by Simona D’Agostino Reuter
Because IR fulfills so many duties in so many capacities, it is essential in our view that the department is fully integrated with nearly every other department in the company, such as the legal and accounting departments, as well as with the entire executive management team.
Reducing the burden of IR on the CEO and CFO and even the need to educate senior management and show them in the best light. IR’s key responsibilities include:
Bringing discipline and structure in order to get the CEO and CFO out on non-deal road shows and providing education to upper-level management and the C-suite about the value of being proactive with investors and analysts.
IROs probably should also strive to make productive use of a CEO’s or CFO’s time spent on IR.
Important changes in today’s equity markets redesigned the relationship between companies and their investors. Today investors are interested in getting more insight on company strategy, ESG, executive pay, and board composition.
With investor activism increasing and world markets obsessed by uncertainty, CEOs need a new breed of skilled investor relations officer (IRO) to help and “do some homework”.
Today’s CEOs need a new breed of skilled investor relations officer to bridge the gap. This person should be a proactive leader, building constructive relationships throughout the shareholder base to help the company mitigate various risks. CEOs need to give the IRO a clear mandate to quarterback investor dialogue and get buy-in around all of the elements of management’s long-term strategy. The IRO must be part of a unified board and C-suite investor planning group, and their responsibilities should include building and sustaining credibility with long-term investors, and providing useful
Just as the relationship between companies and investors has changed, the role of the IRO has to change too. Internal or external advisors, IROs are becoming indispensable assets for the executive team and for the board. their responsibilities should include building and sustaining credibility with long-term investors, and providing useful information on a timely basis.
IRO should have a deep understanding of their company’s strategy, compensation policies, board composition and diversity and environmental goals. At the same time, they continue to be a relationship builder, orchestrating the creation of teams, and bringing the right decision-makers together to provide a consistent message
In our view, the IR job should focus more in some key areas:
1. Articulating Strategy: today’s IRO must be able to articulate the most recent company strategy to investors, with a clear rationale for long-term value creation. Simply put, the role has to add more value to the corporation.
2. Competitive Intelligence: At the same time, the role needs to shift away from one where the IRO merely keeps track of what investors are saying. Instead, the new IRO must become an intelligence agent.
3. Targeting and keeping track of the right investors: In a world where every company has to work hard to raise investor capital, the new IRO must master how these competitive forces work. The best IROs will know how to find the right investors for the company and proactively cultivate them and try to get them on board. Because CEOs today need to spend an increasing amount of their time with their external stakeholders, a good IRO can take some of the pressure off of a CEO by finding and cultivating the right investors.
4. Warning radars: The new role will require not only financial savvy, but also the ability to truly understand how today’s sophisticated investors operate. In changing capital markets, it’s critical that the IRO stays on top of capital allocation and how it is mixed with the company’s long-term strategy. The role should function as an early warning radar system when trouble is brewing.
We try to outline here below some key elements of a new type of IR, a sort of evolution in respect to the one we have described for years so far: today’s IRO must be a more proactive leader, building constructive relationships throughout the shareholder base to help the company mitigate various risks.
|Traditional IRO||New IRO|
|Manages sell-side analysts and helps shape their opinions about company strategy||Takes an active role in articulating company strategy and purpose to all classes of investors|
|Communicates company results and documents to investors||Communicates company strategy and why it is best suited to enhance long-term value creation and competitive advantage|
|Has limited interaction with the board||Articulates investor landscape and what will drive value over the long term to the board|
|Reacts to activist inquiries by preparing financials, proxy materials, etc.||Takes initiative to think like an activist, acting as an early warning system before an activist arrives|
|Reports to CFO and focuses mostly on financials||Has dotted-line reporting to all C-suite members and is educated on various topics, including operations, compensation, ESG, capital allocation, and talent|
|Source: Harvard Business Review, 2021|
In the end, the benefits of a good IR team primarily are:
Traditionally the role had been filled by people with media relations skills, but over the 10 years (also in Italy) the job has become more financially demanding. Because today’s IROs spend a lot of time on investor calls answering complex financial modelling questions, that position now tends to be filled by people who have worked as analysts.
The type of IRO described is not easy to find; for this reason, companies frequently prefer to look out and find a good IR as an external advisor, who is also able, if required, to help internal managers to build strong IR skills through a sort of education. This process might be temporary, as for instance before, during and soon after an IPO, or go on for a number of years.
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