Flowers for Algernon, Dead Flowers for NIRI

"Flowers for Algernon" is the saddest book I can recall reading as a kid. Its main character, Charlie, has an IQ of 68 but a strong desire to learn and a kindness of spirit.  An experimental treatment causes a tripling of his intelligence, but it turns out to be only temporary. Algernon is a lab mouse given the same treatment, he becomes Charlie’s pet, experiences the same intelligence gain, and then suffers the same decline in mental acuity. But Algernon’s decline happens well ahead of Charlie’s, so Charlie not only suffers the loss of his intelligence, but also the pain of knowing what is coming while he is still extraordinarily intelligent. Charlie tries to apply his declining genius to halt his slide, but fails. This was the darkest struggle of the book for me.

I don’t read much science fiction today, and it’s difficult to keep up with all I want to read both personally and professionally.  I recently received the latest "NIRI Update" with the cover story "IR and Investing Across the Pond, New Strategies for European Companies to Add US Investors." As it sat in my "to be read" stack of periodicals, I continued to get emails that "your NIRI membership is about to expire!" Knowing that NIRI has never shown me something new in my area of specialty, I decided to read the story on the basis that if there were one new -- or even interesting -- component, I would renew my NIRI membership. Over the years I have expected NIRI to develop into a beacon and lend insight into cross-border IR, only to remain disappointed by how much further there is still to go.  Sadly, the story failed as there was not one "new" strategy or idea in the piece.  Indeed, there was a good deal of self-serving nonsense (e.g. a US-based head of Corporate Access saying "we do serious investor due diligence for European IROs").  The deal I made with myself was probably a complicated psychological device to force me to stop wasting money on NIRI membership, because based on every interaction I have had with NIRI over the years it was a safe bet that would be the case.

The NIRI Update cover story highlights "new" IR practices that have been common among non-US companies for decades.  I know this because I’m certain I was the first to develop and implement them IN THE EARLY 1980s!   More importantly, it demonstrates an unwillingness to acknowledge the fact that non-US companies of equal stature to US companies are usually superior at Best Practice IR compared to their US counterparts. NIRI has nothing to teach them, yet the myth of US IR leadership still inspires some non-US IROs to look to NIRI for guidance. How do I know non-US companies are often better at IR than their US counterparts? Taylor Rafferty has conducted hundreds of benchmarking studies regarding the IR practices of the US-based peers of our clients.  When our clients have acquired public US companies, we have had the chance to analyze their IR programs in detail, including their contact lists and investor meeting history.  Add to this the tens of thousands of conversations, and feedback calls, over the years with US analysts and portfolio managers, and I am confident we have a clear picture of the comparison.  And I say this in the knowledge there are certainly dozens, if not hundreds, of US IROs applying new approaches and practices in IR, and I suspect they have given up using NIRI as a learning and sharing platform as well.

So why are so many non-US companies better at IR?  They have to compete more fiercely for capital than US companies, they operate in a more complex, truly global investor environment from home bases of relatively small, less risk tolerant but high maintenance capital markets. And let’s for good measure add they have learned to communicate in multiple languages and develop the resilience to communicate professionally across multiple time zones battling regular trans-oceanic jet lag.

On the buy-side, nothing yet compares to the US in terms of leadership.  North America still boasts the largest and deepest capital markets, the most innovative and risk tolerant institutional investors by far, and the multi-trillion US retail market remains largely untapped by non-US companies.  It’s true that non-US companies have only accessed a small portion of the US capital market’s potential to help them grow and thrive, but it’s not because they don’t know IR. There are important new strategies, tactics and techniques being implemented by non-US companies as I write this, many of them our clients. While in decades past the US had a big lead in quality of financial reporting, corporate governance and regulatory environment, and IR, the US now lags behind in comparison to major European markets and companies, and this is true for IR as well.

As the mechanical/electrical age of the US capital markets in the 80s evolved into the electronic/digital era in the 90s and into the web 2.0 version of the early 00s, great possibilities emerged for IR to grow into its role as a strategic force in the capital markets.  Traditional interlocutors and IR information channels were disappearing, withering really, and had developed cultures and approaches that demonstrably damaged corporates’ capital markets programming.  Sadly, not only did NIRI – representing the world’s largest and best funded group of IROs by far -- never seize upon this historic opportunity, it’s been a leader in the dumbing down of IR by supporting vacuous awards, aligning with and accepting money from clearly conflicted sell-side Corporate Access providers, and consistently setting the professional bar as low as possible.  They have banned providers from their annual conference on the basis their Corporate Access sponsors found them potentially disruptive.  And now, their highly touted "standards" test may be the last nail in the coffin of the possibility of US IR assuming a leadership role in the capital markets.  Unlike Charlie, NIRI never tried to halt, or even slow down, its decline.

Best Practice IR still offers the potential to not only help public companies operate more efficiently and effectively in the capital markets, but to eliminate some of the major inefficiencies and conflicts of interest that retard capital formation and corporate development.  Now the best hope for the IR profession to seize its potential lies in markets where IR has developed in a rigorous competition for capital, where radical corporate and capital markets cultural and structural change has occurred in a relatively few years, and where the regulatory and governance leadership is working to encourage more transparency in the economic relationship between the sell- and buy-side: the future of Best Practice IR will be built outside the US.

"Flowers for Algernon" ends sadly, but we see despite Charlie’s reduced capabilities, his essential goodness remains; thus the optimist reads the book and thinks about the potential in all of us.  Towards the end Charlie moves to a home for the mentally disabled to avoid being reminded of the capabilities he’s lost and the potential he experienced and still vaguely remembers.  But what if, at the peak of his powers, he had sought out another team of experts instead of building on the work of the team that failed him?  We’ll never know if that would have worked for Charlie, but we know we’re not finished writing the story of IR in the global capital markets. There are hundreds of talented, highly motivated IR professionals outside the US, which makes it well worth taking a closer look at their professional organizations as platforms for positive change. Algernon got his flowers from Charlie, I will leave dead flowers on NIRI’s grave, but Best Practice IR is alive and well and still developing, in companies and capital markets around the world.

For the first three emails I receive from readers who appreciate books with an unhappy ending, I’ll send you a copy of "Flowers for Algernon."  For the first three of you who prefer a happy ending ……. I will send you a copy of The Rolling Stones "Dead Flowers" from the Sticky Fingers album.