Challenges and changes – nothing new for IROs
IR officers should be able to handle the issues thrown up by the new regulatory changes – and this is a good chance to show their value to their companies, argues Charles King.
It’s a truism that IROs are currently having to respond to a large number of important changes in the structure and regulation of markets. Most of the focus has been on the potential effects of MIFID II, with a lot written about the step change we may see in the level of research coverage, and the implications for consensus management and corporate access.
I would argue this is nothing new – a core part of the IRO remit is to deal with uncertainty and (often rapid) evolution, both in the external environment and at the companies we work for. However, I think there are a number of more fundamental and longer-term challenges that have the potential to be existential for investor relations as a profession. We need to respond to these and prove our value in addressing them, with a more direct, deeper and strategic approach to investor relations.
What are these challenges?
The first of them is simply the shrinking number of public companies. Private ownership is frequently seen as a more attractive option, particularly for smaller companies, given the costs of being a public company, the burden of regulatory compliance, and the enhanced scrutiny, both in the markets and the media, that comes from being listed. The very low cost of debt has enhanced this trend.
The second factor is linked to these changes: the wider role of companies in society is increasingly in question. A broad range of stakeholders (including consumers, employees, investors, media) want a holistic view of how companies operate, and have an increasing focus on whether they are doing so responsibly and sustainably. The penalties for companies not doing so now seem higher than ever.
The third is an unprecedented level change among investors. This includes (but is certainly not limited to) the continuing rapid growth of passive and ‘quant’ funds, and fundamental questions on how investment managers should be remunerated. These in turn are driving sector-wide consolidation, and are also limiting the risk appetite of some managers which, in turn, may be constraining the role of public markets as efficient providers of risk capital to drive economic growth. This is a further barrier for companies in building long-term investor bases, which are strategically engaged and supportive of companies’ investment and growth ambitions.
Fourth, and finally, technology is driving substantial change on many fronts: a few examples would include the fragmentation of information sources, how and where information is consumed, the safety of data, regulation such as GDPR, and the increasing use of ‘big data’. More narrowly in investor relations, we are seeing a high level of tech-driven innovation, for example around roadshow set-up and perception monitoring, which in turn has created challenges for IROs in choosing which model to adopt and how to integrate these offerings with existing systems and processes.
How should we respond?
For me, the fundamentals of investor relations are unchanged, but are more important than ever: as a profession we need to be on the front foot to prove the value of best practice investor relations: delivering clear, consistent and holistic messaging and guidance to a broad range of audiences, and across a number of media, externally and internally; having deep knowledge not only of the companies we work for but also of market views and the changing landscape, and bringing this back to board and executive teams to inform their strategy; providing effective management of market expectations; and targeting the highest quality investors who can provide long-term support to management.
So we should step up our efforts – and given the changes above I would expect them to increasingly be directly with the investors as providers of capital, whether that is in the basics of setting up roadshows, or in commercial, operational and strategic dialogue.
This will need more resource on both sides, but we have the opportunity to reshape the way we engage with our providers of capital, making it much more direct, and I would argue much more productive over the long term - and that can only be good for the health of capital markets, and the investor relations profession overall.
Charles King is investor relations director at Worldpay.
Published 21 December, 2017