At the heart of investor relations lies a key tension: while IROs must communicate their own company’s message to investors, they are also responsible for channeling the views of the same investors back to the board. Reconciling these two roles can be fraught with difficulties. That’s one of the reasons companies so frequently commission external perception studies to explore the views of investors on a variety of issues, in a range of different situations.
IROs worth their salt will already have a good sense of the attitudes of their investors and analysts. But the anonymous nature of perception studies allows honest feedback free from the fear of being blacklisted or cut out of the information loop. The independent nature of these studies also lends credibility to the exercise, which is particularly important when presenting investor views to the board.
‘There’s nothing like third-party information,’ explains Guy Cantwell, manager of corporate communications at oil drilling giant Transocean, from his office in Houston. ‘We have our own internal thoughts about things but to get a scientifically valid survey that tells us what people in the financial community are thinking about – that’s vital to us. The scientific validation of third-party research brings a lot of value to it.’
Regular check-ups recommended
There are several different ways in which perception studies can be used. Perhaps the most common is the annual benchmarking survey, which provides an assessment of investor views on issues such as company and board performance, and the quality of corporate communications and IR. Some companies also carry out more regular ‘maintenance’ studies, to gauge reactions from the investment community following quarterly reporting or a large roadshow. And others deploy perception studies strategically, to get a sense of investor feeling about M&A activity, for example.
Transocean carries out a benchmarking study every two years but it has also commissioned an investor survey to analyze opinions following a merger. AstraZeneca, the pharmaceutical giant, conducts studies annually, looking in detail at trends over two or three-year cycles. ‘Our particular interest is in the year-on-year trends our research shows us, as opposed to concentrating too much on one specific set of numbers,’ says Chris Major, head of corporate PR at AstraZeneca. ‘We try to understand the trends and respond accordingly.’
AstraZeneca’s perception studies are based on a familiarity-favorability axis, which measures investors’ impressions of the company against their familiarity with it. ‘The investors are asked how familiar they are with us, what criteria they use to judge pharmaceutical companies, how we stack up against these criteria and how we’re benchmarked against our peers in several key areas: quality of and access to management, R&D, productivity, innovation and corporate responsibility,’ Major explains.
With such a high profile in the pharmaceutical industry, AstraZeneca is often in the public eye and the company takes a keen interest in how it is portrayed in the media. So as well as tracking the views of investors and analysts, AstraZeneca conducts perception studies of the financial media. And, just as with investor studies, this format allows those who might have an issue with the company’s communications to raise it without fear of retaliation.
Land Securities, the UK’s largest quoted property company, carries out biennial studies of its main equity investors to get feedback on the effectiveness of the board and the company’s IR and corporate communications strategies. Jennifer van der Eem, Land Securities’ IR manager, insists that, though most IROs already have a clear impression of the feeling on the ground among investors, perception studies are still useful as a means of backing this up.
‘So far there have been no great discoveries, which I think is better than having something you hadn’t considered at all cropping up,’ says Van der Eem. ‘Especially if you’re doing a board-level study, you should have a good idea what the key themes are that will come through from every investor you talk to. You should pick them up if you’ve got a sensible IR program.’
Don’t shoot the messenger
Despite the best efforts of company directors and their IR teams, it is inevitable that some investors will find fault with a board or its strategy. In such a situation, couldn’t presenting negative investor feedback to the board put IR in an uncomfortable position? Van der Eem, for one, is not too concerned by this possible conundrum, insisting that there would be no need to ‘shoot the messenger.’ The real problem, she quips, would arise if she had to present feedback to the board which indicated that the IR department was no good.
Perception studies are one of the main tools of investor relations and, as such, are constantly evolving in line with shifts in the world of capital markets. The increasing move away from equity, stimulated by perceived stock market volatility, has led companies to pay more attention to debt investors. After a large debt restructuring in November 2004, for example, Land Securities carried out a perception study for its debt investors to improve its debt IR. While most perception studies are based on interviews with companies’ existing investors, ‘absentee’ studies examine the views of institutions that are not currently investing but might in future. The purpose of these studies is to identify what it is that is turning off potential investors.
This can be useful for companies of all sizes, but small and mid-caps perhaps stand to benefit most. These normally have fewer resources and tend to focus their communications on current investors. An absentee study can, therefore, help them better understand how to broaden their investor base.
It’s true that you can hope to get as much out of your perception study as you put in. Open-ended questions will elicit a broad range of views about the company and its strategy. But closed-ended questions are much more useful for conducting year-on-year quantitative analysis. One recent trend, for those with a large enough sample size (perhaps 50 respondents), is correlation analysis, whereby further insights are drawn out by delving deeper into the data. For example, you can find out whether those investors who have been meeting more frequently with management have different views on the company from those in the broader investment community.
Many IROs seem to use perception studies as little more than a benchmarking exercise but, arguably, they could be getting much more from the process. No one wants to commission expensive external research that shows that you were not as well informed about your investors as you thought. But there is undeniably a lot of value to be gained from finding out what investors and analysts think about a company away from the loaded atmosphere of formal meetings. Due to the anonymous nature of these studies, you will lose out on the chance to ‘ice’ your analysts. But you will gain a wealth of knowledge about what your investors really think.
