Courage under fire
According to our US research, 76 percent of buy-side respondents and 78 percent of sell-side respondents believe IROs are generally providing them with the information they need to make informed investment decisions.
But when the going gets tough, IR departments find it more difficult to satisfy the demands of investors and analysts. The past couple of years have seen a slew of restatements, which should make IR teams raise their game. But more than a third of analysts and investors surveyed say companies issuing restatements are not doing a good job of communicating.
The message from investors is pretty clear: ‘Drop the spin, detail the facts,’ advises one; ‘Be clear as to why you did not get it right in the first place,’ recommends another.
This desire for more open communication was echoed in our Canada research, with respondents insisting that honesty, integrity and clarity were vital attributes for an effective IRO.
‘All I require from an IRO is honesty and frankness,’ said one Canadian investor.
IR and senior management
The relationship between the IR department and the board continues to be a matter of much debate. Among our US respondents, 62 percent of those on the buy side and 59 percent of sellside analysts think that IROs should give regular, formal investor feedback directly to the board.
In Canada, however, 60 percent of those interviewed said they don’t think IROs should ever report to the board directly, and many were quite surprised to have even been asked this question. Most made it clear that they thought the IRO’s views should always be channeled upward via the CFO.
In the UK, there was concern that CEOs could be spending too much time speaking to investors. ‘Too much accessibility is not a good thing,’ said one respondent. ‘I want the CEO to be running the company.’
Another investor was more forceful, saying: ‘It frightens me sometimes, the amount of time CEOs spend on IR. Who is running the company, meanwhile? Could IR magazine do a survey on the time budgets of chief executives, and how the commitment of time spent on IR has increased?’
Getting women on board(s)
All over the world, women and ethnic minorities are significantly underrepresented in senior management positions. But is this really a problem? We asked Nordic investors and analysts if they thought that more diverse boards lead to better-run companies. Over half (52 percent) of respondents said yes, while 15 percent were undecided and a third ruled out any direct linkage between board diversity and company performance.
‘Naturally I am in favor of board diversity, but it is professionalism that runs a company,’ pointed out one Finnish buy-side analyst.
In Norway, legislation has been introduced stipulating that approximately 40 percent of a board’s membership must be female. A similar rule in Sweden requires 25 percent of the board to consist of women directors.
But an overwhelming 88 percent of Nordic investors and analysts rejected the idea of legislation to enforce board diversity. Only 5 percent said there should be more of this sort of legislation. Interestingly, almost all of the respondents expressing this view were female.
One such investor from Sweden described board quotas as a ‘necessary evil,’ adding: ‘Although I don’t really like the idea of legislation, I think it needs to go through as nothing will happen otherwise.’
The OFR
Our research into investors’ views of the operating and financial review (OFR) hit the headlines in June 2004, with a page 4 lead in the Financial Times.
The UK government had planned to force listed companies to produce an OFR, but dropped the requirement in November 2005 in a misguided attempt to placate the business community.
Seventy-eight percent of investors and analysts told us they thought companies should still publish a full OFR, regardless of the government’s actions.
As one buy-side respondent put it: ‘We were disappointed with the U-turn, but are confident that, in large-cap companies, most of the work has been done already.’
