This year’s AIRA annual conference will hear from Gillian Karran-Cumberlege, a UK-based consultant who is uniquely positioned to provide insights into how the IR role will develop over the next decade. She has run IR teams in leading global corporations and currently places IROs within organisations after forming a consultancy called Fidelio. Added to focus, she also advises boards and senior management on structuring the IR function. Gillian is a board member of the UK Investor Relations Societyand has previously worked as IR head at Volkswagen, UBS and Dresdner Bank.
1. How does a global, low growth environment beset by uncertain international macro factors impact on the changing role of IROs?
Today, IROs are articulating a different, more defensive story than they were five years ago before the financial crisis hit. They are telling investors about building buffers, liquidity, capital adequacy and cost controls. Before, there was a much clearer focus on shareholder returns. IROs also have to be more sensitive to a broader stakeholder universe than before, which means they need a more nuanced story. This is all made more difficult because most IROs are operating within tighter budgets, which makes it very important that they have a clear understanding of what their contribution is. Nowadays, there are other internal communications functions – such as government relations – competing for the same cake.
2. How has the low growth economic environment impacted on remuneration and career prospects for IR executives?
Remuneration has traditionally been linked to banking salaries because a number of IR executives come from that industry. That is having an impact, because we have seen a drop in banking pay. A more important issue, however, relates to career prospects because there is a bottleneck regarding what senior IROs can do next. That is not helped by the fact that a lot of bankers are looking to move into IR. We need to ensure that senior IROs have the opportunity to move into senior leadership roles. The best outcome for all in the profession would be to see them able to move into C-suite or board positions. IR is a real qualification for leadership. We are seeing some of that occurring, but nowhere near enough.
3. Fund managers increasingly are of the belief that quality IR practices boost the investment premium of listed companies. Is this a commonplace situation in your experience and, if so, what more can companies do to benefit from the situation?
It is very difficult to separate good IR from good management. I agree that if IR is well conducted and investors have confidence then that will flow through to a premium for the shares, but that is all part of having a well run company. It is difficult to separate a good equity story and what is good IR. Investors can be attracted to invest in a sector, yet the quality of IR may not be a significant factor. That has occurred recently with a number of high growth companies and in a number of sectors, including natural resources and technology companies, without naming names. The real challenge for IR is how they can distinguish themselves when investors are not very positive about a company. I believe that IR has improved since the financial crisis. But the industry needs to present itself as a solution to management problems and management issues. However, a bifurcation is developing, including on a geographical basis. There are those who are stepping into the breach to provide solutions to management by providing really good communications with shareholders and broader stakeholders. We are seeing this with leading German companies. But we also see a more compliance and reporting focussed role starting to emerge – a narrow interpretation of IR. This is more common in Anglo-Saxon markets.
4. Fidelio has recently pointed to the sharp reduction in employment in Europe and the US for bankers, investment bankers, brokers and fund managers. Given that many executives with background in these areas have previously emerged as IROs, does the downturn in banking provide an opportunity for corporations looking to boost their IR credentials?
Yes, it does provide an opportunity. More bankers are looking to IR and many corporations are becoming more selective when they assess potential candidates. They are putting more emphasis on inhouse and managerial experience as well as sector experience. There’s a real opportunity for IROs to build up their relationships directly with the buy side. Banks used to provide a lot of IR services for free, but that is being cut back. That provides an opportunity for the IR teams to be pro-active with investors rather than having bankers acting as intermediaries. For instance, the technology is now available for IRs to run their own customer relationship systems. At the same time, there is a lot of pressure on the buy side to establish stronger relationships for stewardship reasons.
5. Asia has emerged as a major source of capital for companies in other parts of the world. What steps should corporations take to ensure that they attract the optimum level of funding from this growth area?
There is an enormous emphasis on Asia as a market and as a source of capital. Companies are giving a lot of thought to how they go about tapping into the opportunities, particularly how to access capital. There are significant differences to take into account, including a much more nascent capital market. Hence issuers need to reach out to different
types of investors. Indeed, a significant amount of investing is done through sovereign wealth funds. Many companies with operations in Asia are building IR capabilities in the region, but not necessarily through contact or outreach programs such as those used in Europe or the US. But they are getting closer to the markets and ensuring that they have an ear on the ground. That could involve having someone who has a financing function in Asia having a dual role. We are also of course seeing a number of Asian companies set up IR functions. On the whole the role is more junior than in more established markets.
6. Increasingly, investors are examining the composition and quality of boards as they become concerned about the scale and volatility of returns. What common sense principles should boards adopt to meet these demands and how can IROs inform that process?
We have seen a shareholder Spring. There is pressure on investors to be more responsible and active in the relationships they have with the companies they invest in. That has become a challenge for IROs. You need a mature and well-regarded IRO to be able to act as an intermediary and to feed messages back to boards that they might not find very comfortable. But some IROs will duck the issues.
They might not want to be involved with thorny matters such as remuneration, for instance. IROs need to work out whether they work at the coal face and have a say in how companies are run or simply fill a back office function. In reality, it’s important for them to feed messages back to the board even if they are uncomfortable ones. They should present the views and objections of the major shareholders. That should be part of their function and strategy. They should be regularly part of board discussions and feeding in market perspectives as strategy is formulated. They have to be careful not to let that slip away.
7. How will the role of IROs change in the coming decade?
We are at the crossroads. Having said that, it’s difficult to have clarity because there is a lot of change occurring. There are two methods of IR that can develop from here. One embodies a broad and more senior role, one that is more aware of important stakeholder issues as well as shareholder considerations. The other is markedly different because it narrows the focus to one of reporting, governance and compliance. I do not know which way the industry will go. From where I sit now, there is a tendency to the latter.
This article was originally published in ‘wIRes’, the Newsletter of the Australasian Investor Relations Association. The original article can be viewed here.