The long bull market, the increasing number and influence of investors, and the need for 24 hour-a-day transparency on the internet have assured IR’s place in today’s corporations. But where exactly is that place? Various scenarios for IRO reporting lines are discernable from surveys taken by IR associations and from comments by IROs and executive recruiters.
Reporting lines were surveyed by Niri and Ciri in 1999 and by the UK’s Investor Relations Society this year. Niri found that 67 percent of US IROs report to the CFO, while the figures in Canada and the UK are much lower at 37 percent and 42 percent respectively. Still, all of the surveys point to a strong (and increasing) emphasis on the financial aspects of IR. Bob Woodrum, executive recruiter for Korn Ferry in New York, does not hesitate to say that ‘the first and foremost requirement for an IRO nowadays is to understand corporate finance.’
John Wheeler of Telus in Edmonton, Alberta, is vice president of IR, and he reports to the CFO. For him, this reporting line is the ‘way to go’ since such a big part of the job is dealing with analysts, institutional investors, and other members of the financial community. ‘The IRO needs to be fully aware of what is happening on the finance and controller side.’
Sue Pirri, director of IR at Electronic Arts in Redwood City, California, also reports to the CFO. She feels that IRO involvement in finance is partly a matter of how much information a company chooses to disclose to its investors. ‘Here at Electronic Arts, we give some guidance in terms of helping people look at the market – we bring market studies to their attention and show them top and bottom-line statistics. Not all companies do that.’
The Niri survey revealed that 23 percent of IROs report to the CEO, president, or chairman. The figures are higher in Canada (37 percent), and while changes to the latest IRS survey make calculating comparable figures difficult, the 1998 IRS survey shows that 43 percent of UK IROs report to the CEO, chairman or president. This may, of course, be due to a different average size of company in the different country samples. Whatever the reason, views on CEO involvement in the investor relations reporting process differ widely.
Capital market strength
Kerk Hilton, director of IR at Jaws Technologies in Calgary, Alberta, reports to his CEO. He says that this is a function of the company’s orientation as well as its size. ‘In a technology company, capital market strength is a key part of corporate strategy,’ he explains. Efficient and immediate communication between the investor relations officer and the CEO is critical. ‘Things change fast in technology.’
Even apart from technology companies, it is not difficult to see advantages for investor relations officers reporting directly to the chief executive. The regular contact with the CEO can lead to involvement in strategic discussions. Credibility with analysts and money managers can also be enhanced.
However, investor relations officers reporting to the CFO also tend to have a close working relationship with the chief executive. This is what Bob Burton, divisional vice president of IR at K-Mart calls the ‘practical corporate structure’ which goes beyond the formal corporate structure. ‘In applying for a job as an IRO,’ says Burton, ‘the first question I would ask is, What is the access to the chief executive? That will define what the position is.’ Headhunter Bob Woodrum considers it essential that the IRO have access to both the CFO and the CEO. ‘The IRO has to be seen as part of a three-person team.’
Another reporting scenario, which used to be more prevalent and still occurs in as many as 10 percent of surveyed companies in the US and 17 percent in Canada and the UK, is for the IRO to report to the head of communications or public relations. Gwyn Crosson, an executive recruiter with Marshall Consultants in New York, always checks whether a company wanting to fill an IRO position is looking for someone with a financial or a communications background. In the latter case, she says, the position will be ‘lower on the food chain’ and provide less compensation.
However, companies can have good reasons for making IR more a communications function than a financial function. Alice Wong is director of investor and corporate relations at Cameco in Saskatoon, Saskatchewan. She reports to the senior vice president of communications and human resources. ‘Being in the uranium industry means you have to communicate,’ says Wong, who faces a challenge overcoming a negative image and responding to organized opposition. At the same time, Cameco has few publicly-traded competitors and disclosure of financial information is ‘pretty straightforward.’
Playing the links
During his stint as IR controller for Guardian Royal Exchange in London, Richard Bowler began by reporting to the director of corporate affairs and ended up reporting to the finance director. Wherever the vertical lines are, however, Bowler points out that ‘cross links’ have to be maintained between corporate affairs and finance. ‘People need to be talking to each other,’ he says, ‘so that the external messages don’t get confused.’
Wheeler stresses the importance of his links with corporate communications at Telus. ‘You need to link throughout the organization,’ he says. Wong at Cameco works closely with the executive vice president of marketing and corporate development as well as with the CFO, controller, and manager of accounting. ‘That way,’ she says, ‘the market gets a good solid story that’s consistent from all participants.’
Ideally the investor relations position is a bridging or networking position. This is a point that’s well illustrated at Electronic Arts where Pirri ‘ferrets out’ information from employees in all departments and at all levels. She says that it really helps her cause that so many employees own stock themselves. ‘I think it makes them more willing to supply information and to supply it in a timely manner, to meet the demands of the Street.’
Charting the course
Can all this IR networking be captured on an organizational chart? Electronic Arts, like a number of other technology companies, doesn’t even have one. At Jaws Technologies, what Hilton calls the ‘synergystic relationship’ between acquisitions, operations, and company performance is responsible for some non-traditional metrics. The CFO, in charge of acquisitions; the president, in charge of operations; and the CEO, who provides the balance, are on an equal level on their organizational chart with the IRO alone reporting to the CEO.
It is possible for new kinds of organizational charts like the hub and the web to illustrate a lot more about the kind of position occupied by an investor relations officer in a company. In a hub or wheel diagram, the basic goal of the company is put at the center with positions located within concentric circles that radiate out from the middle. In a web or network diagram, there is no single focal point but criss-crossing lines show the variety of formal and informal relationships in a company. Important positions literally go everywhere on a web.
Some companies that are just being formed or are undergoing restructuring may experiment with organizational charts, which serve as a very preliminary view of the company for recruitment and budgeting purposes. They do not show how the position of investor relations officer or any other position actually works within a company. A job title of vice president for an IRO, as opposed to director or manager, may be more significant than the reporting lines.
The IRO in a truly professional position is able to put together information from a broad variety of sources and to add value to it. Above all, there should be a direct line of communication to senior management on the one hand and to shareholders on the other, so that the IRO can be a liaison between the two. Headhunter Crosson puts it this way: ‘In a company that is savvy about investor relations, the IRO is part of the executive board, has the opportunity to give strategic input, and has access to the board of directors. These are the signs that the position of IRO is seen as a profession.’
At the First Conferences Investor Relations Online Conference held last fall in New York, Doug Poretz expressed concern about the future importance of in-house investor relations officers because of competition from third-party providers of investor relations. Though it is surprising to hear this prediction when statistics show the position of IRO to be well established, the investor relations function will certainly continue to evolve. It seems reasonable to conclude with Poretz that IRO positions restricted to record keeping or shareholder administration will be less secure in the future than those that include ‘providing the chief executive with strategic advice on how to improve business in the minds of investors.’
