How do you know whether your IR program is a success? At a time when many IR departments are running on lean resources, it can help to know what you’re doing right when it comes to IR and where you might need to improve the program.
In order to do that, however, you first have to measure the effectiveness of your company’s investor relations strategy, and it can help to see what works – and what doesn’t – for other companies. For example, how do North American firms measure IR? What methods of investor feedback do small caps rely on most? How do IR assessment techniques differ across sectors? That’s what IR Magazine set out to discover this year.
What our initial research finds is that some of what we consider to be best practice when it comes to IR is little used as a measure of investor relations success. Responsiveness, for example, while clearly vital for a good relationship with investors, is rarely counted by companies when examining how well the IR program is performing. Globally, just 1 percent of firms say they use this metric when measuring IR. Other somewhat surprisingly low-ranking areas include management assessment, investor understanding of the company and even peer benchmarking.
Instead, it is investor feedback, shareholder composition, investor meetings, analyst coverage and – interestingly – share price that comprise the top five most-used metrics for IR measurement.
In practice, though, companies tend to take a mixed approach, with some forms of IR measurement falling in and out of favor and others being implemented in different situations. Taking a look at past investor perception studies published by IR Magazine across four continents proves this varied approach, with some firms taking an ad hoc approach or simply letting investors air their views as and when, and others taking a systematic approach (see A mixed bag, below).
Aside from helping IROs to see which parts of the IR program might need a little more attention, measuring the effectiveness of what the company is doing in terms of IR might also help you secure a better bonus. As part of the research, IR Magazine looked at the number of IROs receiving a performance-based bonus. For almost nine tenths of the 79 percent of IROs and 94 percent of IR heads taking home a bonus, this payment is based on company, team or individual performance.
While company performance is the most common measurement for performance- based bonuses, for almost half (46 percent) of IR professionals, personal performance also comes into play, dropping to 18 percent for team performance.
Rudy Sankovic, former head of IR at TD Bank, told IR Magazine in 2015 that the bank, a regular at the IR Magazine Awards – Canada, examines 10 different elements that make up ‘a balanced scorecard’ when measuring its IR program. The approach determines ‘scores’ for various aspects of investor relations: the extent of the activities undertaken by the team; the team’s efficiency, in value-for-money terms; the number of new shareholders buying 100,000 or more shares; internal business partners’ views of the IR effort, based on a survey; the CFO’s own ad hoc survey of investors; and so on.
The tally of these scores is used not only to assess the effectiveness of the Toronto- headquartered bank but also formed part of Sankovic’s own performance review.
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A mixed bag While some companies, such as Canada’s TD Bank, take a systematic approach to measuring IR effectiveness, others take a more ad hoc approach. The most common formula, however, seems to be a bit of everything, from traditional broker feedback to share price comparisons and more. Talking to IR Magazine for the Investor Perception Study – Europe 2015, both Andrew Stephen from Unilever and Steffen Kindler from Nestlé said that while they had previously relied more on investor perception studies, at the time, feedback largely came from conversations with investors – often through brokers. ‘We haven’t done a full-scale perception study for a few years now,’ said Stephen at the time. Instead, on Unilever’s behalf, the company’s corporate broker talks to 20 or so respondents – shareholders and non-shareholders – to tease out their views on various issues, including the corporate strategy, the performance and the standard of service they receive from IR. Kindler reports that Nestlé has conducted formal surveys in the past – and may do so again in future – but latterly it’s mostly been a question of ‘just asking investors and analysts for their feedback after roadshows and other meetings to find out whether we have met their expectations.’ The brokers typically ask the questions, in the interests of honesty, and Kindler says he gets ‘fairly good feedback so there’s no call for radical change. We don’t do revolution. It’s more a matter of evolution.’ Peer benchmarking is another example. While just 5 percent of companies report using peer evaluation in IR measurement today, in 2012 that number stood at 12 percent. In terms of IR assessment, the practice hasn’t completely fallen out of fashion, however: talking to IR Magazine ahead of her move from head of IR at the German chemicals giant and multi-award winner BASF to OMV in May 2016, Magdalena Moll described peer benchmarking as ‘pretty crucial’. BASF hires an external agency to conduct an annual global perception study, involving interviews with the buy side and sell side, as well as setting targets for the number of meetings that need to be held. |
This article is taken from Measuring & Demonstrating IR: Part I and appeared in the winter 2016 issue of IR Magazine
