Mr. Cordiner, the powerful forces that were forcing out the old and bringing in the new were well limned. Old attitudes toward the stockholder were being worn down, against strong resistance. A new form of equity evaluation was gaining credence. The function of financial public relations was establishing itself in places where it had not existed before, in corporations and in public relations agencies, even in advertising agencies.

The era of The Hucksters and The Hidden Persuaders was beginning, to name but two books that reported on it. The Man in the Gray Flannel Suit was also in the cast of characters. A lively play and movie was hugely successful on Broadway in 1955-56 titled The Solid Gold Cadillac. The heroine (played deliciously by Judy Holiday) took up the sword against a cold-hearted management and won her case at the annual meeting. The Cadillac she received was the management's act of surrender.

These were the turbulent times into which investor relations was born. Its challenge: To find ways to communicate responsibly with investors, with the Wall Street firms who served them and with the financial press. Equally challenging was the need to find effective ways to convey back to management the needs, interests, attitudes and concerns of the people who buy stock, and of the people who guide them in their decision making.

Where public relations departments and agencies were treating the annual report as a glossy sales booklet, the annual meeting as a jovial family party of bread and circuses, investor relations was beset by an awareness that shares of stock are capital and that their obligation was to assure the company the best access to it at the most reasonable cost — keeping well in mind that there were (and are) serious penalties for misleading or misrepresenting.

None of these statements is meant to picture all public relations activities as inherently nefarious, nor their practitioners as either fools or knaves. The purpose is to draw a meaningful distinction between what is financial and hence acutely economic and what is founded in products, people and personality. Also, the financial information is not the be-all and end-all. Understanding of it is! Hence, investor relations requires in effect, educating an audience in Wall Street of generally high intelligence and knowledge of finance. People who will study with care and exercise judgment before they make buy and sell decisions, not rush to their typewriters to get out a story that will be in tomorrow's papers and on the wires and then gone leaving the damage done.

It is difficult and time consuming for a corporate executive to learn enough about his or her own company to be a useful conduit to Wall Street. It is difficult to imagine a public relations counselor being able to take that much time for any one client, or a person trained in writing and press relations to grasp the financial content of the communication needed.

It is equally difficult to imagine a truly financial person, with accounting and arithmetic skills, being comfortable at a typewriter preparing a presentation for a financial audience, with several speeches and a variety of slides or moving pictures or videotape.

The plain fact is, of course, that both sets of skills are needed — and were needed at the outset — for the successful performance of investor relations.

Many of the restraints that apply to investor relations — legal and ethical — also apply to public relations. But for the latter, they are more difficult to quantify. There was, especially in these early days, more room for smoke and mirrors, fudge and wiggle.

For people who, as a group, generally did not really understand the dynamics of financial information, many became involved, knowingly or inadvertently, in writing or saying things that could only be described as promotion, or more bluntly, touting stocks. They frequently had no idea how the market would react to their news.

One incident illustrates the point. A company had developed — or was in the process of perfecting — a new type of aviation fuel. A member of the public relations department issued a news release — on his own, without consulting any superiors — based on discussions with a research scientist. The story said the fuel would power an aircraft at subsonic speed entirely around the globe without refueling. Headlines trumpeted the invention in bold type the next day.

Of course, it was not so. The product was not ready for production. It had ingredients that were highly toxic and probably could not have been used anywhere near a populated area. The public relations man had interpreted the scientist and had not dug deeply enough into the story to understand all of its aspects.

The company's stocks leapt about 10 points at the opening on the following day. At which happy moment, and it seems purely by coincidence, the chairman unloaded a big block of stock, without knowing what had driven the price up so sharply. Stocks of other companies engaged in producing the raw materials also soared.

The irony is that no disclaimer was issued. The public relations man kept his job. There was no Securities and Exchange Commission (SEC) investigation. The excitement slowly died as there was no follow up. It turned out, again by coincidence, that the story had been hugely helpful to the military strategists in Washington who were game-planning the Cold War!

While this seems to have been an honest mistake, it points up the proclivity for promotion that characterized the public relations profession when it donned financial robes. And heightens the evidence that a different approach was needed.