Getting into the FTSE 250 and then the 100 can become an obsession for businesses’ management – but how does it affect comms once they get there? Andrew Thomas reports

Logica was a British tech success story. The developers of the banking CHAPS system, the architects of SMS, the company behind the automated London Underground ticketing system: Logica was highly regarded, much followed by investors, and much covered by the press.

From 1998 onwards its share price set new records, and in 2000 it entered the FTSE 100, valued at £4.2bn. At its peak its shares traded for nearly £30. Sadly, however, its success was unsustainable. The sector, already changing, dropped quickly in 2002, with Logica leading the decline. That year, its share price plummeted to £1.50 and it dropped out of the FTSE 100 to the FTSE 250, where it remained until its acquisition by Canadian firm CGI last September.

For a while, however, the company still felt the FTSE 100 was its rightful place, with Dr Martin Read, CEO from 1993 to 2007, stating that it was his “ambition to see Logica back in the FTSE 100.”

It wasn’t to be, but this drive to get into the upper reaches of the FTSE - the index of the largest companies capitalised on the London Stock Exchange, originally created as a joint venture between the LSE and the Financial Times - has spurred or distracted many a CEO, though few have dared to voice it like Logica’s Read.

With 81% of the FTSE’s share trading taking place within the top 100 companies, it is perhaps not so surprising that the FTSE 100 is seen as the Premiership for companies, with CEOs who are in a different league: much as top-flight football managers are distinct from their Championship and lower league peers. But is the fight to achieve promotion to, or escape relegation from, the FTSE 100 treated the same as movement into or from the Premiership is hailed or feared?

“The people who care the most are the employees,” says Carolyn Esser, who was Logica’s global communications director from 2005 to 2012. “That’s either the management team – often because executive compensation is linked to share price – or it’s the rest of the workforce, keen to live the ‘employee brand’ that comes from working for a company that’s seen to do well.”

% increase in media coverage after entering FTSE100

Media coverage Are journalists actually more obsessed with FTSE 100 companies, or is it just perception? We asked media intelligence firm, Kantar Media, to analyse mainstream media coverage of four companies that made the transition from FTSE 250 to FTSE 100 over the past year. Kantar compared the average monthly coverage for the nine months prior to promotion with the average monthly coverage during the three months after they reached the FTSE 100. The four companies, Aberdeen asset management, Babcock International, Croda and John Wood all showed an increase, averaging 51%. The average would have been greater, were it not for the coverage Aberdeen Asset Management received prior to its FTSE 100 arrival.

But there’s a self-fulfilling element to this. FTSE 100 companies are perceived as doing well, just by virtue of the fact that they are in the FTSE 100. The business press reports on FTSE 100 firms more frequently than FTSE 250 companies with a staggering imbalance. According to media research firm, Kantar, the average increase in media coverage last year for companies who moved up to the FTSE 100 from the FTSE 250 was 52% .

With such an imbalance there’s little a company can do to affect change through its communications strategy. Yet, as a company climbs the index, comms becomes more of a focus, with headcount a noticeable indicator of growth – suddenly the investor relations and corporate communications teams swell. Up to that point, to the delight of the London corporate and financial PR agency community, much of the comms function is outsourced.

Most companies would argue, though, that the increase in the comms teams is just part of the process of being bigger, rather than the manifestation of unbridled ambition. To some degree a company’s comms effort starts to mirror its overall strategy. “We aim to be top of the game in everything we do; our comms is no different,” says James Tyler, director of marketing and communications at rapidly rising FTSE 250 data storage firm Telecity. “For instance, as a relatively recently listed company we were aware that ‘best practice’ was changing for the good. We took the earliest opportunity to be top of the game in our annual reporting.”

Indeed, Tyler feels he speaks for most when he says that pursuit of FTSE 100 status isn’t the goal. “We’re an ambitious company with a plan for growth. Our aim is to grow the business and if FTSE 100 status comes as a consequence of that, then that’s OK, but it’s not a target in itself.”

According to Reg Hoare, managing director at corporate and financial PR agency MHP Communications, entry into the exclusive members club of the FTSE 100 really can’t be predicted. “It’s nice to think that you can maintain this never ending upwards trajectory, but the reality is that the level of change needed is almost impossible to sustain. There’s much more volatility lower down, where a good year’s trading can catapult you 50 places from the Smaller Cap to the FTSE 250, but the figures for FTSE 100 aspirants are much higher.”

After arriving, maintaining the positioning of the CEO becomes a priority for comms teams. “Having a point of view was important to us” says Logica’s Esser. “We pushed hard to continue commenting. Positioning senior executives is always a good challenge for comms teams, but we felt it important to position Andy Green (Martin Reid’s successor) at the top of the tree.”

It can be a challenge, but if the CEO is smart he’ll continue to nurture the relationships he’s built. With FT lunches or Davos or networking events you have to be more creative in finding the right entry points.

Tyler agrees with Esser that the positioning of the CEO is important, but feels it’s less relevant to have the same share of voice on the same platform as FTSE 100 CEOs. He feels the club is right for those who are there: “The FTSE 100 club is one club, but there are other clubs,” he says. “There are the sector clubs, the wider tech clubs, the entrepreneur clubs and so on. One joins the best club for your business at that time.”

CEOs from FTSE 250 companies are often asked to comment on their company or their sector, whereas once a company is in the FTSE 100 the focus switches to their views on UK plc. There is an expectation that FTSE 100 CEOs are expected to step up to the plate and hold forth on wider macro-economic or political topics, from the economy at large to education or European affairs. Many CEOs who have helped their companies make the journey into the FTSE 100 may be brilliant at the former, but just not up to the latter. Often, inexperienced CEOs are uneasy outside their own environment. Their comfort-zone is their business and their sector, and journalists often complain that less experienced CEOs can be reluctant to comment on these wider issues. But, according to MHP’s Hoare, it is often the CEO who ends up frustrated, lunching a business press journalist more interested in unearthing gossip on FTSE 100 companies from the same sector. “Journalists often don’t even hide their lack of interest, straight away trying to find out what the big boys are up to.”

For most companies, however, it’s a more reactive process than a proactive one. According to Helen James, CEO of digital corporate communications agency Investis, “Some companies are just good communicators, and this is just a reflection of the culture of the organisation. Others have to work at it. They get into the FTSE 100 and realise that they just don’t stand up against their peers. WM Morrison is a classic example of this.”

When WM Morrison arrived in the FTSE 100 after a 35 year journey to get there, it found it difficult to control the many crises it faced. Its communications function had been universally regarded as ‘very bad’: it was one of the last FTSE 100 firms to employ an investor relations professional. According to James, its website had no investor section and limited media relations functionality and “its opportunity to position the company online was limited.” Its entry to the FTSE 100 was a rude awakening and it fought hard to get credibility or respect from journalists and analysts. It now regularly wins awards and praise for its corporate communications.

One frequent problem is that the communications skills needed of a FTSE 100 CEO are not there. According to Kate Donaghy from the Board Advisory Partnership, chairmen of newly promoted companies, or those approaching FTSE 100 status, often think of getting external development for their CEO, and increasingly, themselves and other Board members. “This development mostly takes the form of mentoring. Either a professional mentor or a FTSE 100 Chairman who has experience of being a FTSE 100 CEO themselves.”

Donaghy feels that the executive skill lacking from CEOs moving up to the FTSE 100 is seldom their calibre. “The issue which causes most difficulty is the ability to manage stakeholders, most of all the Board and Chairman.”

Whilst management of the executive stakeholder is an issue for those companies that achieve greatness, the difficulty for those who have greatness thrust upon them lies squarely in management of the expectations of the institutional investor.

“Bankers tell CEOs of companies that they meet all the requirements to list on the London Stock Exchange,” says Mike Tyrell, CEO of SRIConnect, an online networking and research hub for socially responsible companies and investors. “So they list on the exchange and are catapulted into the FTSE 100, suddenly finding themselves falling short of investment governance and SRI standards.” It can be a painful lesson to learn, taking valuable management time to reexamine governance and transparency initiatives. “Companies get there in the end though, because they have to,” Tyrell says. “For example, Vedanta has worked hard over the past ten years to be a more open and transparent organisation.”

The investors that Tyrell follows, however, are often required to diverge from benchmarks like the various FTSE indexes, and often have a bias towards small caps. The trading volumes of the FTSE 100 can often be a big shock for new arrivals. Quite often their exposure to different financial institutions such as hedge funds has been limited. Companies suddenly start finding themselves unsure as to who owns their stock, let alone what their position on it is.

Index tracker funds (funds that attempt to mirror the performance of a whole index like the FTSE 100) will own an average of 10 - 12% of a FTSE 100 company’s shares. According to Richard Davies, CEO of IR advisory firm RDIR, index funds are often managed by investors who lend their stock out more frequently and to higher levels. “Tracking how these investors really hold your stock despite their lending is very important. Companies need to undertake a thorough analysis of their share register in order to understand the beneficial ownership of their stock by index and tracker funds. Without that they won’t understand their real shareholder base.”

Although entering the top flight can have quite instant effects on the shareholder register, exiting the FTSE 100 seems to be less of a sudden jolt than many would expect. “The transition from one index to another does not necessarily mean an instant switch out of or into a company’s stock by index-tracking funds,” Davies says. “Sometimes sales or purchases by these funds can take many weeks or months to complete, depending on the stock’s liquidity.”

The top league of companies can also experience a West Brom effect, with companies yoyo-ing in and out of the FTSE 100. Perhaps the record for this is Tate & Lyle, which exited and entered five times over a fifteen month period. This volatility can be unsettling, and Tate & Lyle’s stock was significantly discounted compared to its peers during the period. More than anything, this instability is perhaps reason enough for companies to ensure that, whichever index they are in, the pursuit of promotion or the fear of relegation doesn’t become an all consuming distraction from the central job of running the business.