Investor relations
Finance and Management newsletter, Issue 143, April 2007
published by the Finance and Management Faculty
Faculty members turned out in force on 6 February for the first joint event between the Faculty and the Investor Relations Society. An impressive line-up of speakers, chaired by Penny Bickerstaff, independent consultant and Faculty committee member, debated the demands on FDs from their IR programmes, and the inherent conflicts with the day job.
The debate was kicked off by John Kershaw, pan-European food analyst at Merrill Lynch, who looked at the fundamental issue of whether it was more advantageous for a company to be publicly or privately owned. Rather ironically, rumours of a bid, led by a private equity consortium, for J Sainsbury plc had just hit the streets. According to Kershaw, whether the offer was eventually actually made and – if so – recommended, didn’t alter the fact that boards of listed companies are increasingly being forced to consider more geared capital structures.
He argued that leveraged private vehicles often created a better alignment of investor and management interest. Private equity investors do significant due diligence before making whole business investments in a concentrated portfolio of assets. In contrast, public companies have a diverse shareholder base with, for example, short-term investors taking a very different view on investment strategy from long-term institutional investors.
The importance of IR professionals being able to speak with the ‘voice’ of the chief executive officer (CEO) and chief financial officer (CFO) was reiterated by Margaret Ewing, former CFO of Trinity Mirror and BAA, and currently vice chairman and partner at Deloitte.
Ewing reflected that IR is a critical function of any listed company, although her experience in this area had not always been favourable. In her early years at Trinity Mirror, an inexperienced team resulted in ill-prepared announcements, mixed messages on roadshows and lack of earnings guidance. All of which led to confusion in the market, which was ultimately reflected in the share price.
This was a fast-learnt lesson in the dangers of underestimating the demands of the market, and Ewing cited her subsequent time as FD at BAA, as a period when she experienced IR at its best. BAA’s IR director was an external appointment who was a passionate communicator and an experienced IR professional. Quickly gaining the trust and confidence of the board, she instigated an IR strategy that considered and understood the varying needs of her audience, and utilised senior management time effectively. Despite continuing to spend between 25-30% of her time on IR activities, Ewing considered this to be properly planned.
Mark Garratt, FD for privately owned Securiplan, compared this experience with former roles as an FD of small-cap listed companies where the IR function fell firmly on his shoulders. Like Ewing, Garratt felt the time-pressures of delivering an IR strategy could be very demanding. “It is about making the right impression as much as delivering the right performance. You need to generate confidence in a very diverse set of investors and ultimately deliver consistency”, he said. While he believed analysts and investors could be challenging and stimulating, he felt private ownership could be more flexible. “For now, I’m enjoying being out of the spotlight and getting on with the job. I have clearer objectives, but can also be more opportunistic.”
Rounding off the debate, and with nearly 20 years experience in IR, most recently at National Australia Bank, Raghnall Craighead made some pertinent remarks on some of the common pitfalls for finance people approaching IR. He pointed out that the time and energy associated with investor communications strategies is always underestimated. Craighead warned against the inclination to ‘explain and tell’ and encouraged directors to ‘listen and engage’. He advocated a thoughtful approach to maximise a two-way dialogue with city audiences who can be an invaluable resource when things go wrong.
Although, as with all the other presenters, Craighead is a qualified accountant, he made the very valid point that it is not all about the numbers; analysts and investors being already fully conversant with financial statements. Rather, “the art of good IR is to influence interpretation of those numbers,” he concluded.
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Author:
Louise Clamp is head of policy and publications at investor relations consultancy RD:IR. She was previously head of communications at the IRS.
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