IR Nerds Unite! Best Practice Investor Relations Can Change the World
I took it as a high compliment when a new client recently introduced me to a colleague as a “real Investor Relations Geek.” In truth, I prefer IR Nerd. While I’ve never sported a plastic pocket protector, I do have broader “nerd” credentials. I played massive multiplayer online games (MMOGs) when they weren’t “massive.”
In fact, I played them on dial-up internet. In the mid-1990s, AT&T hosted a dedicated game server as a foray into the online gaming business and I played a WWI air combat game called “Red Baron.” As a pilot, I particularly enjoyed this because the control inputs and flight characteristics of those relatively simple wood and fabric aircraft could be reasonably simulated even with the limited processing power of the day. And I could play it with a beer in hand, which wasn’t possible in my real world airplane. I had to pick a name for my on-line character, and I quickly came up with “YIR.”
I doubt my virtual aviator competitors thought much about the name YIR; it wasn’t relevant to who shot down whom. It’s an acronym for “Why IR.” Yes, I am an IR Nerd, and that question remains on my mind. Not because I don’t know, but because most IROs and Investor Relations consulting organizations give the wrong answer.
The “why” of Best Practice IR has to do with seizing capital markets opportunities and managing financial communications in the best interest of corporations and shareholders alike. However, there is a more fundamental answer to that question, one that has helped keep me focused and passionate about this work over the decades:
Business and capitalism are essential forces for social good, and healthy capital markets are key to their vitality.
Public capital markets are showing real signs of stress and inefficiency. Best Practice Investor Relations is not only the most efficient and effective way for a public company to engage productively with its shareholders and followers, it’s the right way. Why? Because it is based on truth, transparency, and working diligently to engage the investment community in ways that allow them to best understand and appreciate the risks and rewards of making investment decisions (thus my Twitter handle @risksrewards). IR is a competitive discipline, aligned with the best parts of the competition inherent in capitalism. When these aspects of IR are de-emphasized, or ignored, its essence and opportunities are severely degraded.
Investor Relations Fundamentals Remain Fundamental; Measurement Tools Sharpen Over Time
While the fundamentals remain the same -- communicating how management creates value, respects the interests of all stakeholders, and builds a track record of promise and delivery -- new key concepts emerge from the capital markets on a regular basis. Cash flow analysis and reporting was once “new,” as was reporting economic value added in terms of generating returns above the cost of capital. The clients that work with us tend to be the ones that want to be First Movers or the Best at Investor Relations, so I’ve been privileged to be a part of the dynamic as these concepts were framed by IR-engaged managements in an intense dialogue with investors. As we watch increasing investor interest in corporate social responsibility, and the risks and rewards of corporates’ levels of CSR investment, another opportunity for IR to do the right thing emerges. Ultimately, IROs must decide whether they want to lead or follow as the securities markets evolve.
IR Nerds Unite, Save the Capital Markets!
IROs played a leadership role in the global capital markets until investment bankers, corporate brokers, and ultimately corporate access co-opted managements with “free IR” services. Starting in the 90’s significant numbers of road warrior IROs built stronger and healthier international share registers as share ID became more accessible and accurate: what you saw happening in IR interactions with investors was validated by the movements of millions and billions of equity value changing hands through Best Practice IR to the benefit of corporates and shareholders alike. The same timeline highlights entrenched forces on the sell-side––investment bankers/corporate brokers et al––all reacting to a threat and seizing an opportunity as Investor Relations began to advance itself to its natural place in the capital markets: a strategic tool for financial communications and a powerful force for efficiency, transparency and ethical conduct in the capital markets.
I don’t in any way “blame” IRO’s for “letting this happen.” The entrenched sell-side interests were and continue to be amazingly adept at co-opting senior managements and Boards. If anything, it is the Board of Directors who bear responsibility for embracing and continuing to condone management/shareholder dysfunction… and for failing to ask the right questions in the face of literally historic evidence that the “system” is badly broken.
Finally, and ironically, IR should be able to help fix the system for transaction-oriented capital markets players. Best Practice Investor Relations cultivates the field to make it more fertile for equity issues and mergers and acquisitions.
Investor Relations Nerds lack the glamour of IR front page fraud, billion dollar fines, causing global recessions, and having a character in “The Big Short.”
Think about it for a moment. By definition, every public company has executives with Investor Relations responsibilities; the numbers and resources vary, but the fundamentals of the function remain the same. And IR is a capital markets specific function engaged in both day to day market interactions along with the most complex mergers and acquisitions and funding projects. Over time, Investor Relations firms and programs collectively move trillions of dollars of capital and directly affect market and securities valuations.
Now try to think of one meaningful instance of IR doing damage to the capital markets as a whole (and of course there are bad actors, but relatively few). Then pull out your pencil and answer the same question regarding the sell-side firms that have inserted themselves to their own benefit between IR and its key constituents. The next time your senior management asks why they should invest more in resources directly under the control of the Investor Relations team, think about the empty column versus the one that is long and probably still incomplete.
Global Investor Relations Nerds, Seize Your Rightful Place in the Pantheon of Global Game Changers
Some notable nerds have changed our lives. Think Bill Gates, Steve Jobs, Mark Zuckerberg. Each developed technology built on an approach that increased efficiency and removed outmoded ways of doing business and/or interacting. IROs already have their game changing “technology” in the form of Best Practice IR, capital markets goals achieved with astonishing efficiency, the ability to track and measure success towards these goals over time, elegant and logically coherent “programming” that allows Investor Relations to do well by doing good. Embrace your inner IR nerd, analyze the capital markets with your own clear vision, then go out and change our capital markets for the better.
The first five readers who email me relevant statistics on the decline in the number of public companies in the US, Europe and the UK over the past ten years will receive their very own Plastic Pocket Protector.