Legend has it that high in the inner sanctum of each company there is a hallowed table around which senior executives sit and formulate strategy. Whether an IRO attains a seat at this table isn’t dependent on title, seniority, experience level or education, but on his or her ability to impart wisdom in good times and bad. Those that have earned management’s confidence have demonstrated, often over several years, a deep knowledge of the company’s business and insight into whatever goal or challenge the firm is facing.
‘You don’t get a seat at the table overnight,’ explains Mark Aaron, vice president of investor relations at Tiffany & Co, and current chairman of the National Investor Relations Institute (Niri). ‘[IROs] must prove they really need to be totally in the loop with the thought process that goes on in the organization.’
The motivations for getting in tight with management are obvious. IR is raised to a strategic function when the person heading it is thought of as a strategic thinker. And it’s much easier to inform the Street if you know what management is saying behind closed doors. ‘When you understand the reasoning behind the decisions, it really helps the whole communication process,’ says Jim Fernandez, Tiffany’s executive vice president and CFO.
When IROs are clued in, they also gain credibility with the investment community. ‘[Analysts] feel more comfortable talking to people who have the whole story,’ explains Dorothy Lakner, executive director and specialty retail analyst at CIBC World Markets.
Analysts and portfolio managers can tell right away if the IR person has the inside track – and are less likely to demand to speak to the CEO when that is the case. By observing the dynamic between the IRO and company executives, Dana Telsey, senior managing director and sell-side analyst at Bear Sterns, says she knows immediately whether the IR professional is among management’s trusted few. If so, she can then rely on that person for much of the information she needs about the company. Even so, she still maintains a dialogue with the CEO and CFO.
Being part of management’s inner circle clearly improves the IR person’s relations within the organization and with the investment community. But how do you get there? You might have to rely on circumstances to prove your capabilities to management – it could take a crisis for the CEO to realize the IRO’s real worth, for example.
For his part, Aaron was allotted his seat at management’s table by proving he could lead under fire. After joining Tiffany in 1986 as manager of financial analysis, Aaron moved into the IR role in 1987 following the company’s IPO. Five months into his IR position, the market plummeted and Aaron got a crash course in IR. Then came ‘two great business years followed by two years of declining earnings,’ he recalls.
Despite disappointing results, Aaron convinced his management to stay the course and continue with proactive IR. ‘We can’t go into hiding,’ he counseled his management team at the time. ‘We’ve got to be out there communicating the long-term strategies because we believe they will work over the long term.’
Aaron then led Tiffany’s IR program through eight consecutive quarters of lower earnings. Toughing it out paid off, however, with the luxury goods sector rebounding in the early 1990s and Aaron becoming VP of IR in 1992.
Through this challenging time, the profile of IR inside Tiffany grew, and the outside world – namely portfolio managers and analysts – started to take notice. In fact, the company’s IR program has received several awards and honorable mentions at the IR Magazine US Awards over the years, including the grand prix for best overall investor relations and best IRO in the mid-cap category in 2002.
Aaron’s colleagues now listen when he speaks. ‘If we’re talking about something and Mark wants to give his opinion, everybody listens,’ says Fernandez. ‘We know he’s not just talking off the cuff. He understands how the business works.’
A foot in the door
Another way IROs can get invited into management’s inner circle is by gaining a reputation as a value-added advisor. ‘If you provide honest-to-goodness value-added information and advice, like your corporate legal counsel does, you will be recognized as the person management goes to when it is in the process of making strategic decisions,’ explains Donald Eagon, former VP of global communication and IR at Diebold, recently retired. ‘If you don’t present yourself as an asset that adds value, then not only will you not get a seat at the table – you won’t even know what room the table is in.’
‘The impetus is on IR people to develop competency and really go beyond what is expected,’ says Dr Rui Avelar, VP of medical affairs and communications at Vancouver-based Angiotech Pharmaceuticals. ‘If you want a seat at the table, you essentially have to prove that you deserve a seat. You need to bring something that’s value-added.’
A proactive IRO wins management’s trust while a reactive IRO is usually judged. So while it’s fine for you to handle issues as they come up, it’s more useful, from management’s point of view, if you provide a heads-up of potential challenges when possible, notes Avelar. ‘It’s proactive to say, This situation will come up, or, Based on my analysis of the situation and the market temperament, I have a suggestion for you,’ he points out.
When trying to impress management, focus on the things under your control, like ‘your knowledge of the company and industry, and on communicating that [knowledge] well,’ says Catherine Mathis, vice president of corporate communications at The New York Times Company.
As her company’s first, full-time IRO, Mathis had to first prove the value of IR before getting in with senior management. When her IR campaign began to deliver winning results, colleagues took notice. ‘[They became] much more aware of the importance of relating to the investment community,’ she says, ‘and more appreciative of the [IR] efforts.’
Mathis eventually won her seat because senior management recognized and appreciated her in-depth understanding of the business. Getting a seat takes time, she says. ‘People have to get to know you and learn to trust you.’
Heard on the Street
IROs can also add value by bringing the Street’s perspective to senior management. ‘[As the one] who talks to investors all day long, [the IRO] is the perfect person to provide insightful interpretations and anticipations of what can and should happen,’ says Aaron.
From senior management’s viewpoint, having a well-informed IR person present during strategic planning sessions can help gauge what the Street’s reaction will be to a given decision as well as what questions shareholders are likely to ask.
An IRO can also take into account what needs to be communicated in order to make sure shareholders fully understand the company’s strategy. ‘There’s a tremendous benefit to that for senior management because as we’re formulating our strategies we’re giving thought to what disclosures should be communicated at the same time,’ says Fernandez.
Some IROs reinforce their value-added status by educating the board on shareholders’ perception of the company and senior management. They use reports, surveys and special web sites to share insights about how the investment community views the company and its leaders.
Betty Ann Heggie, senior vice president of corporate relations at PotashCorp, the world’s largest integrated producer of nitrogen, phosphate and potash, advises IROs to consider developing written reports or perception studies for the board.
‘The board represents shareholders and it is important that it knows what investors are thinking,’ explains Heggie. This Saskatchewan-based IRO makes two major presentations to PotashCorp’s board a year: one on IR and one on risk management. ‘Our interpretive analysis of how the company is perceived enables us to offer useful input to help the board understand the company’s valuation and the Street’s expectations of the company,’ she says.
Having a seat is also about being valued internally. ‘[Experienced IROs] can partner with the CFO in illuminating what the growth strategies are and what the drivers of the specific company are to the investment community,’ says Telsey.
But not every company considers IR as a partnership. ‘It really is a matter of how the company in question views the investor relations function,’ adds Lakner. ‘There has to be a mindset within senior management that says, This is an important part of what we do and how we communicate. It’s worthy of having someone who has been given a fairly high level of responsibility.’
‘It’s not so critical where we report as long as we have access,’ comments Mathis, who works in a very ‘open, team-spirited, collegial organization’ where there is lots of interaction between senior managers and other executives.
In order to have this type of interplay between management and IR, you need the right company. ‘You have to have an organization that values what you do,’ continues Mathis. ‘Because if you don’t, then no matter how good you are or how hard you try, you’re not going to be appreciated.’
The bottom line
IROs with a seat at the table already know what’s happening in their company, and why. That’s crucial. ‘Otherwise IROs are just repeating something that they have been given on a piece of paper or they’re repeating something they have been told to tell people,’ says Fernandez.
‘There’s no magic to it,’ comments William Walkowiak, CFA and director of IR and corporate communications at EDO Corporation, a provider of military products and professional services. ‘The main thing is getting in there and knowing your company better than anyone else – other than maybe the CEO.’
An invitation to attend the CEO’s weekly staff meetings is ‘something that the CEO is either going to grant you or not,’ Walkowiak adds. ‘If you don’t get a seat, it’s a great disadvantage in this job. Frankly, you can’t really represent management without knowing how it feels and what’s going on.’
But getting your foot in the conference door is just the beginning. ‘Your contributions are going to be evaluated constantly – and people on the management team will begin to judge whether you’re adding more to the business process or there just to keep in tune with what’s happening at the company,’ says Walkowiak.
‘We have a lot of people with seats at the table, [and] I expect input from all of them,’ says EDO’s chairman, president and CEO James Smith. ‘I don’t expect general counsel only to say something when it’s a legal position and the financial guy to speak up only when it’s financial. It’s okay to talk outside your realm. [But] once you become irrelevant to the discussion, you become irrelevant.’
