David Peattie was at the peak of his IR career. BP Amoco had just swept the board at this year’s Investor Relations Magazine UK Awards and there he was surrounded by his team – most of them clutching a trophy or two – on the stage at the Royal Albert Hall telling the audience the time had come for him to move on.
But Peattie isn’t using the numerous accolades for BP Amoco’s investor relations department to lever up his salary as head of IR at another blue chip. He has done his two-year stint in investor relations and now it is time to dive back into the business. Armed with his hard-won knowledge of all the company’s operations as well as shareholder perceptions, he is off to beef up the senior management team in the biochemicals division.
BP Amoco (now plain BP) is far from alone in using the investor relations department as a grooming ground for senior management.
The mix of finance, overall knowledge of the business and access to the board make for a great career cocktail if you are on the fast track. A two or three-year stint in the IR department does you a lot of favors when it comes down to picking a divisional manager.
Where BP’s approach does differ from the rotational norm is in making the departmental head the one that comes and goes – the incumbent is backed up by a solid team of IR professionals who know the ins and outs of IR practice. Judging by the wealth of IR awards they have won, it obviously works well for the BP IR team. However, it seems more usual to have a full-time director of IR and bring in additional IR staff from across the business for a specific period.
Top guns
‘The appointment of the head of IR reflects the importance that our CEO, Sir John Browne, puts on the IR role,’ says Peter Hall, investor relations manager at BP and one of the IR professionals who provide the continuity below the head of department. ‘He puts very senior people in the company who he has had specific dealings with in the past into the head of IR role. It has to be somebody who John Browne knows well and it is used as a development post for senior executives.’ David Peattie, for example, had previously worked alongside Sir John as an executive-level assistant.
Hall says that BP’s head of IR tends to be someone judged to be among the top 30 people within the company. ‘They are exposed to all sorts of different areas within the IR department and then move on managing. It means our most senior managers are very shareholder aware.
Equally, there’s a recognition that two years is not long enough to get into the job and really build on it, so we’re here to handle the day-to-day side of things and provide continuity. I think it’s vital to have both.’
Don Flick, director of investor relations at Eastman Kodak in Rochester, New York is just as keen on rotation in the IR department. But unlike BP, Kodak keeps the head of department in place and moves others through as senior level back-up. Flick, IR director for eight years, remarks, ‘The ability to deal with the owners of the firm is an invaluable component of management development.’ The company tries to capture that by bringing fast-trackers through the department. ‘By the same token,’ adds Flick, ‘there’s a real need for professional continuity.’ And that’s where he comes in.
Solo effort
In using the IR department as a management development tool by rotating staff, it may be a luxury to have continuity. Whether it’s the rest of the team, as in BP’s case, or the head of department, as at Eastman Kodak, there is a distinct advantage to being able to resource more than one IR professional at any one time.
What happens if you only have one person in the IR ‘department’ at any one time? Does that effectively mean that rotation is out of the question? Not at all, according to Phil Jolley, manager of investor relations at Logica, the UK-based software and systems integrator.
Jolley took over the investor relations mantle toward the end of last year, moving from one of the business divisions, and says that when he accepted the job it was made clear it was for a two-year tenure. ‘You’ve got to differentiate between the structure and the individual,’ he says. ‘The underlying IR process and structure is being built up over time and there was a handover period between myself and my predecessor.’ Jolley reports directly to Logica’s finance director, Andrew Given, who he says very much heads up the face-to-face IR effort – ‘I’m his officer.’
Jolley doesn’t see any inherent difficulties with Logica’s rotational approach. As he points out, what you lose in terms of prior knowledge you may gain in fresh blood tackling the same problems. In any case, the learning curve is there whether you come in as an IR professional or someone who knows the business inside out. ‘In my case, I know the business but may not have known the financial side of things. You either take a PR person and teach them about the business or you take a person who knows the business and help their business knowledge by giving them exposure to the financial community and senior management team.’
The message from most of those consulted about the pros and cons of rotation in the IR department seems to be that there is no definitive approach. It’s much more what will work well for your particular company. Take 3M. Jon Greer, director of investor relations, points out that for a company of 3M’s size and diversity it would be a very steep learning curve to bring a new IR director in every couple of years. ‘There is a certain knowledge that you build up from being here a while – knowing who to contact within the company is key.’
He acknowledges that some companies rotate IROs with aplomb but says that the 3M way is a lot less structured: as an opening emerges in the IR department they look for people to fill the gap. That might mean bringing someone in from one of the divisions, it may mean looking at the strengths of the finance area or it may mean bringing someone in from outside the company. Miguel Temboury, director of IR at Spanish-based energy group Endesa, concurs with this approach, but says that because of the highly regulated nature of Endesa’s business they always look for an understanding of the industry from any outside recruitment. That’s where sell-side analyst knowledge can come in useful, for example. Whatever works best, works best is Greer’s attitude but in 3M’s and Endesa’s cases the department heads stay to give the necessary continuity.
That’s also partly true of Jenoptik, although the department head has also become CFO of the company’s venture capital division, DWB. The semiconductor equipment and laser optic company hired Sabine Ahlers prior to its IPO in 1998 from the IR team at DaimlerChrysler. Ahlers got the department up and running and gradually expanded its numbers before moving on to her new role. However, she still retains a firm grip on the IR practice for the company as a whole, according to Steffen Schneider, one of Ahler’s deputies in the IR and communication department, who has been given more responsibility since she has taken on the DWB responsibility. It’s a kind of rotate and stick approach. ‘It’s still very strongly based on her expertise,’ says Schneider, adding that the other members of his department have a good mix of communications, marketing and commercial backgrounds.
Fine lines
The pros and cons of ‘twisting or sticking’ in the IR department are obviously somewhat blurred. Peter Hall at BP suggests it’s probably largely dependent on the size of company in question and the supporting structure needed to cope with a continually rotating IR team. ‘I think most smaller companies would probably look to have a senior IR officer in the corporate hierarchy and then rotate staff underneath him, then you’ve got that continuity in the role. If that person isn’t on the board then they should be closely linked through to it.’ He concedes that BP’s approach is ‘unusual’ but that the company ensures that the extra IR resources are made available to cope with the bi-annual rotation. The value of IR as a management development tool outweighs the downside of a changing department head.
Having said that, what a transatlantic behemoth does with its investor relations department – award-winning as it may be – is probably very different to what other, smaller companies can do. Or, indeed, can get away with doing. After all, there’s little point in using IR as a management development tool if you don’t have the management layers in which to realize their new-found talents. Nor is it best practice if your investors end up so frustrated by the lack of knowledge and continuity in your IR offer that they dump your stock.
In the end it may be just a gamble. So twist or stick?
