Embrace the Humbug
"Pay no attention to that man behind the curtain"
What does sell-side corporate access work with public companies have in common with the "Great and Powerful" Wizard of Oz? Think, "Pay no attention to that man behind the curtain!" and you are heading in the right direction. These days, the IR professional can easily pull aside the curtain (although I am happy to play the part of Toto) to see the rather less grand reality. But not enough do so and I suspect the IRO’s odds of getting the corporate access providers to admit they are "a Humbug" without pulling it aside are slim to none.
The Wizard keeps his power by controlling the forces of Oz, grandly playing on humans' (and Munchkins') insecurities, fears and their desire for others to do the thinking and leading. Does this sound familiar with regard to dealing with the sell-side corporate access community? And of course, The Wizard is protecting them from The Wicked Witch of the West (those scary capital markets), who is indeed a force to be reckoned with, given to launching fireballs at scarecrows, using poppies as chemical weapons, etc.
The human weaknesses that The Wizard exploits overlap in practical IR implications, as they do with the Tin Man, Scarecrow and Cowardly Lion’s desire for a heart, brain and courage. The threat from The Wicked Witch is very real and keeps the populace on edge (this after all, is a leader who takes personal responsibility for psychological warfare by skywriting "Surrender Dorothy" while riding her broom, and is able to call in flying monkey special ops teams at any time).
Let’s walk through The Wizard’s key levers of control with a focus on some of the reactions I encounter in helping companies understand, appreciate and achieve the potential of Best Practice IR.
Insecurity: "I don’t have the resources to run my program without the help of corporate access." Just as The Wizard becomes the ally of Dorothy, the Tin Man, Lion and Scarecrow once they call him out for what he really is (a Humbug, of course) corporate access becomes your ally when you tell them you have seen behind the curtain. IRO’s that face the facts regarding the conflicts and increasing dysfunction of the corporate access system are able to use the sell-side’s economic model to their best benefit. But you have to call them out on the reality of how and why they are targeting specific investors while stressing that they are only helpful to IROs in specific, limited ways, and need to analyze their priority targets and conference components versus what’s best for your IR program.
Fear: "I don’t want to screw up or be criticized" and/or "Nobody gets fired for using [fill in bulge bracket firm]" to set up meetings. There is a long list of things that can and will go wrong in IR programming, both within and outside of the IRO’s control. And it’s a somewhat pathetic comfort to be able to place the blame on another party -- especially one with a fancy Wall Street name -- for a series of wasteful meetings and/or logistical screw ups (and this happens more and more as corporate access resources are cut back and the system’s economics move the focus of investor calls ever farther from a corporate’s fundamental interests). But the fear that most cripples the IRO from achieving their program’s potential is the fear of setting clear IR/capital market goals and sharing them with senior management. After all, if you don’t have goals you can’t be accused of not achieving them. If you don’t have goals, you can’t judge the performance of your corporate access provider against your objectives. If you don’t have clear IR/capital markets goals, you should ask yourself why. If you need help understanding, measuring and/or articulating these, call or email me. Without goals, IR is activity for the sake of process.
Passivity: "We rotate brokers in setting up meetings, so we must be covering the whole market." Yes, I still hear this way too often in business development meetings. The good news is, it is a decreasingly common response to the "how do you determine your optimal investor universe and then cultivate them" question. Once you decide The Wizard is untrustworthy and unqualified to lead your IR programming, IR must face the reality that it is responsible for the success or failure of the effort. The good news is that Best Practice IR presents opportunities to add economic value far beyond the downside of the extra mental energy and discipline it takes to precisely identify your optimal capital market all the way to the individual portfolio manager decision-maker. And just as The Wizard of Oz becomes a sympathetic, even charming figure once he is forced to admit the difficulties of pretending to be "The Great and Powerful Oz," the corporate access "Humbugs" become your friends and allies once you look behind the curtain, call them out, and realize you have all that you really need in your head, heart and spirit… just like the Lion, Tin Man and Scarecrow.
For any IROs that have not seen the original 1939 Wizard of Oz, email me and I will send you the DVD. If you have read all this way without having seen the movie, you must be very motivated to learn about Best Practice IR, so you deserve a prize.