When Iron Mountain made the list

A Tap Day of sorts came a few months ago for one of Boston's biggest local companies, Iron Mountain Inc., the records storage and data protection giant, and it opened a window into the world of another, very different, tightly controlled, members-only society.

The Standard & Poor's 500 is a diverse list of US companies regarded as leaders in their respective fields that are bought and sold by investors more aggressively than companies not on the list. But exactly how companies get added or dropped from the S&P 500 is something average investors know little about, even though each change on the list could have an impact on their retirement portfolios.

For Iron Mountain, founded in 1951 and based in downtown Boston on Atlantic Avenue, joining the S&P list became possible only because a spot opened up. When Altria Group, owner of Philip Morris USA, bought UST Inc. (owner of U.S. Tobacco), a big producer of smokeless tobacco, the list of 500 became 499. Once that happened, the index committee of the S&P 500, which reviews the index monthly to see whether any changes are needed to better reflect the US marketplace, began discussing potential new members.

Standard & Poor's spokesman David Guarino said when the opening emerged, the committee decided the industrials sector of the list - companies that focus on capital goods manufactur ing, commercial and professional services, and transportation - needed to be bolstered. "Iron Mountain," Guarino said, "was the best candidate at the time."

But then he quickly added, "An addition is not a recommendation from the S&P 500 to buy a stock any more than a drop out is a recommendation to sell."

It may not be a recommendation. But it doesn't hurt.

Almost six months after Iron Mountain became the 20th Massachusetts member of the S&P 500, and just the fourth Boston company, along with Boston Properties Inc., State Street Corp., and American Tower Corp., its membership has become its first bragging point when officials are explaining what the company does or how it's doing. Iron Mountain's updated Wikipedia page touts the news, and spokesman Dan O'Neill, who says he tweeted the S&P announcement, adds, "It's one of the first things out of my mouth when I discuss the company."

But beyond a bragging point, S&P 500 membership has some real perks. For starters, every index fund - Vanguard, State Street, Barclays - has to buy you. And when money managers considering stocks for a client's portfolio review the entire S&P list, screening by sector, Iron Mountain now pops up as the leader in its field. "They don't buy a stock they can't see," says Stephen Golden, Iron Mountain's vice president for investor relations.

The numbers back him up. Iron Mountain stock now runs 2 million trades a day, double its average from 2008.

"It means you're in the club," says Charles Haydock, a veteran portfolio manager with Welch & Forbes LLC and a former Harvard Management Co. partner. "It's a validation of the business model you've pursued. People will look more closely at the company and say, 'Why don't we have it?' "

Why? Because joining the S&P 500, which, after the Dow Jones industrial average, is the most widely tracked stock index, is not that different from how Skull and Bones works. You don't ask. They tell you. Out of the blue. And like Skull and Bones, what membership means is not altogether clear.

"We're in rarified air now," says Robert Brennan, Iron Mountain's chief executive. "It's a big deal to the casual observer. This is not the case for the astute observer who already knew we were a very reliable earner. But we're more in the mainstream now. We have greater name recognition in the investment community. The S&P 500 is more of a message to potential investors."

Golden first grew curious about the S&P 500 about a year ago, after someone asked him why Iron Mountain wasn't on the list despite having market capitalization over $5 billion. Other Massachusetts companies on the list include Raytheon Co., Staples Inc., and Boston Scientific Corp. Golden investigated what it takes to qualify. The guidelines included, among other things, a market cap of at least $5 billion (on Dec. 18, the S&P reduced its minimum to $3 billion), that the company be incorporated in the United States, and that its principal executives work here. Also, at least half of its stock must be in public hands.

Iron Mountain fit all those criteria, but Golden had forgotten about it until late in the afternoon of Dec. 29. He was planning to fly the next day with his father to his parents' home in Florida. But he happened to check his BlackBerry at 5:45 p.m., after the markets had closed, and found a press release sent from the S&P at 5:15 stating that Iron Mountain was to become the newest member of the index. It was Iron Mountain's Tap Day for Skull and Bones membership. Quickly, he and corporate communications director Melissa Mahoney discussed an announcement strategy. Then he gave his BlackBerry a workout. At 6:40, he forwarded the press release to Iron Mountain senior officials. Five minutes later, he sent it to an external investment relations adviser to learn what other companies had done upon learning the S&P 500 news. At 8:45, he sent the release to the board of directors and at 9:40 he sent a general statement globally to all of Iron Mountain's top executives.

A week later, on Jan. 5, when it formally joined the index, Iron Mountain filed with the Securities and Exchange Commission an 8-K form, required for all companies to announce major events that shareholders should know about, and only then did it finally issue a short press release about the news.

There was no celebration, no party upstairs at Locke-Ober, or snow romp at Alta. A recession was in full swing and for this staid group, handshakes all around was enough. Bigger news, in fact, came two months later when a cake party was held to celebrate the company reaching $3 billion in annual revenues.

"There was no big Standard & Poor's day," said Golden. "We're not really good at displays. We knew the $3 billion mark was coming. And that was a big deal."