Presented a choice between a larger Investor Relations budget and the enthusiastic support of the CEO for a goal oriented IR/Capital Markets program, I would always choose the latter. Most importantly, because it means the IR program is more likely to achieve its capital markets goals with the CEO focused on their benefits; secondarily, because once the CEO fully engages in the effort and experiences the kind of economic and strategic success Best Practice IR can achieve, budget will not be a major challenge in the future.
Just Look to See the Economic and Strategic Return of Best Practice IR
If you measure investment in IR program execution relative to the capital markets goals it achieves, its returns are sometimes so dramatic it defies belief. I have seen firsthand IR investments that add up to the tens of millions over the years, creating billions in shareholder value by closing a value gap among peer companies located in different geographic markets. Yes, there were other factors involved – especially that financial performance met market expectations over that time period – but the movement of shares from one type of investor that dominated the register at the beginning of the effort to other clearly-targeted and cultivated investors over the course of the following years left no reasonable doubt about the main cause of the upward revaluations.
Out-Nerded in Investor Relations by the CEO? Perfect.
I recently completed a very demanding IR consulting project with a large cap client, intense and draining for all concerned. The Investor Relations nerd in me rejoiced because the presentations were excellent, and management did a wonderful job of balancing the social value of their businesses with their plans to achieve an attractive economic return for shareholders. At the reception for attendees afterwards I was chatting with the CEO and reviewing the successes of the team’s effort (there were no failures, and not much that could have been improved in my experience). There were however lost opportunities, mainly because of distance and lack of overlapping time zone windows; as a practical matter, we simply could not connect as many investors and followers to their capital markets day as we would ideally want. And this was a groundbreaking effort for the company for a number of reasons, so there was not the continuity of the standard IR programming approach along the lines of “we traditionally do one in our home market (e.g. London), and we host the next year’s in New York.”
With some trepidation (given how drained and relaxed everyone was at that moment) I said to the CEO, “this was about as good as these things get, and we should really think about how to leverage the work in other markets while it’s still fresh.” He was very receptive, I proposed a few approaches, and he immediately came up with a better idea! Believe me, I am very happy to get out IR-Nerded in these situations. As I walked over to grab another beer, I thought about the times I had made the point about the potential game changing possibilities of getting even a portion of the CEO’s bandwidth focused on the upside potential of Investor Relations, and this moment served as a perfect example.
Stake IR’s Claim to the CEO’s Brain
Some of you may remember one of my earlier blogs, “IROs, Put Your Brain in Airplane Mode,” where I said, “All things being equal, when it comes to achieving IR goals, I would rather have a motivated IR team hit the road and the senior management stay in the office than the other way around.” At first glance, that may sound dissonant with the perspective of this blog post, but they strongly resonate. So let me bridge the two with, “I would rather have a CEO focus and think about seizing the economic value and increased strategic options created by Best Practice Investor Relations, than spend at least ten times that CEO bandwidth using up their schedule and energy at conferences and in one on one meetings.” In terms of face to face contact with the investing community, it is the IRO who drives positive change in the shareholder base, investor following, etc. by efficiently and effectively articulating their company’s value building strategy, and the senior management team’s “thinking” behind their approach. Of course CEOs and CFOs meeting face to face with investors is fundamental to IR success, but most senior managements invest too much time in the doing of IR as opposed to the thinking of it in terms of its upside potential.
Let the IRO Guide Value Creation
The doing of Investor Relations is essential, yet intellectual focus on its upside potential in terms of goals is its real value, and those goals as they relate to value creation are the driving force behind all the demanding components of the Best Practice IR process. “Think” about how many times you as an IRO are asked by an investor or analyst “how should I think about this?” The CEO should lead regarding the ways IR program execution and Capital Markets can help create shareholder value; the IRO should be guiding the CEO’s decision making, based on how the CEO and management team can best align their approach to value creation with the parts of the financial community that will ascribe it the most value over time, and the investor needs to be focused on how to think about and appreciate the company’s investment promise as management delivers on that promise.
Own a Piece of Wall Street Presidential History!
Thinking about the CEOs we have worked with over the years, I realized we have also done IR consulting work with Presidents of countries, and a new one in fact was just added to that list. While the first one was a sitting President when we worked with him, the second was not the President of a nation when he was our client. For the first reader who knows our first democratically elected Presidential client, I will send you a copy of “Six Tycoons.” The first of the stories in this book is of John Jacob Astor, who was America’s first multi-millionaire CEO, and who happens to be buried next to Taylor Rafferty’s office building. For those who know the client recently elected President of their country (I am very impressed indeed) I will send you a medal, one commemorating George Washington’s inauguration, the first and only President to have been inaugurated overlooking Wall Street.