Everything Old is New Again
Decades ago, many analysts and journalists were superstar market movers… smart, powerful, experienced voices in a far quieter, more civilized financial information marketplace. All-star analysts were highly paid and fiercely competitive about leading market opinion and presenting new and thoughtful perspectives on valuing their stocks. Senior financial journalists were tough, wise, worldly, and worked with editors and fact checkers who also took the quality of their stories very seriously. Of course some "old school" analysts and journalists still wield great influence today, but they are a dying breed. The economic environment in which both evolved and thrived has dried up and is being picked over for the last morsels of sustenance, while new breeds of information marketers are competing in an emerging capital markets ecosystem.
Today, virtually every company markets its stock through a century’s old system of competing brokers (sell-side firms) who have business relationships with only a portion of that company’s potential investors, who are widely recognized to be conflicted, and whose parent companies are routinely fined hundreds of millions and billions of dollars for regulatory violations and civil fraud. This same company expects accurate, thoughtful coverage from journalists who struggle in shrinking newsrooms for lower relative salaries under greater pressure than ever to generate content at high speed. Both analysts and journalists target audiences that gather real time information from dozens more information sources than 10 or so years ago. I sometimes imagine how shareholders and Board Members would react to management teams who described a similarly dysfunctional manner of marketing their most important products or services. Not well, to say the least; these would be career-ending choices outside of the capital market context.
While the internet boom has steadily eroded both the economics and quality of financial journalism; the internet bust is probably the clearest historical marker for the decline of the analyst as an axe wielding market guru. No one disputes the severe decline in the quality and effectiveness of the sell-side and media as IR informational channels, and no one is able to present a scenario where this decline reverses. So why do public companies run their investor relations programs with essentially the same reliance on these market interlocutors as when news releases were delivered by messenger, mechanical stock tickers were rattling away and one needed to make an appointment to make an international phone call? One is tempted to say because "if it ain’t broke don’t fix it," but a better answer is "everyone knows it’s broken, but no one knows how to fix it." "Misery loves company" works too. But the real answer is that – from the perspective of the senior management and IRO – it appears to cost too much to fix because the economic value of a re-engineering and/or proper resourcing of the IR function is almost always under-appreciated. If management knew the market value of one multiple point on their stock and recognized that IR both adds and then maintains these multiple points, they would market their stock with the same investment of resources and professional standards that they apply to the products and services they sell to customers and clients.
So what can be done if an IRO wants to drive Best Practice IR at their company? There are a number of approaches, including:
Insist that senior management engage in a discussion of the economic and strategic value of Best Practice IR. Agree specific 12-24 month targets that demonstrate IR building absolute and relative (versus peers) value in the shares and cultivating the investment landscape for planned corporate activity. Softer goals can be applied that play into the weakness of the sell side and media channels, e.g. how often key messages are repeated verbatim or paraphrased in sell-side research and news stories.
Fight IR "Home Bias." Home bias is often thought of (accurately) as investors’ propensity to value shares more highly when they are based closer to home. IR Home Bias is when managements assume that the questions and concerns of the analysts and investors most active in their stock reflect the key messages most effective in communicating with their full audience of existing and potential investors. In reality, the sell-side and journalists are most useful in communicating to this larger audience, and the focus of your communications with them should reflect this (see last sentence of point 1 above).
Use social media and video posts in a methodical, rigorous fashion. These channels should be looked at as an almost mechanical approach to re-purposing existing, approved messaging units, along with serving as "virtual newswires" as an additional channel for news releases and corporate announcements. (Same key messages as the last sentence of point 1 above 😀)
So Happy New Year, everything old is new again. Best practice IR has been and always will be about creating economic value and strategic support for corporate plans and ambitions. And no matter how much the capital markets landscape changes, it comes down to messaging analysis and discipline, and the delivery of these towards clear IR goals.