Back in April, as I trotted up the steps of the Investor Relations Society’s central London offices to take up my new post as its first director general, I knew I was joining a sector that had grown over recent years but I didn’t yet know the incredible speed of that growth.
There is a perception that professional bodies and trade associations (the IRS warrants both descriptions) have generally struggled to capitalize on the buoyant economic conditions of recent years. No such charge can be leveled at the IRS, however, which saw its membership increase by an astonishing 35 percent last year alone. This is due to a combination of IR’s rapid expansion and a strong team approach to membership recruitment; and joining a growing, vibrant organization was one of the attractions of this role. But once I was through the front door I realized that a burgeoning IR community presents some tough challenges for both the society and practitioners in general.
First, there is the challenge of training up a new generation of IR practitioners. I have made a point of attending the society’s level one and two training courses and have been struck by the extent to which so many IROs find themselves managing a huge burden of responsibility, often with very little relevant experience behind them. Indeed such is the demand for new IROs that it is not uncommon to meet IR managers with only one or two months’ experience.
Second comes the challenge of managing an IR function within a dynamic regulatory framework. The creation of the FSA is of course the most obvious UK development. However, as Gary Kraut wrote in the June issue of Investor Relations, ‘International IR doesn’t really exist any more. It’s just IR – with investors in different geographical markets on the same planet.’ The fact that IROs have to operate within a multitude of regulatory frameworks means that IR societies should also be talking to each other to ensure that their services meet the global information, lobbying and networking needs of their members.
Third, the influx of new IROs has meant that there are relatively few who have experienced life in a bear market or slowing economy. This, together with the evolving regulatory framework, has led to some steep learning curves.
Training IROs to a high standard is a major component of a two-pronged effort by the IRS to raise the status of IR in the UK and, consequently, increase employer demand for its members.
Wider profile
Indeed, moving the demand curve upwards for IR professionals should be one of the core objectives of every national IR body across the globe, for good reason. First, it is a useful priority because it means getting other fundamental activities right – such as training, influencing the political and regulatory agenda and gaining a wider public profile for investor relations.
Second, the global nature of many companies means that IR’s status is affected within every country where there is an investing community, not just an IRO’s country of domicile.
Third, the IR Society’s members pay my salary so it is therefore both my duty and in my own interests to bid up their salaries!
It’s perhaps worth considering what happens in a market where IR is better established than in the UK and, I would argue, more highly valued. At June’s Niri conference, Robert Woodrum, managing director of Korn/Ferry’s corporate communications practice, reported that two IR placements his firm had completed in the previous month were in the $500,000 to $600,000 range, and he knew of several corporate IROs whose salaries were north of $1 mn.
The challenge for the IRS is to find a means of importing that level of value for UK-based practitioners. Perhaps some may think it perverse, but increasing regulatory control could actually help this process. Woodrum believes that American IROs should say a prayer of thanks for the introduction of Regulation FD for helping to enhance their status and that IROs should be looking to broaden their roles across the entire communications function.
By contrast, the evidence from IRS member surveys suggests that the percentage of UK IROs reporting to their CFO is on the increase. Hence there may or may not be such an opportunity in the UK for the IRO to take control of the rest of the corporate communications function. But as a profession we need to decide whether and how we ought to start influencing corporate structures to reflect the opportunities that stiffer regulation presents.
One area where the IRS can provide practical assistance is improving best practice, using our access to the best IR brains in the business. We plan on building up our existing practice guidelines and publishing regular updates on the members’ section of our web site. We shall be further developing our advisory network, molded along the lines of Niri’s volunteer advisors. This will be a group of senior practitioners available by telephone or e-mail to provide snippets of advice to other members on subjects of the volunteers’ choice. And we intend to use the society’s web site as more of an interactive community of mutual support and advice.
Spin merchants?
In drawing up the next generation of practice guidelines, one major issue that needs tackling early is the accusation that IROs have responded to tougher market conditions by over-spinning company results. Joanne Hart, deputy City editor at the London Evening Standard, recently tore into several blue-chip companies she felt were putting too much of a fine gloss on their figures. ‘Spin’, she said, ‘is not respected in the corporate world any more than it is by the electorate but in the City there are regulators to control the way companies behave.’
And the media are not the only ones frustrated by this trend. Analysts complain about the quantity of chaff they sometimes have to wade through to get to the real message, and point out that such practices are hardly conducive to building a relationship of trust.
As one leading London-based telecoms analyst points out, ‘Over-hyping performance is a real nuisance, albeit for a minority of companies. In the short term it results in increased share price volatility but in the longer term it takes a great deal of work to restore the lost credibility and trust.’
Another major area where the IRS is concentrating its firepower is the daily working environment of its members. As a relative newcomer to IR, I find it intriguing that the financial services sector is highly regulated and yet not always adept at lobbying government and regulators. This, I hope, will improve, but over the course of the coming year the society will look closely at where it can influence issues such as corporate governance. One issue for us to take up early on with the new government is the scope for extending electronic dissemination of annual reports and e-voting.
Perhaps the best example of where I believe the IR community could have done more to defend its interests was over the Huntingdon Life Sciences debacle. Indeed it is hard to find a clearer case in which activists, claiming HLS breaches animal welfare regulations, have barged in between a company and its investors to successfully destroy share value. This was all the more extraordinary given that many of the intimidation tactics used during the assault on HLS were illegal.
In cases like this the IRS will be a powerful voice encouraging government to protect lawful businesses against similar assaults.
The IRS can also play a role in winning the battle for the hearts and minds of both the media and voting public, who should react with indignation when companies undertaking lawful activities are pushed about by extremists working outside the law.
Internally, there is also work to be done driving the society to its next stage of development. My overriding priority will be to maximize our influence on the external environment – media, government, regulators, non-members and members alike, and of course their employers.
One major challenge stemming from the society’s rapid growth is to ensure that all 600 or so members have an opportunity to participate in its work. At the junior end of the profession the society must be the natural place to which people go for training and information. At more senior levels the society has to be the forum where practitioners can contribute to the important debates of the day. But it is important to secure that involvement across all levels of management. After all, with 70 percent of FTSE 100 companies represented in our membership, we have a significant talent pool from which to draw.
All the ingredients are in place for investor relations in the UK to really take off over the next couple of years, and IR practitioners need to join the society to get a slice of the action.
Andrew Hawkins is director general of the Investor Relations Society [email protected]
