Getting management buy-in for IR in Asia [AUDIO]

Global asset management firms usually require a meeting – or several – with a company’s senior management before investing, something not all businesses are willing or able to offer, especially in the Asia region. Indeed, according to feedback from IR Magazine’s Asia conferences, many local IROs reportedly struggle to get their CEO or CFO on board for IR activities and have yet to make a successful case for investor-facing tasks.

‘Generally speaking, if you go to Asia, you will see less top management involvement in IR,’ says Beate Melten, global head of IR advisory at Citi’s depositary receipts division, which counsels issuers in the Asia-Pacific area. Of course, there are regional disparities, with the level of buy-in and commitment to IR also depending on the age and cap size of companies, she says: ‘The culture is different. In some Asian countries, for instance, a lot of IR team members – except maybe the IR head – don’t have contact with top management. Very few CEOs go on the road, even at well-known companies.’

If Korean chief executives are mostly reluctant to travel, mainland Chinese firms display a mixed picture. While large, state-owned enterprises will rarely make their CEO available to investors, newly listed, small and mid-cap companies will typically show more effort. ‘In China you’ll find more companies that are looking to do IPOs and fund-raising, and they’re more eager to work with the western style of IR and get the whole scope of IR services,’ explains Teddy Tsai, CEO of Markis Capital, a Taiwan-based IR advisory. ‘Locally, it tends to be similar to Japan in some ways, which means relatively inward-looking.

‘Taiwanese firms are pretty reactive, rather than proactive, in terms of how their IR programs develop. Here the standard will be IR-only meetings or official spokesperson only – which all firms must have according to regulation, and it could be the CFO or even the CEO – but rarely do they come out and meet at that high level. Usually it’s a finance manager or a vice president of development, for example, who will be speaking.’

Pushing the agenda

So how can an IR professional work toward getting top management more involved? A first step, Melten suggests, is using the influential power of positive feedback. ‘If one of your big long-term investors – which is in general positive on the company – travels to your city, arrange a first meeting with the CEO,’ she recommends, urging IROs to brief the investor beforehand on the local corporate culture. ‘As an IRO who has cultivated a relationship with this fund manager over the years, you can be honest and explain that you would like to give the CEO a positive meeting so he or she will be more encouraged to go out in the future. Once they’ve had a constructive conversation, give your CEO the positive feedback.’

Another initiative Melten deems successful is to organize an analyst or capital markets day, something she has seen increasing numbers of Asia-based companies implement over the past five years. ‘Research shows that investors name analysts days as their favorite way to communicate with management and CEOs might be receptive to the idea. Combine this with the convenience factor and you might have a winning proposal.’

‘Most commonly, if a Taiwanese company holds analyst meetings, it will have the CEO, CFO and all the senior management present,’ confirms Tsai. ‘With regards to international roadshows, you do have some companies that go abroad, but they’re pretty selective and it’s usually the large caps that are more engaging on that front.’

Melten stresses that change takes time and IROs need to be patient. ‘After a successful analyst day, introduce the idea of industry conferences,’ she adds. Tsai says his consulting role is also often an educational one. ‘A lot of our activities tend to be more about tutoring senior management concerning the different tools, abilities and value-add that IR creates,’ he explains. ‘Because of the IPO system in Taiwan, companies tend to choose their broker very early on and therefore a lot of the investor relations activity is lumped in with brokerage work. Companies need to better understand where IR can contribute to some of the strategic decision-making; that’s still a bit lacking in their scope.’

The right connections

Melten is adamant that this education process starts with the IRO-CFO connection. ‘It’s the head of IR who needs to be close to the CFO, and we’re indeed seeing more and more of them on the road,’ she notes. ‘You need to take it gradually when you deal with very hierarchal organizations. If a chief executive isn’t willing to travel, the CFO or IRO also has the option of occasionally taking operational managers along on roadshows.’

Based on her experience of counselling companies about sharing positive and negative feedback with the CEO, Melten advises IR professionals to leverage any relationship they have with board members, taking the opportunity to instill change via an indirect route. ‘Ideally, an IRO and CFO will have regular short quarterly meetings with a board member to share analyst and investor sentiment on the company,’ she says. ‘Board members are often open to listening, and they can then be the one to bring the feedback from investors to the chief executive, which takes the primary messenger out of the line of fire, so to speak.’

She recalls telling a Japanese company several years ago about the benefits of potentially issuing an ADR. ‘When I told the firm about the advantages of accessing a new pool of investors, it answered, We were actually hoping you could give us tips on how to get rid of our US investors,’ she recounts. ‘Even today, in Asia, you still find companies that prefer to have only local investors that vote with management rather than having to deal with foreign investors that are very vocal if they disagree with how the company is run. Recent changes in regulation in Japan and Hong Kong, however, show that companies are realizing the importance of attracting international investors and are willing to comply with more global standards of corporate governance.’

This article appeared in the Summer 2016 issue of IR Magazine