It’s a tough call when everyone wants you for their own. For the financial community, it’s a matter of providing a good information flow about the company and keeping everyone in the loop. But the investor relations role is just as key for management – keeping them informed of the changing perceptions in the financial community about the company.
Those differing views of the investor relations role were recently confirmed in a UK investor relations survey conducted by Business Planning & Research International (BPRI). Fund managers seem more inclined to view the role of investor relations as managing the communication process between a company and the financial community. Chief executives, on the other hand, tend to view investor relations more along the lines of promoting a consistent and appropriate level of understanding of the company. Clearly, the investor relations role is all about juggling expectations on both sides of the equation.
‘Managing the expectations of both parties is one of the most important aspects of the investor relations director’s job – as is explaining the company’s strategy and developments to investors and analysts to make sure that they know all its strengths and weaknesses,’ says Pascal Thebe, investor relations director of Paris-based Axa-UAP, who has honed his trade in the last two years following Axa’s $9 bn takeover of domestic rival UAP in January of last year.
Domestic challenge
Thebe’s role as a conduit of information presented more than the usual challenges when the merger was announced in 1996. Claude Bebear, Axa’s chief executive, had previously been quoted saying the insurer would not be targeting another French company.
‘When the UAP merger was announced, I had to make sure that existing shareholders did not oppose the deal because it was to be done via a share exchange. If they didn’t like it, the Axa shares would have been hit hard,’ says Thebe. He also found himself spending a great deal of time shuttling back and forth between investors and the various members of the board, conveying messages, explaining away differences of opinion.
His hard work paid off: 92 percent of UAP shares voted in favor of the transaction. The key thing in any IR role, according to Thebe, is to keep management and the board’s finger on the financial community’s pulse by providing feedback. ‘It is very important to tell the chief executive and other board members what analysts and investors really think about the company’s strategy, its strengths and weaknesses and their expectations,’ he says, ‘These opinions can have a real influence on management’s decisions.’
Loaded up
Dan Flick, head of investor relations at Eastman Kodak, stresses that the management team must not only be well-briefed but have the ammunition to be able to field any questions the investors or analysts might throw at them. Not surprisingly, the messages to either group will vary according to a company’s story line, but whatever the news, the basic delivery should remain the same, according to Flick. Again, the investor relations officer is caught in the middle, turning both ways at the same time.
‘Our job is to guide the communications between the management and the investment community. I work closely with the CFO before we even have a meeting with analysts and shareholders,’ says Flick. ‘We try to make sure that no-one asks a question that we have not thought up ourselves. In fact, the preparation is often more difficult than the meeting itself.’
Eastman Kodak has experienced its fair share of troubles in the last year including a $1.5 bn charge against 1997 profits and a sizeable redundancy program due to competition from Fuji. ‘Whether in good or bad times, it’s important to handle the news flow efficiently,’ says Flick. ‘The message should always be where management strategy is going and explaining why this is an intelligent place to be. The thing you’re invariably punished for by the financial community is uncertainty. Perception then becomes reality.’
Providing a flowback of information from the financial community to management can, of course, have a real effect on where the company is going and how it gets there. Inchcape, for example, with its three different businesses – bottling, shipping and global car distribution, which is the biggest part of the group – never fell easily into any category and made the company a hard story to follow. That partly explains why management has taken the bold step to split the company into three separate entities. ‘The biggest challenge for me was to convey the complexity of the company to investors and analysts,’ says Bridget Walker, Inchcape’s investor relations manager. ‘Now I am having to convince them that the value of the company will be worth more broken up than if it is held together.’
Charles Wickes, head of investor relations at the recently demutualized UK bank Halifax, also had to convince investors about the feasibility of his company’s listing last year – starting from scratch. As he puts it: ‘Halifax was a well known financial institution but it was a mutual so the market as a whole could ignore it.’ Wickes says he was surprised how little analysts knew and how much key financial information they needed. ‘I spent a great deal of time, giving and taking information to and from the chief executive and chairman.’
Hilary Nabarro, director at London-based consultancy Frew McMaster, believes that the two-way communications role of the investor relations officer extends into the role of gatekeeper. The trick to being an effective communicator for your company lies in making the best use of everyone’s time.
‘Executives do not want to spend all their time talking to investors and it is up to the investor relations department to filter out the best people management should be talking to,’ she says. ‘Fund managers and analysts vary tremendously in terms of their intellectual rigor and valuation techniques and IROs have to help management prepare their talks, depending on whether they are addressing a group of specialists or generalists, buy-side or sell-side analysts, or institutional investors.’
Wickes agrees, saying ‘part of my job is to use management’s time in the most effective manner. I have direct access to the chief executive, chairman and finance director and can provide them with all the feedback from the market they need. However, at the end of the day, investors and analysts also want to meet the people who run the business and have them articulate strategy.’
Getting feedback
Many US and UK management teams seem to recognize the importance of investor relations in terms of feeding back information from the financial community. Partially as a result of that knowledge they are prepared to devote an increasing amount of time to either group or one-on-one meetings with analysts and fund managers. The BPRI survey in the UK revealed that 48 percent of CEOs allocate 10 percent of their time to investor relations while 72 percent are spending more time on the investor relations function than they did two years ago.
Many continental European companies, however, seem to take a different view and the investor relations director is often left wholly in the hot seat. ‘Our management recognizes the importance of the financial community but, outside the results period, they are less inclined to devote as much time to investor relations as an American chief executive or chief financial officer,’ says Thebe of Axa-UAP. ‘They prefer to devote more time to business strategy and communicating with their employees. I meet with the CEO once a week and it is then up to me to convey the company’s story.’
