The very concept of a new profession called investor relations is remarkable in itself, as is the notion that individuals who practise it – chief financial officers, company secretaries, directors of corporate communications and so on – should need directing in this new science (or art). After all, the relationship between companies and investors is self-evident, dating back at least to the Medicis.
But the separation of ownership and management in the 20th century, the globalisation of investment, the new technology which makes information instantly accessible, the takeover crazes, and the increasing restiveness of institutional shareholders have all contributed to the widening of the gap between investors and companies. The role of the imprecise science of investor relations is to bridge that gap. The role of the IRO is that of footsoldier.
The hardy investor relations professional has an obvious basket of skills: financial nous, communication abilities, a contact book full of names of industry analysts, fund managers and media people relevant to the company, and wide-ranging company-specific knowledge and understanding of its market sector.
With those tools the IRO can rustle up a mean analyst meeting, host a snazzy site visit, and field potentially litigious pre-announcement prelims or interims queries with effortless ease. In return, a range of titles may be on offer: IR director, manager or vice president; director of corporate communications; senior vice president of corporate affairs, and so on; as well as an equally diverse range of salary levels.
According to Trends and Developments in Investor Relations, published by the UK’s Investor Relations Society last year, IR salaries for in-house executives are around 60,000, with external consultants typically doing a little better, at about 66,000.
Across the Atlantic, New York-based executive recruitment specialists Spring Associates Inc, says the range for consultants in the US spans $30,000 (for an account manager) to $120,000 (for a senior vice president).
But where do they go from there? And what is the answer to questions that have plagued the IR conference and lunch meeting circuit for years: Will you be obsolete? Will you ever gain the respect you crave from the investment community and senior management? How can you be assured of a seat on the board or the executive management committee? Put another way, how can the industry educate corporate board members and senior management on the benefits of enhancing the role of investor relations, a goal put forward in a recent Niri memo? How can Niri, or any industry association, or any IR professional, get the message across directly to the board members, CEOs and CFOs?
These questions are especially relevant in the UK today, where the industry has matured and is downscaling. The number of executive staff devoting the majority of their time to IR issues has fallen over the last two years, according to the IRS report mentioned above. Moreover, it notes, companies are ‘restricting the human resources allocated to IR’. Sure, the number of departments of one or two IR professionals has increased, but overall levels are down.
In general, the UK trend seems to be running like this: the top IR director sets up a department but, once it is running smoothly, is put out to grass. The IR activity then becomes more focused on operational work, which can be handled by a line manager, at best. This flattening out, while worrying, does offer opportunities. It means that the IR agenda has moved up the corporate ladder, with the CEO or CFO now fielding the bigger IR issues – taking them out of the IR enclave and into the boardroom. That suggests new prospects for the current generation of IR leaders.
Role models already exist in the UK. Take Gwen Gober, group corporate communications director at The Littlewoods Organisation. Gober sits on the management board executive committee and oversees the communication aspect of IR, integrated with all aspects of the business, as well as the social and industry climate. Dominic Fry, appointed last March from AT&T to Eurotunnel, heads a team of 38 in London, Folkestone and Calais. He looks after investor relations, internal relations and media, reporting direct to group chief executive Georges Christina-Chazot. Kingfisher investor relations director Andrew Mills also reports direct to the CEO, Geoffrey Mulcahy.
These young stars of the 1990s have surprisingly similar profiles. They’re efficient, good with detail, and educated to university level, often with MBAs as well. Some, like Nicola Savage of Inchcape, and Lexi Hockenhull of Medeva, have succeeded as fund managers before entering IR. ‘There are plenty of the grey-haired types who are good at the old game,’ says Duncan Campbell- Smith, public affairs director at Pearson. ‘But that’s not the game in town any more.’
Indeed, the skills that make the grade today are more finely honed than ever before. This is because of the fast changing environment and its effect on IR. Niri cites a number of these trends. There’s the rise of individual shareholder involvement in the USA; the information superhighway which provides more sophisticated means for interacting with companies and the investment community; and the increasingly important role of the CFO which, because IR usually reports to the CFO, enhances IR officers’ opportunities to demonstrate value.
Also, with more attention being paid by several audiences to measuring and communicating non-financial corporate performance, the IR role is broadening.
The upshot is that today’s investor relations professionals have to be able to tackle responsibilities and perform functions that their predecessors only dreamt or had nightmares about. The new generation interprets what directs value in a company, feeding back information to senior management; advises on appropriate objectives and the means of achieving them; and supervises the development of a corporate information and disclosure strategy and the best ways of communicating it.
These are strategic functions, which make the job more interesting for a committed investor relations professional, and more promising for those with ambitions to move right to the top of the corporate ladder.
‘You must be capable of working with the board to develop a clear and consistent profile of the business,’ says Littlewood’s Gwen Gober. ‘To do this, you must be able to take a full view of the environment in which the business operates – economically, socially and politically – and generate a coherent communication strategy incorporating the company’s business objectives.’
‘You don’t need to know how to run the company,’ says Johnnie Johnson, CEO of IR consultancy Johnnie Johnson & Co in New York. ‘You do need to understand ‘microeconomics’ – how to do the analytics of the company – its earning power, its debt level and the like.’
You may not need to know how to run the company, but you certainly do need to understand the business. ‘The person spearheading the effort has to fit in and contribute at board level,’ says Victoria Provis, a director of executive search firm Bird & Co. ‘The skill required is a general business sense. An MBA is useful but not essential; the most important quality is to understand the business. That’s more important than being a consumate communicator.’
The irony, of course, is that once you build up your skills base, you may shoot right out of IR. At Allied Signal in the USA, Nancy Garvey has moved from IR to head of treasury. Doug Holmes, former executive director of investor relations at US West, was this year promoted to CFO and vice president of US West Media Group. Joanne Heisen at Johnson & Johnson has gone from heading up the IR function to being head of treasury to being controller – next stop, CFO. In the UK, Steve Marshall, former head of investor relations at Grand Metropolitan, is now financial director at Thorn Rental Group, and on the board.
Another headhunter, Paula Alexander of Saxton Bampfylde, says IROs should choose the companies they work for carefully, making sure that the chief executive and chief financial officer really do expect good specialist communications advice. ‘The secret, then, is to be very active, to take the high road, and to give as much advice as possible,’ counsels Alexander. ‘Otherwise the job can turn into grunt work.’
That takes strength of character; and the IROs who end up as CEOs don’t succeed purely because of their technical skills, as Carole Leonard of Norman Broadbent says. ‘One of the most important abilities is to have enough up-front personality to gain the ear of the CEO,’ she says. ‘You have to be competent enough to be confident and to have an air of authority – as opposed to PR bravado.’
Leonard regards investor relations as a profession rather than a mere function. ‘Today’s professionals are hardworking, fit, very bright and consciously aware of the value of what they are doing,’ she says. ‘They don’t feel they have to justify their existence any more. Investor relations is truly a profession now and it is increasingly leading to board-level positions. It hasn’t been around long enough for there to be many CEOs who have come from IR, but that’s probably the next phase.’
How to Stand out from the Crowd
Here is a checklist of what the high performance IR officer needs in the 1990s.
- Knowledge of the company’s industry – including its market, its share of that market and the competition; and an inside-out understanding of its business and objectives, so that the IR function can work in support of these.
- An understanding of the needs of all the company’s stakeholders.
- The ability to set success criteria and measure the performance of the IR function, including both the department’s objectives, business plans, budget and strategy and the wider corporate bottom-line impact.
- Technical skills: financial analysis and valuation capabilities, which allow the IRO to behave like an analyst, assessing how the company’s profile and appeal are changing from the perspective of the investment community.
- Communication skills: all the abilities of a spin doctor, preferably with a sharp eye for design.
- Assertiveness: to make sure that operating divisions and senior management let the IRO know what’s going on.
