The recent strength of the stock market has prompted renewed interest in Investor Relations (IR). There is certainly a flurry of pre-IPO preparation. Fast growing TMT companies are building out their IR capability. Established major cap IR teams are coming up for air to review what they doing and what they should be doing going forward. In all these discussions the cost of IR is simple to calculate. The return on IR is not. Fidelio firmly encourages CFOs to ask the right questions.
On a point of full disclosure, Fidelio is a passionate advocate of what excellence in IR can deliver. Gillian Karran-Cumberlege has headed the Group IR function for leading European multi-nationals including UBS and Volkswagen and has also co-headed Brunswick’s Global IR Practice. Gillian currently Chairs Fidelio’s IR Executive Search Practice, which is internationally recognised; she also heads Fidelio’s Board Practice. Fidelio’s researchers are active members of the UK IR Society. This experience informs Fidelio’s confidence and belief in the value that IR can add.
The purpose of Investor Relations is to attract the shareholders you never want to lose
– Warren Buffet, 2008
The majority of IR practitioners are skilled in articulating the value of the company they represent. Surprisingly few IR Officers bring the same fluency to articulating the value of their own role.
There are a number of reasons for this. The metric is not an easy one. If the share price improves it is virtually impossible to isolate the contribution of IR from that of the CEO, for example. Indeed Fidelio is a purist here and considers Investor Relations to be the entire interface of the company with its investors – it is not just the domain of the IR Officer. High calibre Investor Relations can only be achieved with proper and professional engagement from the Chairman, CEO and CFO.
Complexity of measurement is a clear challenge in assessing the value of IR. Business schools and leading consultancies have not provided answers. Possibly the IR budget has been too small to attract the research the subject warrants.
IR Officers themselves must also take some of the blame for timid thinking here. Since inception, IR as a profession has come a long way. That process of professionalization has led to greater focus on technical skills. This is certainly at the expense of entrepreneurial flair.
IR clearly involves understanding the financials, servicing the requirements of investors and having a firm regulatory grip. The value-add is surely going one step further. What does it take to keep shareholders true; where else can we be looking for capital; what elements of the corporate story need to come out from under the bushel; how can IR best support Corporate Strategy and, last but not least, underpin Corporate Reputation?
This surely is the holy grail for IR – establishing a link between materially improving valuation and the activities of the IR Officer.
In our dialogue with high-performing IR teams we recognise a number of attributes that make us optimistic. Firstly, we see a confidence based on a good relationship with the Board that IR has an important role to play. The IR Officer is highly regarded internally. Critically the IR Officer will have an IR elevator pitch which makes an impact by linking what they do to the value of the company. For a large quoted company a minor improvement in the cost of capital can be breathtaking.
The ultimate prize of getting IR right is very substantial. Corporate achievement is measured in valuation. Boards, Management and IR Officers that preside over a demonstrable increase in valuation are deemed to be successful. And yet the IR profession remains reticent about the contribution it makes to this key metric of corporate success.
It is absolutely appropriate in this age of austerity for the CFO to be asking very detailed questions about IR spend. This side of the equation is understood.
The real opportunity of IR lies in the deliverables. If viewed simply as a compliance function, then the focus on cost is appropriate. IR is also a contributor to enhanced valuation. It achieves this through a range of tools both technical and entrepreneurial. This shift in perspective prompts a different debate. We move beyond “How much does IR cost?” to “What return on investment does IR deliver?”
At the end of the day, reputation is everything, and people representing a company have to have a reputation that lives with them, wherever they are, for truth, clarity and honesty.
– Sir Roger Carr, Chairman of Centrica, President of the CBI, speaking at the IR Society Annual Conference, May 2011
The dislocation of the banking and investment markets undoubtedly provides an opportunity for the IR profession to make a material contribution to corporate valuation. For IR to deliver, the CFO must continue to keep a close eye on costs. Critically the CFO must also ask probing questions about the return on IR spend. And IR Officers must have robust answers. For the IR profession this is a very real stepping up to the plate. The demand for IR Officers who operate at this level is keen and will increase.
Coming Up…
Overture explores how talent drives valuation. Future editions of Overture will explore
• How Boards keep on learning
• The Corporate defence team
• Building leadership teams for new markets
• Post-acquisition – what to do with the former CEO
Please contact us with comments or for more information on Fidelio Partners at info@fideliopartners.com