Gone are the days when investor relations officers had it easy. With new rules and disclosure requirements, they have had to quickly adapt to new responsibilities. At the same time, slashed budgets and smaller staff often make it more difficult to meet these new demands. So how are IROs coping? Some are relying more on outside agencies for help with a number of tasks including targeting, corporate communications, crisis management and corporate governance.
For some IROs, new responsibilities have made agency support indispensable. Others are outsourcing less than they used to because their in-house teams are growing in size and expertise.
For companies that rely on outside IR services, the demands and the criteria differ when selecting a partner agency. Companies without drastic budget cuts have kept the same philosophy about outsourcing: inside experts should focus on strategy instead of spending their time doing the busy work. Sometimes small caps have the opposite model: in-house admin staff handle the nitty-gritty while outside counsel do the deep thinking.
In an effort to balance her increased workload, Lynn Tyson, vice president of IR at Dell Computer, has increased her reliance on outside agencies. ‘The fact that I have an outside agency doing some analytics has really freed-up my team to go out and do more things that are far more specific to Dell, allowing us to participate in more conferences rather than having everybody here doing research,’ she explains.
By outsourcing certain functions, IROs can work on building their knowledge of their company and industry. ‘An IRO has to be flexible, they have to be very smart and they have to be viewed as a peer from an executive perspective; they really need to be plugged into the company,’ Tyson says. According to this IRO, using third parties for targeting, stock surveillance and proxy services turns out to be more cost-effective than trying to replicate these functions in-house.
Another company that tries to get more value out of its in-house IR staff by using agencies for certain tasks is Ohio-based Diebold. Each year, Donald Eagon, VP of global communications at Diebold, sits down to determine which services his department should take care of in-house and which they should outsource.
Eagon strongly believes that services that do not bring value to the company should be outsourced. ‘Anything from printing to writing to certain kinds of counsel should be outsourced; it really depends on the corporate strategy and it changes from year to year,’ he notes. ‘But we try not to bring things in-house, because in the end you do not save money and it does not make sense to add staff.’
Adding arms & legs
For certain companies an agency can serve as an IR department’s arms and legs, acting as a strategic partner and helping in a range of areas. ‘We seek help with targeting, message development, competitive intelligence – just a number of things,’ says David Dragics, director of investor relations at CACI International in Arlington, Virginia. ‘It’s an allocation issue, so the services I seek are basically those that if I had a large department we would bring in.’
CACI engaged Christensen as an IR and PR agency in August 2000 when the markets crashed. Today Dragics confirms that working with an agency to craft the company’s message and get it out in a tough environment yielded tangible results. ‘When we brought our agency on, we had only three sell-side analysts covering us and only 60–65 institutions in the stock. Now we have 14 analysts covering us and well over 220 institutions in the stock.’
Dragics strongly advises other IR professionals to use every possible means to get their story out in today’s static economy because investors are now on the lookout for undervalued stocks. ‘If it is a lousy market or your stock price is down as the result of market moves, you should be out talking to people,’ he urges. ‘Pulling in the horns in a difficult market does not benefit the company in the long run.’
Bringing costs down
Not all companies have kept their old outsourcing habits. At Microsoft the goal is to keep outside costs down. ‘We are cutting back a little bit but we are looking for ways to work with our partner agencies to get more out of what we currently spend,’ explains Curt Anderson, Microsoft’s director of IR. ‘We are going to bring costs down by trying to get more out of what we are currently paying for and rationalizing activities that just do not add a lot of value or only add marginal value.’
Microsoft views the IR function as a vital and strategic part of the finance group and for this reason has resisted relying on third-party help for very specific IR tasks. Still the tech giant uses a PR agency, which partners closely with the IR department on certain projects.
As some companies increase their in-house capabilities, their reliance on outside agencies is often reduced. Since Stephanie Comfort arrived at Qwest in May 2002 to head the company’s IR team, the telecoms company has significantly cut back on outside help with just two exceptions: DF King & Co for proxy solicitation and Thomson Financial for targeting and stock surveillance. After revamping and stepping up its IR and PR departments, Qwest now has qualified in-house staff writing press releases, reviewing presentations and writing speeches for senior executives. Moving some communications functions in-house has been cost-effective, notes Comfort.
Damage control
Companies in a sensitive position find it essential to engage an outside consulting firm to help them get through the rough times. United Airlines took on Gavin Anderson & Co, a strategic communications firm with a strong restructuring practice, to help with the company’s Chapter 11 filing. The agency helped UAL launch a worldwide communications campaign by tapping its offices around the globe. Post-Chapter 11, UAL continues to use GA’s services to develop communication strategies.
Arthur Andersen also needed hand-holding after the collapse of one of its major clients – Enron. Gavin Anderson & Co provided Andersen with strategic advice during its moment of despair. As Enron’s outside auditor, Andersen suffered intense global scrutiny and therefore needed an agency to manage interactions with media and clients. In June 2002, Andersen was nonetheless convicted of obstruction of justice for shredding documents related to Enron and subsequently dissolved its auditing business.
Other companies have recently hired veteran communicators Joele Frank Wilkinson Brimmer Katcher to help them deal with sticky situations. HealthSouth is looking to this agency to rescue it from the quicksand of a page-one financial scandal. El Paso, which has had its share of negative publicity in the last year, is also using this firm to help it communicate in turbulent times. When companies find themselves in tough spots, they often turn to IR agencies that specialize in crisis management.
The right fit
‘I look for people who have done IR in their previous career or people who have a very strong grounding in finance, and also a company that has a good perspective on the sector. With a company the size of Dell, I prefer to use a large agency that can help me on several different levels, because it can understand the company better. It understands the management team and the way I run the IR department here. A large agency can be very proactive in providing value to me.’
Lynn Tyson,
vice president of IR for Dell
‘We are interested in the individual firm that can do the best job for us, because service is so paramount.’
Joseph O’Hare,
investor relations manager for Dominion Resources
‘I prefer a smaller agency because I like the dedication and the one-on-one approach that the senior people at those agencies take. I believe that our communications opportunities and challenges can be pretty unique to our business, so we look for people who are going to be creative and very responsive to our needs. Also, I pick agencies based on their personal integrity, track record and the judgment of the people I’m working with on the high-level strategy side.’
Lynne Brum,
vice president of corporate communications for Vertex Pharmaceuticals
‘We are in a unique situation. We are looking for someone able to work within our guidelines, and that is very important. We really look for outside people who are more willing to be flexible as opposed to rigid or boiler-plate and it seems as though smaller companies do that better.’
Stephanie Comfort,
senior vice president of investor relations at Qwest Communications International
