Along with adapting to new technologies, investor relations practitioners are constantly developing new techniques. But in today’s fast-paced world, you don’t always hear about what your counterparts are coming up with. To uncover personal innovations, Investor Relations magazine went straight to the source and asked IROs for their insight.
Last month we e-mailed and faxed a survey asking corporate investor relations officers to describe unique or unusual innovations they have brought to IR, then to look into their crystal balls and imagine the practice of investor relations in the year 2010.
The survey results demonstrate the ongoing importance of new technologies, especially the internet. There is also a sense that the IR function at public companies will continue to increase in importance, taking on a more strategic role in the future. A number of respondents also mention the growing retail investment community and how it is shaping the practice of investor relations.
Using their imaginations
Two IROs tied for the most imaginative innovations in the practice of investor relations. Barbara Barsky and Denise Warren both invented special investor relations games for their employees. Barsky, senior vice president of planning and investor services for the public service company of New Mexico, developed an IR sponsored utility stock investment game. ‘Employees had one month of mock trading in utility stocks,’ says Barsky. ‘Everyone began with $100,000, and the winner racked up a gain of almost $1 mn.’ As a prize, the winner was given a trip to New York, including a visit to the NYSE with the company’s specialist firm. Through this game, Barsky says employees learned how investors value utility stocks.
Denise Warren, director of investor relations for the First American Financial Corporation, also developed a special game to keep employees informed. She put together an employee investor program that included fun quizzes and contests. ‘This encourages them to learn about the company and their investment in the stock,’ says Warren. It also allows employee shareholders to familiarize themselves with interactive tools such as the internet as well as the company’s intranet, she adds.
Right on track
Between fielding phone calls from investors, developing new ways to target a company’s message, and various other duties, an IRO barely has time to breathe. This is where personal techniques and new developments become critical. Along with lightening the workload, some of these tools cut costs. For example, one respondent says, ‘I implemented a web site that can be updated internally.’ According to this IRO, the advantage of in-house web updating is that the company doesn’t need to rely on an external webmaster to make changes or additions to the site. In short, saves both time and money.
The development of unique and economical designs for annual and quarterly reports is also an important innovation in IR. Murray Louis, vice president of corporate communications and assistant secretary at SEI Investments, says developing ‘low-cost quarterly reports’ is key to his program. Other respondents say using an easily readable format and lots of images in annual reports is essential, while the discerning use of IR kits and fact sheets help avoid unnecessary questions from the investment community. Some IR departments have employed high-tech means to inform investors. John Rogers, IR director at Suncor Energy, used multimedia to educate investors about Suncor’s principal but sorely misunderstood asset: an oil sands plant in northern Canada: ‘It really helped build an understanding among shareholders of the value of this asset.’
Setting tight schedules and clear deadlines for the production of corporate materials is also a good technique. According to Thomas Richlovsky, senior vice president and treasurer at National City Corporation, ‘We produce our annual report and form 10K and mail them to all shareholders within 30 days after year end. The timetable keeps us focused on the essentials of the job – comprehensive, timely, and effective communications with investors.’ Richlovsky explains another benefit: this tight time frame also protects his company from ‘the malaise of the over-designed, over-produced, overly expensive and incredibly late annual reports.’
Cutting edge
Many respondents cite new twists they have added to their companies’ web sites, for example putting presentations, meetings, slides and conference calls online. The internet is also being used to communicate quarterly and annual reports, cutting down on production expenses and helping reach the retail community. Some respondents include an FAQ (frequently asked questions) portion on the IR site as a way of reducing incoming phone calls. One respondent says having a monthly IR update, discussing current issues of interest, is a good way to keep investors informed.
Some IR practitioners use the internet to cut out the paper trail almost entirely. Dave Hogan, investor relations manager at Delhaize America, says using blast e-mails instead of faxes helps reduce his department’s costs significantly. News releases and conference call announcements can also be sent out by e-mail, and Hogan developed Delhaize’s web site so individual investors can sign up for e-mail distribution of news releases. These new internet tools work to save significant sums in terms of postage, paper and labor costs.
Aside from staying on top of internet innovations, the role of the IRO is to find out what’s going in the outside community. One respondent stays in tune by keeping tabs on his competitors’ IR strategies: ‘Listening to conference calls, studying their literature, their news and talking to analysts.’ Another good way to get feedback is to use an outside firm to keep in touch with buy-side and sell-side constituents. Richard Vandervoort, vice president of strategic business development and investor relations at Corn Products International, says, ‘Having a well-respected outsider assists us by getting people to open up and tell us what we need to know, not what we want to hear.’
Future shock
Picture this: the year is 2010, and the investment world has changed dramatically. Institutions are a dying breed and the retail investment community is in full force. Every individual is responsible for their investments and the IRO is in constant demand. Analysts and brokers are no longer needed and trading hours are extended through the night. The day of one-person IR departments is long gone. The old economy has finally given way to the transparent, lightning-speed democratization of ECNs (electronic communications networks) and investor chat rooms. It is a volatile, globalized, cyber-central economy with investors glued to their computer screens. With one keystroke they’re making trades and contacting IROs, trying desperately to get an edge.
Sounding as if they’ve come straight out of a science fiction novel, these are some of the predictions survey respondents made about the future of investor relations. Not everyone was this dramatic in their responses. However, when asked to envision themselves in the year 2010, there was some consensus regarding the increasing role of the internet. One IRO says the internet will provide a more level playing field for institutional and individual investors. She envisions a kind of virtual financial community, saying, ‘I would expect that in 2010 all communications will be electronic with no need to produce paper copies of disclosure documents. All offerings will be done online with trading running 24 hours-a-day. IR departments will work in shifts to monitor the trading.’ According to this respondent, the downside to extended trading hours is that IROs will have to spend more time responding to the needs of individual shareholders.
Another IRO describes a similar cyber-scenario with investors leading the market: ‘In ten years the rights of shareholders will be the primary influence while issuer rights will be non-existent. This will result in huge volatility across all sectors. Issuer web sites will need to be updated hourly in order to provide information for online traders. Web sites will also need an interactive segment where investors can ask questions and automatic responses can be sent out.’
Other respondents make predictions about the increasing role of alternative trading systems and the expansion of global markets. In the next decade, ECNs and investment firms will be global, thus making it easier for shareholders to invest in international markets. In other words, investors in any given region will no longer be limited to the North American, Asian and European markets of today. Information and investment opportunities will develop in emerging countries such as China, India, and many of the South American and sub-Saharan regions. For the IRO, this will mean developing tools that will help direct the velocity and frequency of information to minimize rumors, reactions, and ripple effects in the markets. Automated exchange calculations will keep track of portfolio value and global investment houses will set up services via the web. As a result of these automated global services, IROs will have to develop close contacts within ECNs.
New horizons
Amidst this changing landscape the role of the IR practitioner will be, as Richard Vandervoort of Corn Products describes, to ‘obtain and retain real point of difference visibility in the market so their stock gets noticed.’ He adds, ‘It will be tougher than it already is for whatever-will-then-be called the old economy. In fact, to be viable, old economy companies will have to have whatever-will-by-then-be new economy accoutrements integrated within their actual business and clearly stated within their message.’
Susan Hardy, VP of investor relations at Houghton Mifflin Company, says the IR function will be as coordinator of information: ‘One person will not possibly be able to respond to all constituencies, and therefore many people will have to support the IR function.’
Dave Hogan at Delhaize America says the IRO will assume even greater responsibility and be regarded as more strategic. ‘Most mid-to-large companies will have larger staffs, and longer trading hours may force IR departments to extend their working hours,’ he says. Hogan predicts this boost in the IR function will result in more universities offering IR courses.
Michael McCarthy, director of investor relations and corporate communications at Photronics Inc, expects his role to move beyond investor relations by 2010. He says: ‘The unique and most challenging aspect of the IR position is that if done well, you know everything there is to know about the company, its customers, the competition, and its capital requirements.’ As management teams become more comfortable with the IR role, the position will develop and evolve as part of top strategic planning and finance.
And then there are those with more modest predictions for IR ten years down the road. For example, Murray Louis at SEI Investments says, ‘At the age of 71, I just hope to be here!’ Others say they would like to see themselves retired or moving on to new positions within the financial community.
Overall, respondents envision the IR function as taking on a greater role within the corporation and the investment community. However, as one respondent summarizes, ‘Over the next ten years, technology will evolve but the baseline function of an IRO will be the same: an intimate knowledge of the company combined with first-rate communications skills.’ Most IROs emphasize the continued emergence of retail investors as key players in the future marketplace. With a foreseeable increase in market fragmentation, most feel the IR department will have longer schedules and more pressing demands. However, this increase in responsibility will be coupled with a better, faster flow of information. In other words, the future of IR will bring more work and more tools. And at the heart of this new investor strategy, a strong relationship with the investment community remains the most important function of an IRO.
