In the month of the Royal Mail's stock market debut, David Benady looks back to the '80s and the role PR and communications played in the early privatisations of state-owned firms 

Thursday October 15th, 1987. BBC weatherman Michael Fish forecasts a windy but otherwise quiet night. BP has printed six million prospectuses announcing its proposed privatisation at a price of 333p per share. Royal Mail is distributing the documents to UK households – they have to be in the hands of prospective share buyers before the weekend so they can decide whether to buy into the Government’s £7.2bn sale of BP shares two weeks later.

Then catastrophe strikes. Fish was wrong. A massive overnight storm with hurricane-force winds hits the South of England, tearing down 15 million trees and making roads unpassable.

Cary Martin, former chief executive of city PR firm Dewe Rogerson (now Citigate Dewe Rogerson) which was promoting the BP privatisation, says that of the 60 or so state sell-offs he has worked on, this was the closest to disaster he ever came. If Royal Mail had been unable to deliver the prospectuses, the BP privatisation process would have been up in the air. It didn’t look good, but the Royal Mail saved the day, with posties struggling across a tree-littered landscape to deliver the prospectuses.. “Without Royal Mail, it wouldn’t have happened,” says Martin. “With privatisations you couldn’t have cock-ups, you couldn’t afford for things to go wrong, these sell- offs were just too massive,” he adds.

In fact, an even greater storm would strike just three days later to derail the BP privatisation. The share route on the following Black Monday devastated global stock markets and reduced the share price of BP to 226p. Only 250,000 members of the public bought shares and the underwriters of the sales lost £750m.

But for many other privatisations of state- owned entities such as British Telecom, British

Gas and the electricity companies, popular demand from retail shareholders and institutional investors was strong. This was in part down to the involvement of PR firms which created powerful and persuasive communications strategies.

The state sell-offs were a watershed for the PR industry and drove the status of corporate communications to new levels.

The multi-billion pound sell-offs were some of the biggest flotations that had ever taken place. They owed much to the expertise and advice of the new breed of city PRs that sprung up after the creation of the FTSE 100 in 1984. Cary Martin recalls that at the time less than a tenth of the 100 companies on the list had a retained PR adviser. Hard to believe today. City PRs hired by companies to spearhead their privatisations would then stay on board for years after and gradually became an indispensable part of communications between boards and their investors.

In light of the arguable success of this month’s privatisation of the Royal Mail, the frenzy for shares and the debates over the £3.50 price, it is interesting to reflect on the role of the PR industry in driving forward the state sell-offs of the 80s and 90s. It is also instructive to consider the changes in public attitudes and the challenges for communicators in the current climate.

The first privatisation came in 1977 when the then Labour Government sold off some of its stake in BP. In the mid-80s, the Conservative Government launched headlong into privatisation, portraying it as a new era of share ownership for all and using mass advertising to engage millions of private investors. Privatisation has since gone global and UK PR companies have worked on sell-offs across the world as other countries have followed Britain’s lead.

Martin says that Dewe Rogerson was hired to handle corporate communications for one privatisation after another mainly because it could identify where things were likely to go wrong. With huge sums of money and political careers at stake, failure was not an option for the Conservative Government. So, for instance, spare printing capacity was always hired to ensure the prospectuses were produced in case of problems with the main printer. The deadlines were always tight and everything had to be done with precision, particularly on the retail side – announcing the sale price, sending out the prospectus the next day, receiving millions of applications, allocating shares, then lighting the blue touch paper. “The challenge was that you had to sell a massive stake worth billions of pounds in a tiny window of ten days,” says Martin.

PR companies have been essential in helping Governments avoid communications errors in their privatisations, according to Martin. “The classic mistake that governments made was wanting to talk about wide share ownership. We told them that this wasn’t relevant to most people. Our market research showed that the public weren’t interested in share ownership but they were interested in owning shares in a specific company,” he says.

One PR company that made much of the running in the privatisations of the 80s and 90s was Valin Pollen, which itself listed on the Stock Market in 1984. Reg Valin, then chairman of the company, recalls that privatisations used two sets of PR advisers – one advising the Government side and another for the company. “If possible, we tried to work for the company rather than the Government because once they had floated, you had a relationship and could continue working with them, but if you worked for the Government side, it was a one-off,” he says.

A big change he notes between then and now is in the size of fees commanded by City PR firms.

“When we worked on the privatisations in the 80s and 90s, the fees were nothing like the levels they have been in the last 15-20 years,” he says. He believes the big driving force behind this increase was the hostile takeover bids of the 80s.

Angus Maitland, who also worked for Valin Pollen and went on to set up his own successful financial PR firm, says: “One of the fundamental marketing strategies was to try and create demand tension with the institutional investors and private investors, who wanted stock at the lowest price. But the Government’s job was to create demand to push the price up and the mass consumer advertising campaigns were helpful in doing that. Demand could be manipulated in various ways depending how much they wanted to spend on advertising.”

The job of marketing – to establish the optimum flotation share price, low enough to ensure high take up, high enough to deliver value for the Government – was divided between corporate bankers, ad agencies driving up consumer demand and the financial PR companies such as Valin Pollen specialising in media. “In those days, media was a very powerful way of creating demand. In many ways that was difficult because it wasn’t about placing advertisements but persuading sceptical and sophisticated financial journalists that it was a good investment,” he says.

The run-up to a privatisation was usually divided into phases. Financial journalists generally knew little about the state-owned companies so there was a lengthy period at the outset of awareness building of the management, their strategies and outlook. The second phase involved using attitudinal research to demonstrate levels of demand for the shares.

Maitland says striking the right price became crucial. “The company has to live with investors after the sale, particularly big institutions. The last thing management would want is institutions paying too much. Meanwhile, the Government is looking for a good price and they wanted wider share ownership with political capital for themselves.” Inevitably, as with the Royal Mail IPO, there was often criticism over the offer price.

He adds that the main communications challenge was finding an “investible proposition” – as state-owned industries, the companies would require significant cultural change to transform them into competitive businesses. Convincing investors and journalists that the businesses had a sound strategy for dealing with this was vital.

The first mass popular privatisation was the sell-off of 50% of BT shares in 1984. Colin Browne, who later became the company’s director of corporate affairs, was at the time director of the chairman’s office of BT. “BT was the first really big popular privatisation. Right up to the last couple of weeks there was great uncertainty about whether the market could cope with a privatisation that big because it hadn’t been done before,” he says. “It was quite scary.” By the last few days he says it was clear that interest had soared after a big TV ad campaign. “There was massive publicity and a lot of people wanted to get in on the act,” he says. He remembers visiting one of the share application processing centres and seeing that one application contained a cheque for £1m, another for £500,000. “People who applied for very large amounts actually got scaled down to nothing,” he recalls.

The sale transformed the company and the role of corporate affairs. Some 2,000 investors turned up for the first annual general meeting, so “there was a steep learning curve”, says Browne.

One of the big issues for all UK privatisations, then and now, is heading off opposition from trade unions who fear the sell-offs could lead to mass redundancies. Offering preferential terms on shares to employees was one way of combatting the opposition. At BT, 95% of the staff took up the share offer. Over 100,000 of them were sacked after the sell-off.

While the Royal Mail is the first major UK privatisation in two decades, many other countries have followed the UK’s lead - the sell-off of Deutsche Telecom was the biggest privatisation of all time. They have generally followed the UK model of promoting the sale to small investors.

Imagination produced investor road-shows for privatisations such as British Gas and has recently been involved in sell-offs of Chinese banks. Chief operating officer Simon Bruxner-Randall says: “I joined Imagination in 1986 and our first privatisation was British Gas. The Government engaged three agencies to co-ordinate the investor road show and we carved up the world. We did North America and Europe, others did the rest of the world. That was the model for privatisation from BG through to BP. When we got to British Steel, we managed to convince the Government that engaging three agencies to manage the roadshow meant a degree of overreach and that it was more cost effective to have one agency on a global basis.”

Some believe that there has been a sea change in public attitudes since the hey-day of the sell-offs of the 80s and 90s.

Nicky Havelaar, managing director of Crown Business Communications, was involved in a number of sell-offs. She says: “In those days it was exciting, a new frontier and nobody necessarily understood the benefits or consequences of privatisation. The difference is that there is bigger scrutiny on the performance of PLCs nowadays.

“In the mid-80s it was all about “me”, there was a naked desire to make money and privatisation fitted in with that. These days people look for authenticity, things that make sense, things they can understand.

“There’s a caring meme going on, people take into consideration the community and people who work for the company. I don’t know that everybody is looking at privatisation from a business point of view.”

The Government may have “got the Royal Mail away” but the big communications challenges lie ahead. The company must demonstrate transparency and responsibility. This is a new digital era where corporate accountability matters in a way that could not be conceived during the early days of popular capitalism in the 1980s.