If you’re an Investor Relations Officer (IRO) and you haven’t written or approved a news release or presentation content with the phrase “win-win,” you are either much more creative than I, or you haven’t been in the business very long. The only time I’ve used the triple “win-win-win” however, has been referring to Best Practice IR collaborations with the sell-side.
If you read most “how-to” articles from the various Investor Relations publications, you wouldn’t even know there was a real challenge, because they don’t acknowledge the extent of the routine conflicts and dysfunctions when the sell-side is organizing IR programming today. When I raise the subject of the win-win-win approach to many IROs, they react as if I am recommending aspiring to something as challenging and rare as the Triple Crown in sports. Sadly, it remains too rare, and it requires meeting a level of challenge, but that’s why it meets my definition of “Best Practice” and it’s how the best IROs conduct their institutional contact programming.
Selling the Sell-Side on IR Collaboration
Following my blog posts, I have had some thoughtful discussions and email exchanges with friends and contacts on the sell-side. They often start off poking fun at me for the way I consistently criticize sell-side relationships with our clients, but then wind up fundamentally agreeing that there should be a better way. If they have been around long enough, they remember when that “better way” used to be standard practice, and also remember when things began to change for the worse. I recall meetings in the mid 90’s with bankers and brokers where I would ask, “why are you increasingly excluding Investor Relations and IROs from your key management interactions and capital markets proposals? It should be a win-win-win situation; IR cultivates the markets for precisely the trading and transactions that generate your fees and revenues.” This is most abundantly clear in the cross-border capital markets, and there was rarely any argument on that point.
Depending on how well I knew the person in the meeting, the discussion would then move to the pressure to generate more fees/revenues in shorter time frames, and that the IRO’s time horizon and perspective were divorced from that pressure. So for the record, the points I make about sell-side dysfunction and conflicts are made very much more in sorrow than in anger, because Best Practice IR is more efficient and effective when the sell-side and IR work together, transparently, towards mutual goals. Investor Relations is marketing and the sell-side is, well, sales. But it is hard to see how – without dramatic change or IROs committing to control their own programming – that type of collaboration returns to the rule, rather than the exception, in the sell-side’s current commission environment, with the public company (versus partnership) structures of the key players in the banking world.
Winning the Investor Relations Triple Crown
There is increasingly broad agreement that “this is the end of _____.” Fill in the blank with “corporate broking,” “commission based sell-side research,” “corporate access” (as part of bulge bracket firms’ contact with CEOs and CFOs), and probably a few more. But some or all of those predictions have been floated since the internet crash at the turn of the century, partly driven by the “shock, shock!” (thank you Captain Renault) that sell-side recommendations were influenced by investment banking business. I can’t say much has fundamentally changed in the 15 years or so since, except that a great number of quality professionals have left the sell-side and found more rewarding homes either in other parts of the capital markets or managing businesses.
None of the above means that IROs competing for capital should stop trying to win their own Triple Crown. It simply takes some trial and error because the success of the collaboration ultimately rests on the sell-side team delivering as promised, and the IR results in the “error” column represent the baseline of most IR/sell-side collaborations today anyway. Six to nine months of applying the approach outlined below and you’ll note improvements in the effectiveness of your Investor Relations program execution. And that’s a very short time frame compared to other Triple Crowns. In major league baseball there were 47 years between Triple Crown winners, 37 years in US thoroughbred racing, and 47 years between Ben Hogan’s and Tiger Wood’s Triple Crowns in golf. And it took the rugby union from 1883 until 2006 to come up with a trophy for their Triple Crown for the British Isles competitors in the Six Nations Championships.
Sharing the Success of IR/Sell-Side Collaboration
By consistently applying these approaches to working with the sell-side to help achieve your IR and capital markets goals – and letting the word get around regarding your disciplined, high quality standards – you will identify the sell-side teams that are willing to work towards shared goals to the benefit of all. But none of the below works if you don’t manage towards capital markets and Investor Relations program goals and “own” your prioritized list of confirmed buy-side contacts:
- Prepare the external version of your long- and short-term Capital Markets/IR goals, one that can be shared and that highlights how IR is working to add value.
- Articulate the priorities for each key IR interaction and the IR return on investment that is expected from devoting management time to a sell-side sponsored IR event.
- Set clear standards and responsibilities for logistical collaboration, lead times, feedback calls, etc. If you have a major IR event or investment in management time for IR and the IRO does not direct and stay on top of its execution, it is virtually certain the outcome will be sub-optimal.
- Keep a running score/analysis of which teams perform the best with regards to the above, and let them know you are doing so.
IR/Sell-Side Dysfunction? Or Great Acting?
There is a “Triple Crown” in acting as well, winning an Oscar, an Emmy and a Tony Award. It took Ingrid Bergman 15 years to win hers. And while she didn’t win any of the above for “Casablanca,” it is one of my favorite films, with one of the lines of script that most resonates with my experience in the capital markets, as well as the way IROs seem to now be very aware of the routine dysfunction in sell-side/IR collaborations:
[Captain Renault walks into the middle of the room at Rick's Café Américain and blows his whistle]
Captain Renault: Everybody is to leave here immediately! This cafe is closed until further notice. Clear the room, at once!
Rick: How can you close me up? On what grounds?
Captain Renault: I am shocked - shocked to find that gambling is going on in here!
Croupier: [hands Renault money] Your winnings, sir.
Captain Renault: Oh, thank you very much. Everybody out at once!
The first three readers who call or email with comments on the above will receive a “Casablanca 70th Anniversary” Blu-ray DVD.