Until quite recently, top IR professionals were being ardently wooed by Fortune 500 companies and big-name consulting agencies. But since the stock market tumbled, the once hotly-pursued now find themselves circulating resumes and networking like mad. Market downturns have historically hit the investor relations profession hard for two simple reasons: IR doesn’t directly contribute to a company’s bottom line and IR consultants’ retainers are easily cancelled when top executives are running scared.
According to Dennis Spring, president of Spring Associates, a Manhattan-based recruiter, IR consulting agencies have laid off approximately 20 percent of their professional staffs. The indications are that the IR powerhouses like the Financial Relations Board and Morgen-Walke Associates have been hardest hit, but almost everyone reports either lackadaisical demand or some small cutbacks. Gavin Anderson trimmed four fairly senior IR specialists recently, while Citigate Dewe Rogerson laid off five from a staff of 75. And Diane Perry, who joined Gavin Anderson as managing director in early April, says her former employer, Weber Shandwick, recently cut 20-25 percent of its IR staff.
At the beginning of April, Morgen-Walke, in its first round of lay-offs ever, eliminated 35 jobs. Managing director David Walke emphasizes that the cuts extended across the organization, both geographically and structurally (they were from all disciplines). It’s hard to gauge whether IR staffs are being slashed globally, but if Morgen-Walke is any indication, they are. Cuts occurred in Morgen-Walke’s Paris and Frankfurt offices, as well as in New York, San Francisco, and Boston.
Although the IR consulting business slowed dramatically during the 2000 holiday season, IR agencies didn’t start letting employees go until after the new year. The reasons for these terminations are no different from lay-offs in the past – a poorly-performing stock market, a sluggish economy, and companies hunkering down and nursing the bottom line. Perhaps the worst blow for many IR consultants is the sudden dearth of IPO activity. While companies theoretically need IR in bad times as well as good, companies don’t seek any investor relations help when they no longer plan to go public.
Kelly Maude Leung, who recently became director of corporate communications for Transaction Auditing Group in Northport, NY, was laid off from an IR consulting agency earlier this year. She emphasizes that her profession has always been vulnerable to economic reversals: ‘If a company is going to cut anything to save a dollar, first it’s the ad budget and then it’s PR and IR.’ Leung is philosophical about her recent temporary lack of employment: ‘After a certain point, you can’t hold onto people just to have the bodies available for when the work turns up.’
For many agencies, lay-offs came after a two-to-three-year period of unparalleled expansion. Spring estimates that the typical agency increased its IR staff by 30-35 percent in the past three years. By that measure, he says, ‘We’re still ahead of the game. But it’s a blow for those people who have lost their jobs.’
Hardest hit
The IR profession is, it seems, particularly vulnerable to the caprices of the Dow. ‘The stock market is a very clear and open barometer of exactly how the IR market is going to be doing,’ says Spring. ‘If the market is up, more IR people are going to be hired, bottom line. And if the market is down 20 percent, more than likely we’ll see a 20 percent decrease in IR employment.’
Justin Meyer, senior vice president of Marshall Consultants, a Manhattan-based recruiter, maintains that companies often cut consultants before they pare internal staff. For the company, it’s less painful to cancel a retainer than to fire its own employees. And for the IR agency, it’s easy to keep close tabs on how busy their consultants are by tracking billable hours. Agencies also know that if a large client were to come along, rehiring would be no problem. ‘If you all of a sudden got a General Electric,’ says Leung, ‘you’d staff for it. There are plenty of people out there now.’
Meyer also points out that it’s the large investor relations agencies, not the boutiques, who are laying off the greatest share of employees. One reason for this is the recent spate of large IR agency acquisitions. Companies like the Financial Relations Board and Morgen-Walke now serve large corporate masters and therefore must justify their own existence. Worse yet, client relationships are often much shakier in the aftermath of an acquisition and relationships may therefore dissolve even faster in tough economic times. ‘It’s no secret that when companies are acquired, budgets get tighter,’ says James Flanagan, president of IR Strategic Advisors in Lexington, Massachusetts.
IR agencies report that they’re still being hired for individual projects but that some retainers have been cancelled. John McInerney, a director at Citigate Dewe Rogerson in Manhattan, says that the downturn in the retainer business is ‘only natural because companies are trying to assess their own budgets.’
Lay-offs notwithstanding, many are taking a decidedly ‘glass-is-half-full’ perspective. Perry of Gavin Anderson says, ‘Ten years ago, when I first got into the IR business, we were at the bottom of a cycle. And at that point, companies were laying off their own in-house investor relations officers as well as concluding relationships with agencies.’ This time around, she maintains, the role of investor relations is better understood, and therefore companies aren’t bailing out so quickly or in quite so knee-jerk a fashion.
Others are more cynical, arguing that IR is often valued far more in theory than in practice. ‘In good times and bad times,’ says Spring, ‘consultants, be it PR or advertising or marketing or IR, would say you’d always want us around. However, in the 21 years I’ve been [a recruiter], I’ve never seen that to be the case. In reality, when things are not good, companies pull back.’
A climate of secrecy has made it difficult to assess how deep the lay-offs have cut. At one time, disgruntled employees hurried to tell their stories to newspapers or magazines. Not today. More consultants are conditioning severance packages on silence, demanding that former employees refrain from publicly commenting on the terms of their dismissal or on the firm’s business prospects. Fearing a lawsuit, laid-off employees are suddenly very circumspect.
High-tech bust
The high fliers of the very recent past – everything from web browser companies to biopharmaceutical start-ups – have suffered most in the recent downturn. It’s therefore interesting that two firms specializing in investor relations for biotech and technology companies, respectively Feinstein Kean Healthcare in Cambridge, Massachusetts, and the San Francisco-based Blueshirt Group, report that business has slackened but that they have both kept all their employees on board.
Gretchen Schweitzer, senior vice president of corporate communications for Feinstein Kean, says her firm has 40 professionals who spend part or most of their time doing IR. Although Feinstein Kean hasn’t laid off anyone, times are tougher. Alex Wellins, partner and co-founder of Blueshirt Group in San Francisco, says his firm has felt the effects of the IPO stoppage but hasn’t let any of its seven IR specialists go.
‘I think IR is much more insulated from cuts than PR because we charge less than PR firms and we work directly with the CEOs and CFOs,’ contends Wellins. He says that Blueshirt’s retainers run $10,000-$15,000 a month, compared to a minimum of $30,000 a month for a PR retainer.
Although some broad trends can be identified, exceptions abound. Some IR agencies were, for instance, hiring this spring. Meyer points out that he’s helping the Torrenzano Group in New York add to its IR staff. And Julie Creed, senior vice president and group head of investor relations for Edelman in Chicago, says that she could stand to hire another person right now: ‘I’m swamped!’ Although Edelman has laid off some employees recently, the firm’s 20 IR professionals who work in New York and Chicago so far remain untouched.
Agencies aren’t alone in pruning IR specialists; some public companies have trimmed investor relations professionals, too. On the in-house side, most jobs are being lost to corporate-wide disasters, like a company going out of business, being sold, or being delisted. In some instances, IROs are bemoaning the opportunities they passed up when deciding to take their present jobs. ‘So many people here in Silicon Valley and San Francisco left big agencies to go in-house,’ says Wellins. ‘The market was so hot that they saw lot of upside with the stock options. I’m sure it’s safe to say that some people are now regretting that decision.’
According to Steven Seiden, president of Seiden-Krieger Associates, another Manhattan-based recruiter, demand for highly-skilled IROs at major companies remains strong: ‘When stocks are not doing as well as they should, and when companies are battling for investor retention, that’s exactly when a good IR professional is needed – more than in times when earnings are more robust and tell their own stories. I think this recent downturn has created a need for an even more influential type [of investor relations professional].’
Staying in the stadium
Perry notes that Gavin Anderson has recently been hired to conduct some different types of projects. Her firm is now performing more perception studies for public companies interested in understanding how they’re viewed by analysts, institutional investors, and the media [see Perception audits, page 39]. In the coming months, she anticipates working on IR projects for companies restructuring, consolidating, or divesting businesses, as well as public companies going private.
Citigate Dewe Rogerson is currently carefully assessing the kinds of projects it recommends for its clients to make sure they’re very clearly focused. Understandably, companies are more interested in market intelligence and learning to assess trends quickly, says McInerney. He maintains that in this type of market, being proactive definitely pays: ‘If you’re not setting the stage for the market’s return now, your feet aren’t just outside the starting blocks, you’re not even in the stadium.’
Wellins raises a similar point. ‘It’s just a fact that analysts on the sell-side and folks on the buy-side have more time on their hands and they’re much more willing to sit down and meet with companies and listen to their stories,’ he says. Some of Blueshirt’s ideas include visiting institutional investors in an off-the-beaten-track city [see Heartland IR, page 65], experimenting with a webcast, or hosting an analyst day.
For the individuals who lost their jobs, new work is hard (but not impossible) to find. McInerney emphasizes that the lay-offs at Citigate Dewe Rogerson were modest precisely because so many of the agency’s IR professionals found new opportunities elsewhere. He suggests that ‘this market made people look at life a little bit.’
But for many, the introspection came as an unwelcome jolt. ‘The truth is that three or four months before I got laid off, I was getting calls,’ admits Leung. She enjoyed the attention from recruiters, and says that she and others who’ve been laid off go through alternating stages of shock and frustration, asking: What’s next? In many ways, losing a job calls people’s self-image into question. Says Leung: ‘I’m on the board of Niri [National Investor Relations Institute], I’m very visible, and I had to say I was without a position for a while. That’s difficult.’
Hunkering down
Although the worst hits came early in the year, many observers think that more terminations lie ahead. ‘I hear talk,’ says Meyer, ‘and there are expectations that there will be more lay-offs.’
And yet others speculate that as companies adjust to the new market realities, they’ll better comprehend the rationale for crafting smart IR strategies. Flanagan fears that too many public companies continue to chase growth investors, who are very quiet right now. Once companies realize that a rotational shift is underway and that it’s the value investors who need to be wooed, they’ll hire IR consultants to help them identify and communicate with a wholly new and different audience.
McInerney also foresees better times as companies adjust to the downturn. ‘At the beginning of the year, companies were acting a little bit like deer in the headlights. The only reaction they had was to do nothing,’ he concludes. ‘But people are beginning to realize that this is a new market environment. Now, instead of trying to stand out among a lot of stocks that are constantly rising, you’ve got to stand out among stocks that are falling.’ And the obvious place to start, IR consultants argue, is with the agencies that specialize in identifying and winning new investors.
