Investor Relations insights
Inspiring internal audiences
When you are planning your IR schedule for the coming months, how much time do you spend on internal audiences – from colleagues, who are often shareholders as well, to the senior management team who determine strategy and operational performance? And do you give the board, with all its governance responsibilities, enough time? Here, Fay Dodds answers the questions.
In this article, we explore some of the ways you can engage and inspire these internal audiences, helping them to better understand how the ‘City’ works, what it expects from your company and why your share price often reacts as it does.
Don’t underestimate how complicated the City seems to most people, with its own jargon, rules, traditions and practices. So, it is worth making time to unlock this world to your fellow employees, who are often also shareholders, using a combination of the following methods:
Internal social media platforms
At Burberry, we had a groupwide Facebook-like platform that all employees, including retail staff, could access. On the IR page, we would post, very first thing every morning, daily updates from our broker about what had happened in the wider market, in our sector and to our share price. We would also post peers’ trading updates and news as it came out on our screens, so investor relations quickly became the go-to place for immediate information.
Town hall meetings
Whenever groups of people meet in your organisation (off- sites, strategy days etc), offer to speak there. Colleagues love to hear what is driving their share price and what they need to do to deliver further outperformance. Do though keep the message simple and tailored to your audience – 20-year DCF analysis might be your passion but is unlikely to inspire a retail sales assistant.
“We had a senior leadership programme of about 300 people, where everyone attended an off-site with 20-30 leaders at a time. IR and comms always had a slot at this quarterly event where we presented the “outside in” view of the company, discussed our investment case and talked through the importance of sharing sales/product/ innovation news with the market.
The feedback was always that this was one of the more interesting and enlightening sessions as many people had come from the public sector or private companies.”
FTSE 250 real estate company
Invite to IR-only investor meetings
Offer colleagues the chance to attend IR-only investor meetings – in listen only mode of course. This helps people hear the questions you are being asked first-hand, how wide ranging they are and often how detailed they are. If you get your colleague to take notes of the questions and answers, it can help build a Q&A bank and give you an opportunity to review if the questions could have been better answered!
Offer a secondment to IR
Encourage your CFO and HR team to see the value of spending some time in Investor Relations, especially for their high-flying finance stars or graduates. No-one should become a CFO without some understanding of how the City works, which a three to six-month secondment gives. A word of warning though – it needs to be that length so that the person can contribute over busy results periods without just getting in the way/making tea.
“In most of my roles, IR was seen as a bit of a nuisance to more junior colleagues in the business, always asking for things but not really giving back. So, we used to invite the people on our graduate programme to the results presentations, so they could see for themselves where all the work went. The IR team was also part of the programme for finance graduates, so we had someone working with us on quarterly rotations too.
This all helped to get buy-in to support IR.”
FTSE 100 housebuilder
2. Senior executive team
It is crucial for IR to be an integral part of the senior executive team, who need to understand how the City works and how their actions will contribute, or not, to long term value creation. Senior management should also learn the basic rules of engagement with the City, including no surprises, under promise and over deliver and appropriate disclosure.
So how to achieve this?
A seat on the executive committee
In a perfect world, IR would have a seat on the executive committee, recognising the valuable input that the function can make to corporate decision making. If this is a step too far for your organisation, as it is for many, try to attend as a ‘UN observer’.
This will enable you to better understand, and thus communicate, strategic and operational decisions, while giving you much more credibility with investors (“well, good question, when it was discussed at exec co, we argued blah, blah, blah”). Most importantly, it gives IR an early opportunity to feed into the senior team what the City is likely to think of any major moves such as acquisitions, disposals or changes in strategy. Never tell the CEO what to do, but do make him/her aware how the City might need convincing of the rationale.
“The company I was working for underwent a change of CEO and he started to discuss a situation with me I knew nothing about. Immediately he asked, “How can you communicate effectively with investors if you are not in the room taking part in the strategic discussions about the business?” From that point on, I was made a member of the senior management team.
There was a dual benefit as I was able to get better quality information on the company to provide context for my conversations with the market and, when we were discussing things like M&A, I was able to provide a market perspective so decisions could be taken cognisant of how they might be viewed by shareholders.”
FTSE 250 energy company
Use wider executive team in investor meetings
Although this requires some up-front investment in preparing senior executives other than the CEO or CFO for investor meetings, there are considerable benefits. Most importantly, investors like the openness this gives. Secondly, it reduces the burden on the time of the CEO or CFO. And finally, it makes the senior team realise why you ask so many questions in the run-up to results as discussions are often both wide ranging and detailed.
Attend a morning equity salesdesk briefing
When this is again possible, it is worth sending your CEO/CFO to a morning sales desk briefing. Given the timing and pace of the meeting, they will hopefully see why it is so important to have the key messages clearly on the front page of any release and nothing nasty hidden on page 13!
With the increased focus on the effectiveness of boards, IR is uniquely placed to help directors understand the implications of their decisions and actions on external stakeholders. IR can also then advise on communication of many issues from trading, to strategy, to management changes, through remuneration and wider ESG themes. No other function has such a potentially wide remit.
So how to build a strong relationship with your board?
Attend all board meetings, even as a ‘UN observer’
This is still a tough ask for many companies but will hopefully become more common as the benefits it gives (see above) are recognised. Presenting your own IR report to the board is a good first step but make sure you have seen the other board papers in advance so you know what is being discussed in case you are asked how the City might react.
As an aside, always read the audit committee papers. You will never then get caught out by an investor’s financial question!
Meet with new NEDs as part of their induction process
IR has an almost unique overview of how their company operates internally and how it is perceived externally. As such, IR can have a ‘warts and all’ conversation with new NEDs, immediately establishing a reputation for honesty and transparency which should build support at board level.
It is also important to build a relationship with one or two NEDs in case you ever need to feedback comments from investors on the chairman or executive team. Never fun but made easier if you know your SID by his or her first name.
So, in summary, investor relations by its very nature tends to be external-facing – all those analysts, investors and agencies demanding your time. What we have argued in this article is that there are some benefits from allocating some of your resources to working more with internal audiences – your colleagues, senior team and board.
While not all our suggestions are achievable in every company, and the list is by no means exhaustive, perhaps there are a couple of actions you could take so IR becomes seen as a valued partner rather than just a nuisance!