IROs, Put Your Brian in Airplane Mode
I once caused some consternation among a client’s senior management when I said in a presentation “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.” Consternation wasn’t the response I intended; I was highlighting that an IR team meeting with potential investors is essential to achieving capital markets goals and that it’s very hard for the CEO/CFO to achieve the same without an IR team supporting their efforts. It may have dented a few egos, but it was the truth all the same. This seems like common sense to me, but I am surprised how often we speak to companies where this is not the practice and indeed IROs hardly head to the airport at all.
Once they have established their bona fides as knowledgeable about both their company and the way senior management thinks, institutions always happily accept a meeting with the IRO when they know they have access to senior management when appropriate. And of course there are times when they need to look the CEO/CFO in the eyes across the table. In our experience, in the early stages of the corporate-institutional relationship, portfolio managers have turned down meeting offers with senior management as they don’t want to “waste their time” as they get up to speed. There are of course subtleties and case specific decisions to be made regarding which team member should lead a series of institutional meetings. Taylor Rafferty has worked for years alongside companies as they have moved hundreds of millions and even billions of dollars of stock from one type of investor and/or market to another, and the bottom line is – there was always a road warrior IR team leading the way.
If you read this blog you know I have some issues with the Corporate Access system, but one good development on this front is there is much more enthusiasm these days among Corporate Access providers for setting up IRO-only meetings and conference presentations. There are a number of reasons why this could be the case, but let me highlight one that you may not have thought of. The system developed not as an economic model, but as a way for well-resourced sell-side firms to get face time with CEOs and CFOs in the hopes of landing the next deal: the institutional meetings were just a sideshow.
This face time competition between the investment bankers began in the early 1990s and the number of “free IR” services (consulting on IR presentations, analyzing share registers, producing IR planning and analysis documents, etc.) increased as the Go Go Internet boom years filled sell-side firms’ coffers and they hired more MBAs to fight for deals. Then the internet bust brought a dose of reality to the system. Keep in mind that while Corporate Access was growing in the 90s, the very internet boom that was generating free money for all was also revolutionizing financial data and information distribution in ways that sharply eroded the value of sell-side research. When the dust settled in the early 2000s it was just as much about the institutional desire for convenient management face time as it was the value of research. But the CEO/CFO corporate access focus remains.
Skipping forward through the Financial Crisis, the Great Recession, $200 Billion of fines levied against the sell-side – and all the while margins are shrinking in plain vanilla equity trading – today we see a much-reduced Corporate Access service offering. This belt tightening continues with no real end in sight. The good news is that we have a system that is in some ways more responsive to the needs of both public companies and the institutional investors. And if management empowers the IRO to the extent of the IRO’s capabilities – and gives them an appropriate travel budget -- the IRO can and should be accumulating way more air miles than the CEO/CFO in capital markets meetings.