The evolution of IR: Highlights from our North America think tanks

The evolution of IR was very much on the minds of panelists and attendees at IR Magazine’s recent think tank conferences in Palo Alto and Toronto. With more than 140 senior IR professionals in attendance, the conversations focused on how technology is both disrupting and enabling the IR function, how Mifid II could affect issuers in both research and corporate access terms, and how the trend toward passive investing is driving an uptick in governance conversations with investors. Here, we highlight some of the top talking points from the events.

Innovative and disruptive technology

While the buy side and sell side have been using machine learning tools for research and to understand market patterns for some time, talk at our events was on how artificial intelligence (AI) can enhance issuers’ targeting efforts. AI’s great strength is its ability to train an algorithm to analyze a much wider range of datasets to create more intelligent targeting. ‘What technology has really brought to the forefront of IR is speed, ease of data analysis, greater transparency, better accuracy, and timelier and more actionable intelligence, as well as predictive intelligence,’ one panelist said.

Another panelist remarked that, as this technology matures and becomes more sophisticated, it will mean IROs spend less time sourcing and analyzing data, and more time interpreting it, to drive enhanced targeting.

Website analytics also provide a new world of data to interpret, so ‘the investor relations website can move from a passive to an active communications tool,’ noted one of our panelists. By looking at detailed analytics reports of the IP addresses that visit your site, you can gain a much better understanding of repeat visitors. For instance, if a known activist returns to your site numerous times over a short period, it could be well worth researching that activist and exploring whether your firm could be vulnerable to an approach from it.

Finally, we discussed how issuers are now preparing for earnings calls and releases, due to the advent of robo-journalism stories that pull information from earnings call transcripts, press releases and other publicly available information. Associated Press, for example, has increased its number of earnings news stories from 400 to 5,000 per quarter, while there are now tools that scour earnings transcripts for anything positive or negative to be gleaned from the repetition of certain words. One panelist said his firm now uses IBM’s Watson program as part of its earnings preparation to assess what might be implied by the script.

How to handle a crisis

In Toronto, there was an active debate about how to manage a crisis situation and when to push back on the legal department’s instinct to batten down the hatches. In one example shared by a panelist, an operational incident had occurred that led to billions of dollars being wiped off the company’s valuation. While there was a robust debate internally about how long to wait until briefing the Street, the answer was already unfolding; the company had waited too long.

There were several key takeaways from the debate: that the last thing a company should do in a crisis is hide, that this experience is a chance to explain to internal management why IR is important and how its job can affect a share price, and to ensure IR is involved in more strategic conversations in the future.

‘Mifid II is a sell-side problem’

The focus of the investor panels in both locations was on how the investment landscape will look in a post-Mifid II universe. There was consensus among panelists in Palo Alto that it will have a large impact on the number of analysts covering US companies, while in Toronto, where the Canadian investment community is more tight-knit, the view was that it is perhaps less likely to be significantly changed as a result of Mifid II.

‘It’s a sell-side problem, not an IR problem,’ one panelist said. ‘As IROs, you’re still going to sit down at the start of the year, figure out how much management time you have, figure out how you want to use it and where you want to go. That doesn’t change.’

But with panelists acknowledging that some brokers will struggle in a post-Mifid II world, the conversation moved to the types of interactions the buy side finds most valuable. ‘There will always be demand for one-on-one interactions with management teams, as well as marquee sell-side conferences,’ said one panelist. ‘When you get more direct interactions with senior management, you learn things you wouldn’t find out otherwise.’

The panel in Palo Alto noted a growing trend of being asked to sign non-disclosure agreements (NDAs) when arriving for a site visit. While this isn’t problematic in principle, there was consensus that the contracts themselves are often written in legalese and not sent in advance, which is reportedly causing some problems. ‘It should be our legal and compliance team signing these NDAs, not our 25-year-old analysts,’ one panelist said.

The movement of money from active to passive funds was also a big talking point in both locations, with one panelist explaining that the amount of money that moved into passive funds last year was equal to the combined total of the previous five years. Noting that this leads to a greater focus on governance issues, the panel in Palo Alto asked the audience to pull out more governance information from regulatory filings and display it on the IR website to deal with a trend that ‘doesn’t seem to be slowing down’.

No one-size-fits-all approach to ESG

‘As passive becomes more and more a part of each of our bases, we need to reach out and establish a relationship,’ one audience member in Palo Alto commented, following on from the investor panel. ‘Then it’s really a discussion around proxy, around expectations and around governance, so it’s a little bit different from what you’d normally talk about on a call with someone from the buy side.’ 

It was explained by one of the panelists in Palo Alto that many ESG issues are now being positioned as mainstream concerns, which is why they’re gaining traction during shareholder votes. This makes it incumbent on many IR professionals to be much more capable of discussing matters relating to board composition, diversity, skills and refreshment, environmental and sustainability issues, and data on employee turnover, engagement and happiness levels.

It was clear from the conversations at both events that there is no one-size-fits-all approach to ESG at the moment. At some companies, the IR teams work in tandem with the corporate secretary to organize governance roadshows and off-season engagement, while at others they’re trying to figure out how to effectively bring in chief sustainability officers. ‘It’s really hard when you’re reaching out to a company to understand where the governance issues sit,’ one sponsor said, mirroring what the think tank attendees had said earlier in the day about not knowing who to contact at large institutional investors. 

But the majority of attendees at both events said there hasn’t been a significant increase in conversations with key shareholders about ESG so far this year, though they expect these trends to materialize in two or three years’ time.

This article originally appeared in the Winter 2017 issue of IR Magazine.