When an industry analyst downgraded O’Charley’s stock rating recently, the IR team was concerned. The analyst had decided the company, which owns the Ninety-Nine and Stoney River restaurant chains, as well as its eponymous, flagship chain, was going to be affected by the current problems surrounding sub-prime lending in the US. The IR team knew this was not the case, but needed to get its message out to the investment community.
‘At that moment, the IR team needed to engage its fellow executives in investor relations,’ recalls Gene Marbach, group vice president of IR at Makovsky & Co, the consultancy that was advising O’Charley’s. ‘Failing to get into this debate with in-depth, accurate information could have been highly damaging to the company’s value.’
Fortunately, the firm’s executives were willing to help. The marketing team put together an authoritative statement showing the good financial profile of the O’Charley’s customer base, and the communications department got it placed in the highly influential trade title Nation’s Restaurant News. Marbach is sure this rapid, concerted action ensured other analysts did not follow suit and downgrade O’Charley’s stock.
‘Investors are looking at more than just the numbers these days,’ says Marbach. ‘They want to know about the quality of the company’s management, the levels of customer satisfaction, how interesting and unique the products are, performance on corporate citizenship, and so on. This means all executives, not just IR professionals, need to get involved in communicating with investors.’
Finding the time
Yet, often, executives are unwilling to spend time on this. ‘The Ceo and Cfo should each spend up to four days a month on investor relations, and other senior executives should spend around a day a month,’ suggests Alex Clarkson, a director of UK corporate finance advisers Zeus Capital. ‘But they’re very busy people, and they don’t tend to realize the effect their presence at a teleconference or a site visit can have.’
Clarkson points out that by far the best way to engage executives in investor relations is for them to own shares in the company. He does not believe this on its own is enough, however. ‘Even a Ceo who is also a major shareholder will need to be convinced that effective IR will enhance his investment,’ he says. ‘You need to educate them and make them confident that a long-term plan of investor communications will work.’
Richard Davies, MD of Rdir, an IR consultancy and investor research agency, agrees. ‘While fund managers might take Iros more seriously these days, hedge fund managers still want to deal with senior management only, so it’s important that Iros get buy-in from senior management,’ he says. ‘The best way to do that is to provide them with independent research showing the effect of IR.
‘You need to commission an external agency to conduct an audit of how investors view your company in comparison with your competitors. You need to do this over time, and show how perceptions have improved as a result of how you and your fellow executives have engaged with investors. It sounds obvious but it’s amazing how few firms do this properly.’
Ken Houseknecht is vice president of communications and investor relations at Gibraltar, a manufacturer, processor and distributor of metal materials for the building, industrial and automotive markets. He believes engaging fellow executives is very important. ‘I always try to include someone from operations or marketing when I take investors on a site visit,’ he explains. ‘They know more about what’s going on than I do, and investors appreciate that.’
Getting through to colleagues
For Houseknecht, however, the key to engaging fellow executives is to develop a mutually beneficial relationship. ‘I benefit greatly from the information my colleagues provide to investors, either directly or indirectly through me,’ he says. ‘They are willing to do this because in return they receive feedback on the company’s performance, either directly from the investor, or indirectly through me.
‘Recently I was in a meeting with our second largest shareholder and some senior operations and marketing colleagues. The investor had ranked our financial goals in order of priority to it. My colleagues found this incredibly useful, if only because they could go back and explain to their teams why we are taking the actions we are. That sort of direct advice is great, but more usually the feedback comes through me, at our quarterly senior management meetings. I see providing this feedback loop as a vital part of my job.’
With education, some concrete evidence and a bit of give and take, therefore, it is possible to engage fellow executives in IR. But Houseknecht warns: ‘It’s great to get executives talking directly to investors, but there is a risk involved. I always make sure I’m involved in the conversation so I can steer it away from any difficult or sensitive topics – and I’d advise all Iros to be equally cautious.’
