July saw the European capital markets move a step closer to the new reality under Mifid II rules. Adopted into local rulebooks by all EU member states, these rules are now final and will take full effect in January 2018. During more than 170 meetings in the last six months, it became clear to me that fund managers, research teams and corporate brokers are all taking significant steps toward meeting this deadline.
There is much less activity within corporates, however. True, there remains a vast number of variables, but one thing is certain: IR teams will be faced with much stiffer competition for capital, pressure on budgets and overstretched internal resources. To address these challenges, what’s needed is a complete reassessment of resource allocation, as well as the function’s internal positioning.
This regulation has the potential to shake up the IR industry not only across Europe, but also further afield. To succeed in the post-Mifid II world, IR needs to work smarter and more efficiently. Boards will soon realize IR teams with little or no real backing from the top have less gravitas, visibility and respect from the market and so are disadvantaged from the start in the tough fight for capital, and that will come back to haunt them in the long run. On a practical level, the benchmark should be elevated to:
• Having at least one board member with market experience or an external IR adviser to the board
• An annual presentation of the IR strategy to the board by the head of IR with an update halfway through the year
• Regular attendance at board meetings by the head of IR with at least quarterly discussions of IR issues including market sentiment and peer surveillance.
In almost 20 years of my IR career, I have been through some grueling pitch processes only to be used for an occasional task once appointed. My advice is be clear on what you want an adviser to do and make sure your request for proposal reflects this:
• Select the best advisers you can afford. And that’s the best people, not just an agency name – understand the team composition, its seniority, experience and time commitment to you
• Make the advisers your allies. Their pool of knowledge and experience is invaluable
• Be upfront about your long-term capital requirements and funding strategy and jointly craft an IR program to match.
With the essential framework in place, it’s down to business: selling. Really get to know your top handful of investors. Have an agreed list of targets and stick to it – don’t waste time on ghost targets that will never invest. Focus on those that are highly likely to be converted into new shareholders. Learn target assessment from your marketing and sales teams. Question brokers’ demands for your or your management’s time. They will be expected to monetize their time under the new rules so you need to use yours to the maximum advantage.
Finally, as IR teams up their game, so should IR advisers. We need to take the traditional IR offering further toward a brokerage model, working with IR teams on their direct marketing efforts and doing their legwork for them to the extent agreed under the contract. Days of consensus done as a mathematical average of analyst models, target lists based purely on desktop research with no direct conversations with fund managers, and event or meeting feedback based on multiple-choice questions are all things of the past. IR, it seems, is going back to basics with direct sales through solid relationships.
Marina Zakharova de Calero is CEO of Conduit Communications
This article appeared in the fall 2017 issue of IR Magazine
