Specialty chemical manufacturer Lubrizol Corp., Wickliffe, ohio, long has made it a practice to establish strong communications with the investment community, a routine the publicly held company stepped up in 2004 with the $1.84 billion acquisition of then closely held Noveon International Inc., which broadened the company's product lines. CFO Charles P. Cooley discusses Lubrizol's investor-relations efforts.
IW: Lubrizol attends many investor conferences and has even hosted investors on-site. Why do you participate in so many investor-facing events?
Cooley: It's very important for investors to understand our businesses, understand the markets that we sell our products into, as well as understand our long-term strategies so that they can arrive at a well-informed, fact-based judgment on the valuation of our shares.
It's a continuous process of getting the message out -- updating investors on new developments, communicating the factors that explain not only past performance but also what those drivers for future performance are. And we've devoted a significant amount of the effort educating the investors about Noveon, which -- since it was privately held for a number of years and prior to that was a division of a much larger company -- historically was not all that well known.
IW: Is there a toughest question from investors?
Cooley: There are a lot of tough questions that can be asked, especially with Lubrizol specifically. Part of the reason for our acquisition of Noveon was to address the low-growth nature of our legacy lubricant and additives business. Noveon, which had a higher growth profile, really exposes us to a lot more growth markets and also adds to our strong technology portfolio a number of other various strong technologies. So the kinds of questions we get asked on the legacy Lubrizol side [are], 'How can we be confident that you can continue to be successful in that low-growth market?' And on the side of our businesses that are largely what we bought Noveon [for] it's, 'How can we be satisfied that you're going to get an adequate return on the price you paid for Noveon?'
IW: How important are the interests of investors compared with your other stakeholders, i.e. customers and employees? And are they a more difficult stakeholder to satisfy?
Cooley: The best place to start is to first refer to Lubrizol's corporate philosophy, which was written by our founders back in the late '20s when we were formed. It says in part, 'The strength of Lubrizol is the dedication of its employees to our company, our shareholders and our customers.' We are committed to rewarding shareholders by providing a high return on investment capital. The notion of this philosophy is that you can't satisfy the needs of one constituency unless we're also serving the long-term needs of the other two. So that's the essence of what our founders had in mind, and I think we live by that to this day. But from my perspective as the CFO, one of my main jobs is to be the 'conscience of the capital markets' -- mainly the person who at Lubrizol who looks out for the interests of our shareholders and our debt holders. To me, the interests of our shareholder really must come first.
I don't know if [investors] are more or less difficult to satisfy than other constituents, but I can say they are very challenging because they're very smart, very demanding, very direct, they ask tough questions, they certainly have expectations they want to see us meet, and if we don't meet their expectations they vote with their feet. They'll sell our shares and move onto another investment that they find more interesting. So they're a daily challenge, and that's reflected in our daily stock price movement.