The days when a company’s IR department was simply an offshoot of its PR team are a distant memory. Of course, there was a time when the investor relations officer’s role was that of a specialist mouth, doling out facts and figures – a kind of corporate fog horn that took the company’s message and boomed it out to a wide audience. But nowadays IROs are integral cogs in the corporate machinery and their roles can take in strategic planning.
If nothing else, involvement in the shaping of the company’s development indicates that IR is gradually working its way up the corporate hierarchy.
‘My role is pretty inclusive at a very high level and it does include our global sectors,’ says Richard Vandervoort, vice president of strategic business development and investor relations for Corn Products, an Illinois-based corn refiner. ‘I do the strategic planning for the corporation and that entails working internally with the officers and also working with investment bankers on potential deals. We review strategy yearly and it’s up to me to prepare that and present it to the board. The investor relations role is a fairly standard IR function.’
And that shouldn’t play down the investor relations role at all. Indeed, if anything, this is a recognition of the value of good IR. Companies are starting to capitalize on the fact that their senior IR practitioners have a well-developed understanding of investor needs and desires. Why not use that knowledge to shape the company’s strategy?
‘The division is about 50/50,’ says Bruce Fisher, vice president of IR and strategic planning for New Jersey-based provider of heating and air conditioning systems, American Standard. Even Joe Cooper, head of IR and strategic planning for Columbus, Ohio-based Consolidated Stores Corp, whose role also embraces the treasury function, agrees that strategic planning and IR receive equal amounts of his attention.
‘IR and strategic planning are very synergistic,’ Cooper declares. ‘I’m very supportive of this structure.’
Close fit
American Standard’s Fisher agrees that there’s a nice dovetail between the two functions. ‘I think they fit together pretty naturally,’ he remarks. ‘After all, both jobs are driven toward the same goal: the creation of shareholder value. I think my involvement with the IR side of the company brings something valuable to the strategic planning process. It helps me to always keep in mind what investors are looking for. If we’re considering a new acquisition or the launch of a new product, I’m always thinking Will this enhance shareholder value? We recently discussed our air conditioning line and asked What can we do to provide a broader solution to our customers? With every idea we’d ask Can it create shareholder value? We don’t want to do it if we’re not going to get good return on investment. Through my involvement in IR and my communications with investors, I was able to give some idea of how investors would react.’
‘It’s a great help,’ says Steven Schrader, general manager of investor relations and strategic planning for a Cincinnati-based energy corporation, Cinergy. ‘When you hear things from investors, you can go back to the strategy team and keep them informed.’ Indeed, it is probably this concept that splices the IR and strategic planning so strongly – a strategic planner with the ability to keep one eye on shareholder value creation is a godsend. As Vandervoort remarks, ‘A publicly traded company is nothing if it doesn’t bear shareholder value in mind.’
But is the relationship between IR and strategic planning genuinely symbiotic? It’s clear that an appreciation of shareholder value creation and a channel of communication with investors will add insight to the strategic planning process. But does a hands-on role in strategic planning lead to better corporate communications? Cooper thinks so. ‘The strategic planning function is so forward-looking,’ he says, ‘and, of course, in IR, that’s all anyone cares about.’ Schrader agrees: ‘It certainly helps,’ he says. ‘It gives you a much better understanding of what’s going on in the company.’
Cautious approach
Of course, anything that can give a corporate communicator a more complete grasp of where the company is headed will be of great help. When the channel of communication between a company and its investors comes from deep within the business, it means that an investor’s inquiry can be dealt with swiftly and comprehensively. That said, this added vision has to be tempered by a little caution and doesn’t necessarily beef up the message that is fed to investors. ‘There’s a balance,’ says Vandervoort. ‘I have to stick with what has been said publicly. In that sense I do have to compartmentalize myself. And that’s even more important since Regulation FD.’
Nevertheless, there’s clearly a neat link between IR and strategy. Yet a quick look around the corporate landscape is enough to see that IR-related strategic planners aren’t exactly falling out of the trees.
‘Is it uncommon? Absolutely,’ says Vandervoort. ‘In fact, I’m going to be moderating a panel on that topic for the National Investor Relations Institute annual conference soon. I guess that’s because they couldn’t find many other people in my position!’
Vandervoort feels that the dearth of IR/strategic planning professionals is often down to corporate structure. ‘In many cases, the IRO reports to the CFO so he’s one step removed. I’m an operating guy so I’ve always had strategic involvement.’
Too much
Cooper suspects that the sheer weight of work precludes many companies from combining the functions. ‘Most companies keep IR and strategic planning separate,’ he says. ‘But that’s probably because the two roles are so big.’
For that matter, Consolidated Stores has a structure in place to ensure that there is a sufficient body of staff working for Cooper. ‘My job is head of strategic planning and IR but I have an IR department too,’ he says. ‘And whereas some companies combine IR with PR, we have a dedicated PR person.’
‘I’m surprised that it isn’t more common to find strategy and IR combined,’ admits Fisher. ‘I have Fred Poses, our chairman and CEO, to thank for our combined structure. He takes IR very seriously. I think that maybe the reason it doesn’t happen more often is that IR is often seen as a communications role, and an IRO is seen as someone that simply communicates the strategy – as if they’re two different buckets. Here, we’ve adopted more of a holistic approach.’
‘My position also means that I can interact a lot more with our CEO,’ remarks Schrader, ‘but then we’re lucky to have a CEO who is very visionary and strategic.’
Attributing the division between the two roles to a lack of vision on management’s part might be a little unfair, though. Perhaps the reason that investor relations and strategy aren’t married more often is that there’s a lack of experience among executives.
‘I am equipped to handle both functions but not many people are,’ says Cooper. ‘Strategic planning can be very analytical but you do need to be able to communicate the strategy.’
Individual concerns
‘It may say something about the individual who’s in the investor relations role,’ accepts Fisher. ‘If you have a fairly narrow person, you’re going to get a fairly narrow result. If you have someone who’s more experienced, then you’ll probably get a broader view. I’ve run my own company before so I already have an idea about strategy.’
A quick look at the biographies of other strategic planning IR practitioners shows that an understanding of the business is crucial to succeed in both roles – and companies aren’t prepared to let a communications expert loose on the company’s strategy without this grounding. Fisher, Cooper, Schrader and Vandervoort have all taken on the IR responsibility after the strategic planning job.
Why is that the case, though? After all, both positions require an excellent understanding of the business and a forward-thinking approach. Vandervoort, however, isn’t convinced that a typical IRO would have a sufficiently developed understanding of strategic issues. ‘It’s certainly more common for people to move into IR from strategy rather than the other way round. I’m not sure the skill set applies the other way round. Or at least it doesn’t occur to people so readily. In IR, some people are from external communications backgrounds, with purely IR skill sets. To put it another way, I think that the skills used in strategic planning apply to investor relations positively but they don’t apply quite so positively the other way round.’
‘My background is strategic planning and corporate development,’ says Schrader. ‘In corporate development, I was part of the mergers and acquisitions team. At that point, you’re valuing companies so you learn a lot about cash flow analysis and you can see how stockholders value a company.’
‘Some IROs have a financial background; others have a communications or PR background,’ states Cooper. ‘They often haven’t had the experience of working within the business. I still think that those investor relations officers can be very valuable in communicating the company’s strategy to investors and learning what investors want, though.’
IR rotation
To that end, some companies deliberately funnel people into the IR hot seat to ramp up their knowledge of investor relations and shareholder expectations. BP and Eastman Kodak are two companies that happily rotate the position to expose people to shareholders so that they can gain an understanding of the investor interface.
The thinking seems to be that one can either take a communicator and teach them about the business or take a person who knows the business and help their business knowledge by giving them exposure to the financial community. And most companies seem to be opting for the latter. That doesn’t bode well for IR practitioners keen to develop professionally.
‘When I think about developing in the role of investor relations I see it as two-pronged progression,’ says Fisher. ‘You need to understand better and you need to communicate better. Working in IR and strategic planning helps you to do that and it helps you to gain an awareness of shareholder value creation.’
Maybe those people seeking to branch out into strategic planning – and who can attend this year’s Niri conference – should catch Vandervoort’s panel discussion and pick up some career-enhancing tips.
