Boards of directors are charged with many duties, including oversight of a company’s strategy, its performance and the quality of its CEO. But its ultimate responsibility is to act in the best interests of shareholders – and who understands that better than IROs?
When a board reviews its own healthy functioning or determines the best profile for a new director, it is a governance best practice to develop a board skills matrix that lays out the mix of talent and experience on the existing board, and identifies where it may be lacking. The very best boards have strong diversity of knowledge and perspectives and, increasingly, firms have added IR as a key attribute of a strong board. Here is a list of reasons why, in addition to a deep sense of accountability to shareholders, a director with strategic IR experience can be a vital asset to the board.
Quick study on the economic model of a business or industry
IROs are skilled at identifying competitive dynamics and key value drivers of a corporate division or new business; after all, they’ve been practicing this their entire career. A director with an IR background, therefore, can scale the learning curve fast, even as a board member in a sector outside his/her own industry experience. This also means directors who were IROs can quickly grasp and simplify the story of how a business might thrive and grow, a benefit to a board considering a strategic move, like a major increase in pricing or a divestiture.
Knowledge of demands of competing stakeholders – most importantly those of institutional investors
IROs ‘get’ the responsibility to balance the needs of various interest groups: customers, employees, management, regulators, unions, suppliers, communities, proxy monitors and shareholders. Chances are they have had to directly address many of these stakeholders in their career. They understand the pros and cons of levels of transparency, and the best pacing for news. An IRO as director knows inside out the consensus demands of institutional investors, and that those demands must be aligned with priorities from the boardroom.
Firm grasp on allocation of capital and the metrics of shareholder value creation
The board is responsible for the wise allocation of capital to drive shareholder value. Directors with IR experience have already been on the front lines of competing demands for capital within an organization.
They have internalized the metrics of operational excellence, earnings growth, free cash flow generation, return on invested capital and how best to position for multiple expansion and shareholder value creation. They come to the boardroom as experts on valuation measurement, having already defended decisions regarding return of capital to shareholders as dividends and/or share buybacks.
Deep involvement in corporate strategy setting and M&A
Boards are charged with oversight in corporate strategy. Directors who have been IROs have had extensive experience in developing strategy, including decisions on whether to enter new markets through internal growth or by M&A. IROs are partners to the strategic planning department and are usually architects of a company’s strategic storyline and its external dissemination. They are the front-line spokespeople on strategic positioning and they understand how best to monitor, refine and redesign strategy, as warranted.
Experience in countering shareholder activism campaigns
When faced with activism, a company’s IRO typically takes the lead in co-ordinating shareholder engagement and serving as a conduit for communicating shareholder issues and concerns with management and the board. The IRO may already be familiar with the activist from prior contexts and thus understand its playbook. As a director, an IRO with this experience is valuable to a board given his or her familiarity with institutional investors, research analysts, proxy advisers and media voices. He or she has an ability to get inside the head of the activist, and to develop a best course of action. If needed, directors with IRO backgrounds have the capabilities to be board spokespeople because they already know how to talk through strategic, financial and governance issues, and are well versed on financial disclosure regulation.
Service as CEO adviser and trusted counselor
IROs play the role of coach and trusted counselor to CEOs and CFOs. They have had a prime seat within a corporation, including in the boardroom, on the most confidential matters of performance, global expansion, acquisitions, CEO succession, compensation and legal matters. They have been charged with providing internal and external feedback – good and bad – to CEOs, with credibility and finesse.
Highly qualified to serve on board committees, especially audit and governance
Given an IRO’s involvement in the preparation of financial statements and public company regulatory filings, a director with experience in leading IR may immediately qualify as a financial expert member of a board’s audit committee.
In addition, having influenced their own board’s governance policy, and perhaps as spokesperson on matters of CEO compensation, IROs on boards may also have the expertise to serve on governance and compensation committees.
Strong listener, communicator and team player
Strong boards have members who retain a high degree of objectivity, but have a good mix of mutual respect and team orientation as well. In the boardroom, directors must be good listeners, good communicators, ambassadors of a firm’s strategic direction and stewards of its brand reputation.
They must create a sense of measured urgency and demonstrate integrity and credibility. They must know how to build and maintain the trust of shareholders. These are also qualities of the best IROs. It is often said that to a surgeon, everything looks like a problem solved by surgery, and to an attorney, all problems are remedied by legal means. Similarly, to a strategic IRO, as it is to the best board members, problems are addressed and solved through the lens of what is in the best interests of shareholders.
Wendy Webb is the former head of investor relations at Disney
This article appeared in the Summer 2016 issue of IR Magazine
