FOCUS: FINANCIAL PR - Investment policy/Financial PROs are encroaching on broker’s territory, but there is room in the market for everyone, says Mary Cowlett

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.

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


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


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


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


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


’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


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


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


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


But for many listed companies, the responsibility for IR lies


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


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


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


NatWest investors have ridden out a series of costly initiatives over

the past few years which have promised more than they have


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


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.’


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


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


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.

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