The logic might go something like this: shareholders are the owners of the company and the directors their representatives, so the conduit of information between the two – the investor relations officer – deserves a place at the board table.
Absolutely not, says Len Griehs, investor relations officer for Campbell Soup. ‘The board is there to review strategy, not to set it. That’s why you want as few members of management present as possible.’ Griehs, however, does have regular contact with the board. Roughly once a quarter, he sends directors a report including analysts’ comments about how the company is doing, and an overview of what’s going on in the industry. He also makes occasional presentations at board meetings and attends bi-annual board dinners where directors have the opportunity to meet with senior management in a relatively informal setting.
And board members can always call Griehs if they want information sent or to discuss a particular issue. ‘They might be joining a new committee and want some background details, or they might have a specific query about an investment management decision.’ Griehs says that he is completely satisfied with the level of contact and depth of information he gets for himself. ‘The CEO briefs me on everything I need, but the information flow is more the other way around – I tell them what’s going on at the company or what the investment community thinks,’ he comments.
Tatsuyuki Sonoda, IR manager at Sony, agrees that investor relations issues get enough representation at board meetings through the participation of senior management. Sonoda reports to the corporate executive officer Mike Morimoto, who is present at both management and executive committee meetings. He also has regular scheduled meetings with the CFO and CEO to get feedback on board proceedings. ‘I only attend board meetings when we’re required to gain approval on disclosure issues,’ comments Sonoda.
Back in the States, at Philip Morris investor relations issues are represented to the board by the CFO who attends board meetings. Meanwhile, Penn Holsenbech, Philip Morris’s corporate secretary, reports to the corporate governance committee. ‘Between us we represent shareholder issues to the board. When directors have questions about, say, the make-up of the shareholder base, we can handle them,’ he says. If directors want more specific information, the VP of IR [Nicholas Rolli] makes ad hoc presentations. As for investor relations officers needing more information from directors, Holsenbech doesn’t see the occasion arising. ‘It’s management who runs the company and directors monitor what management does, so there’s no information they can really give us.’
Mike Tisdall, general manager of investor relations for the South African company Sasol Ltd, disagrees. He regrets the fact that he only has contact with the board through the CFO. ‘It’s tough to justify having an executive directorship on investor relations, but some direct contact with directors would be useful,’ says Tisdall. ‘Explaining general strategy and operations policy to investors isn’t a problem but on more specific matters, like dividend policy or the company’s investment hurdle, it’s a handicap to get all your information second hand,’ he says.
Tisdall adds humorously that not hearing information can offer a potential escape route. ‘You don’t have to be as direct on some issues as you might. You can truthfully say, I don’t know.’
Two-tier boards
The question of whether investor relations officers have a role on the board is different in markets like Germany, where companies have a two-tier board structure separating the supervisory and management functions. The theory (and, in many cases, that’s all it is) is that ‘independent’ outsiders look after supervision and executive insiders take care of management. The question then becomes, are IROs senior enough to have a place on the management board? At DaimlerChrysler, the answer is a resounding yes. Rolf Brammer, senior VP of IR attends all meetings of the management board which take place once a month, alternating between Germany and the States.
‘As a company, our main task is to meet the earnings per share expectations,’ he says. ‘IR is an essential part of that process, so it is vital for me to be a participant in meetings.’ According to Brammer, it is also a question of credibility. ‘Analysts and investors want to deal with board members when they meet with the company. As their main point of contact I need to be regarded as a member of senior management.’ He also sees it as a two-way communication process. ‘The board needs advice from me about the expectations of the market.’
Sabine Ahlers, IRO for German technology company Jenoptik, agrees. Although she does not take part in meetings of the management board, she does attend what she calls ‘expanded management board meetings’. Held each month, these provide a forum for senior management and heads of the company’s different subsidiaries to meet together. Ahlers attends in the capacity of a senior manager.
‘From my point of view, my attendance has a dual purpose. It means I have a direct relationship with all the business unit leaders and all the functional heads, like the CFO and COO, and have an opportunity once a month to ask them all kinds of questions I might have. On the other hand, I communicate to them what shareholders are really thinking,’ explains Ahlers. She adds: ‘If your job is to manage shareholder expectations, you’ve got to know what is really going on.’
DaimlerChrysler’s Brammer agrees. ‘Take our recent decision not to go ahead with the Nissan deal. It was essential that I knew not just what happened, but the decision-making behind it so that I could communicate a sense of confidence to the market,’ he says.
Information overload
But does having such close contact with the board make it difficult to know what to make public and what to keep out of the public domain? Absolutely not, according to Ahlers. ‘It’s a basic part of the job to know what you’re meant to say and what you’re not. The rule usually is always to know a little more than you have to actually disclose,’ she adds.
And Kiran Bhojani, IRO at Veba, agrees. ‘The IRO’s job is to scrutinize the company’s financial information and decide what is important for the capital markets to know and what isn’t so important,’ he argues. But he or she needs to have all the information before making a decision about what should be disclosed.’
According to Bhojani, IR is considered to be a senior level management function at Veba. Like Ahlers, Bhojani attends the company’s ‘expanded board meetings’ which take place every week and include the CEO, CFO, the controller and the heads of the legal, IR and corporate communications departments. ‘There are always issues to be aired concerning the capital markets,’ he says.
Brammer, Bhojani and Ahlers have far less contact with the supervisory board than they do with the management board, although Ahlers says that she does have contact with some supervisory board members in a different capacity. ‘A few of them are major shareholders, so I see them in other circumstances.’ Bhojani adds: ‘I meet with the chairman of the supervisory board every so often and brief the CEO before he goes and makes presentations to them, but it’s minimal contact.’ He says that his dream is one day for the IR function to be given a place on the supervisory board. ‘Investor relations has come so far in Germany and it is only a matter of time before it’s given that kind of status.’
No need
But is this status something that the investor relations function should want or need? From an Anglo-Saxon viewpoint, absolutely not. Access to, and communication between, board members and the IRO is essential to ensure that the board is aware of the expectations of the market. It also provides the investor relations officer with insight into top level discussions at the company.
But having investor relations officers actually sitting in on board meetings fundamentally misconstrues the role of the board, which is to act independently of management. ‘It’s the same as with having too many other executive members on the board. It’s going to lead to micro-management and that isn’t the board’s job,’ insists Griehs.
Apart from the Anglo-Saxons, however, that’s not strictly the case. And particularly when the management and supervisory functions of the board are separated, as in Germany, IROs may have an important role to play at board level.
Comments DaimlerChrysler’s Brammer: ‘The company is committed to anticipating what the market expects, to actively develop a relationship with the marketplace and achieve shareholder value, so IR needs to be considered a senior management function, and therefore needs a place at board level.’
