The definition of investor relations is becoming ever more blurred
as the channels for reaching investors diversify. Some still see IR as a
strictly specialist function of direct communication with institutional
investors which should be carried out by brokers and investment
banks.
Others take a more holistic view, seeing it as another ingredient in the
financial PR mix.
Anthony Cardew, chairman of independent financial and corporate
communications consultancy Cardew and Co, defines investor relations as
’everything that talks directly to shareholders, especially
institutional investors’.
But his interpretation of ’directly’ is expansive. ’A great deal of what
the analysts and press have to say is intended for the institutional
investor audience, so all financial PR is IR in one way or another,’ he
says.
Citigate Dewe Rogerson director John Rudowsky goes further, saying IR is
simply a matter of labels. ’It really depends on what a client wants.
You have to come back to the communication requirements of the company
and helps share messages with shareholders, either directly or
indirectly through commentators.’
Some of the confusion surrounding the definition of IR goes back to when
the large merchant banks and stockbrokers were single capacity, meaning
their handling of face-to-face relations between large corporation
managements and institutional investors was a logical add-on
service.
In this climate, financial relations was placed in a discreet box, and
PROs dealt solely with the financial press and independent analysts on
anything from supporting IPOs to product launches.
In some ways, this model still holds true, but the deregulation of the
market and the consolidation of the big US and European banks have
caused many to question the independence of bankers’ advice.
’The investment banks have an inherent conflict of interests, namely
that potentially they have more than one client,’ says Reg Hoare, former
stockbroker and now managing director of Ludgate Communications’
financial PR practice.
’There is the corporate company, the institutional investors - whom a
bank may actually own - and then there is the bank’s own book - it could
be sitting on shares worth hundreds of millions of pounds,’ he adds. ’In
essence, the investment banks are their own clients, so who are they
going to look after first?’
The banks answer this kind of accusation by saying that investors are
not fools and that any hint of a chink in their ’Chinese Walls’, or
false advice, would have fund managers kicking them off their broker
lists in an instant.
However, the investment banks do still seem to hold the upper hand when
it comes to the quality of relationship with institutional
investors.
For research purposes, their analysts constantly speak to fund managers
to gauge opinion on market shifts and industry developments.
Brokers have a huge insight into how people like to invest. ’We are the
eyes and ears of what’s happening in the market and who’s buying what,’
says James Agnew, co-head of corporate broking at merchant bank Merrill
Lynch. ’We expect to have good relations with investors because we speak
with them every day.’
And some argue that relationships aside, financial PR agencies can never
challenge the IR role of the investment banks as they are too afraid of
biting the hand that feeds them.
’All financial PROs are reliant on the investment banks for business
leads, from flotations to mergers and acquisitions work,’ says
Hoare.
’Ludgate probably gets around 50 per cent of its new business through
recommendations from the investment banks, so we are very careful not to
compete with them.’
This reluctance to upset the status quo holds true for many financial PR
specialists, but others dismiss it as being out of date. Citigate, which
has over 60 IR clients, operates mostly in continental Europe and the
US, but director of IR Jane-Astrid More claims this is not through fear
of stepping on UK investment bankers’ toes, but a legacy of Dewe
Rogerson’s strength in European privatisations.
Cardew also dismisses the issue of potential competition with the
investment banks. ’We are not trying to compete with the stockbrokers or
the investment bankers,’ he says. ’The job of IR is a shared
responsibility.’
Investment banks and brokers for the most part identify the key to good
IR as team work. They accept that financial PROs may have a different
level of direct contact with institutional investors to the banks, but
in terms of understanding the wishes of a company’s long-term
shareholders, financial PROs do have a role to play.
Agnew points out that for organisations such as his own, IR is an add-on
client service rather than a profit-making device, so there are no
hang-ups over financial PROs potentially stealing a piece of the
action.
The picture is muddied even more: because many of the FTSE-100 companies
no longer have a single corporate broker, IR is increasingly being
outsourced to top end IR specialists and financial PR consultancies.
’Our clients often don’t want to deal with their brokers on all
matters,’ says Financial Dynamics UK managing director Charles
Watson.
To provide clients with more flexibility and opportunities to
cherry-pick advice for specific IR projects, his agency has been hiring
former analysts and other City specialists for the past 18 months.
Watson says this recruitment drive is to meet a need, rather than poach
others’ business. He adds: ’It is wrong for people to criticise
financial PR companies for taking on IR work as the market is not being
driven by us, but by corporations which feel they need independent
advice.’
But for many listed companies, the responsibility for IR lies
in-house.
BP Amoco’s award-winning internal IR team has three specialists in the
UK who focus on issues such as the environment.
’Our team has built up an excellent list of contacts and very good
relationships with the buy and sell sides of the market,’ says press
officer David Nicholas.
’The team is focused on maintaining awareness of our strategies and how
we are going to meet them, so analysts, stockbrokers and the
institutional investors can measure us against the targets we have
set.’
Lansons Communications joint managing director of financial services
Tony Langham also believes IR is best led in-house. As IR is reliant on
demonstrating the quality of a company’s management and its strategic
thinking, it is vital that any IR head has direct and instant access to
an organisation’s CEO and the senior management team.
This issue of corporate leadership was amply demonstrated recently when
NatWest attracted the hostile attentions of the Bank of Scotland. In a
bid to bolster its position, CEO Derek Wanless, who faced severe
stockholder criticism, was replaced by Ron Sandler in a boardroom
coup.
The NatWest situation also demonstrates how the UK investment market has
become more aligned with the US over the past few years. Rather than
simply warning under-performing companies to get their act together or
suffer the consequences of investors voting with their feet, fund
managers have been spending more time looking at companies in their
entirety.
NatWest investors have ridden out a series of costly initiatives over
the past few years which have promised more than they have
delivered.
The proposed pounds 12 billion bid for Legal and General was seen by
many as the final straw.
’There is a lot of pressure on investors to ensure the proper governance
of a company rather than pushing prices down by bailing out and selling
up,’ says Michael Cooling, director of research for the Investor
Relations Society, which represents more than 430 IR professionals in
the UK.
’Investors are more active in improving the UK’s competitiveness and
taking the opportunity to assist failing companies with the expertise
they hold in-house,’ he adds.
The line between financial PR and IR is becoming increasingly
blurred.
But everyone seems to be emerging as a winner, with forecasters and
buyers and sellers taking on a more sophisticated feedback role. But
whether the true nature of IR is dealing directly or indirectly with
institutional investors, buy and sell analysts or retail investors
through the financial press and the High Street banks, sometimes the
simplest definitions are the best.
Tony Friend, director of financial PR agency College Hill, thinks the
essence of IR is best encapsulated as: ’Persuading an investor to part
with a shiny gold coin in the trust that a company’s management team
will generate value over a period of time and repay that investor with
three or four shiny gold coins in return.’
WEB PRESENCE GIVES INVESTORS ESSENTIAL DATA
The internet is forcing listed companies to rethink how they communicate
with their IR audience. In particular, the medium offers the potential
for more interactive communication with company stakeholders, and a
cost-effective and timely means for delivering information.
This presents advantages, such as faster global feedback in response to
company announcements, but it also creates responsibilities. While
establishing a dialogue with retail investors is cheaper and more
direct, institutional investors and analysts are likely to have high
expectations.
In the first quarter of 1999, Burson-Marsteller commissioned Fulcrum to
interview 60 fund managers and analysts from the US and UK to discover
their views on the internet as a business tool. The survey revealed that
63 per cent of fund managers and analysts in the UK already use the net
to source information.
If usage trends in the UK follow those in the US, this specialist
audience will demand improved interactivity and flexibility in the
future. Among the web-based services respondents said they would like to
see were downloadable financial data, historical data and
webcasting.
While the quality of video over the web remains poor, Simon Eaton, MD of
B-M’s financial practice, recommends that companies think seriously
about setting up a site to allow analysts and investors to download data
automatically or create their own models on-line.
’Relevant historical data and presentations should be available at the
click of a mouse and ideally in a format that allows it to be converted
into graphs,’ he says.
With one respondent stating ’I use the internet during the first stages
of research to get as much information as quickly as possible’, the need
for companies to facilitate access to top-line corporate information for
investor audiences is paramount.
