In the words of Bob Dylan: “I feel a change comin’ on.” Our world changes constantly. Every industry undergoes disruption. In particular, healthcare, energy, telecom, media, and transportation, all see big, hairy secular changes every decade or two. And while the Investor Relations function may not be an industry, it’s by no means immune to change and needs to be able to manage disruption in IR.
Change is disruptive. No matter if it’s good or bad, it often requires us to learn new ways of accomplishing tasks or communicating. It requires us to create and cultivate new relationships. Oftentimes, it’s distracting, stressful, or even frightening. But if change is the one constant in our lives, why are we so ill-prepared for it?
NIRI recently published a thoughtful piece entitled “The Think Tank on the Future of Investor Relations.” The working group was comprised of industry veterans who have experienced the full cycle of IR in their careers. The piece was needed. We should think about what the IR role looks like in five or ten years, and what skills will be required. If we don’t do that, we become obsolete.
I’m not attempting to scare you. Quite the contrary — I want to encourage you. You’re not alone. You’re not lacking options, or resources, or help. There is plenty of support to leverage, but you have to look in the right places. And that often begins with taking a hard look at ourselves. What skills do I possess? Which do I lack and can learn? Are there others who can help me? Self-reflection is a difficult exercise. It requires that you take a personal inventory. But it’s by no means a poor reflection on your ability to be an all-star IRO. In fact, surrounding yourself with people who round out your collective skillset is one of the greatest skills of a business leader.
To help inspire you in the process for “futureproofing” yourself, let’s explore a few of the driving trends in IR discussed in the “Think Tank” piece:
- The Changing Nature of Investors
- Capital Markets Structural and Technological Change
- Expanding Knowledge and Competencies Required in IR
The changing nature of investors
The most obvious disruption in the shifting nature of investors is the rise of passive investing. Again, this is not a new trend. It began with Jack Bogle, and is illustrated today by the sheer size of Blackrock. Thirty years ago, to reach 40% of your shareholder base, you’d have to contact 40 firms. Today, that number is eight. Eight firms hold 40% of the outstanding shares of most companies. That is not a strategy, it’s an unintended consequence. If that trend continues, the math tells us that the three largest index firms will own 20% of every company within ten years. That’s an astounding figure.
Let’s be honest here. Do you truly believe that when they own that much of your company, that they’ll be content being “passive?” I don’t either. That doesn’t mean you can’t begin to engage. Create relationships with them. Discuss your proxy. Ask for feedback on corporate governance topics. An open line of communication goes a long way in building goodwill. Just remember, don’t talk to them like they’re fundamental investors. They’re not.
Capital markets structural and technological change
Technology is enabling productivity and efficiency advances at a blinding pace. Increasingly more companies are opting out of the public markets, algorithmic trading is growing in scale, and AI and data analytics are more capable and prominent than ever before. I’m passionate about this last subject. We’re beginning to see advancement in tools and systems that enable us to do more, with less effort, and achieve greater results. Why shouldn’t your CRM be able to evaluate market conditions and valuations, and tell you that ‘Investor XYZ’ is an ideal candidate to call today? Conversely, I’d like a notification that alerts me when Shareholder ABC is likely going to sell, given the price, macro environment, and relative peer valuations. AI is not about automation. It’s about machine learning, and producing insight or action with that learning.
Our systems today have the ability to analyze millions of data points, far beyond the ability of humans, and provide direction. This is going to change our processes in meaningful ways going forward. My suggestion is to seek out new and innovative ways of approaching old, tedious processes. These technological changes are coming…get on the bus soon or be left behind.
Expanding knowledge and competencies required in IR
I’ve always felt that IR is an “orphan function.” It has no clear path to access the lead role. Unlike the controller, or treasurer, or CMO, you can become IRO from a myriad of paths. Because of this, and the unique skills that you bring with you, the function varies across companies. Years ago, the mix of backgrounds was fairly evenly distributed across communications, finance, and product marketing, etc. Today, it’s skewed towards finance. That’s because, increasingly, the IR role is responsible for not only strategic communications and shareholder engagement, but also a deeper understanding of valuation, capital market structure, competitive intelligence, and macroeconomics. That skill set is more valuable, and takes longer to develop.
But if you don’t have that Wharton MBA, don’t fret. There are tools and services today that can automate reports, which allow you to deliver the value your leadership team requires. Data is everywhere. Gathering that data in an efficient manner, processing it, interpreting it, and producing useful insights does not necessarily require a finance background. I would suggest leaning on an IR partner to fill in your current gaps. This is a team sport. Think baseball, not diving.
Now what? Managing disruption
Each of these three major trends contain subtopics, including the rise of passive (ie. index) investors, MiFID II, ESG, Activism, etc. These shouldn’t be new themes for you. We’ve all seen them it coming. The question now is: “What are we going to do?”
I agree with the findings expressed in the piece. However, I don’t believe that it means we’ll become obsolete. I’ve written previously about the need for IROs to increasingly incorporate equity sales elements. I also believe in the importance of becoming more independent, when it comes to investor identification and outreach.
Independence, however, does not mean solitude. It means that we take responsibility for those processes that we’ve often outsourced. Take solace that there are resources which can provide you with guidance, and that there are partners standing by to assist. NIRI is a wonderful source for both information and networking. But that doesn’t mean you need to attend every annual conference or webcast. Participate in the e-Groups, ask a question, get involved. There are also strategic partners (often leveraging existing business relationships) who can help you with best practices and provide advisory assistance. In fact, Q4 offers this kind of strategic partnership, and in most cases, at no additional charge to our CRM (“Desktop”) and Surveillance customers.
Lastly, think outside of the IR box. Talk to your Treasurer or CFO. Ask for a contact at a bank that does work for your company. They typically have teams that specialize in proxies, governance, corporate access, capital markets, and strategy. Talk with them about the changing landscape. Request a connection with one of their clients navigating similar issues.
The future of IR as we know it
As I meet IR practitioners in the early stages of their career, I’m encouraged for the next generation of IROs. Given their background, passion, and creativity, I believe they have the necessary skill set to be successful in the future painted by the “Think Tank.” Many come from finance backgrounds and often graduate school. They are seeking out certifications including the CFA or IRC, and they are tech and social media savvy. I’m confident that, with your guidance, they will develop professional presence and become valuable strategic advisors to their leadership teams.
And finally, what about you? What does this mean for those of us who have managed IR programs over the last 20 years? You’re not ready to sit on a beach? Me neither. This is too exciting to sit by and watch. Don’t be intimidated. You’ve got this.
Matt Tractenberg is Investor Relations Partner at Q4. As an ex-IRO with over 20 years of experience, he is passionate about combining IR with corporate strategy and helping customers evolve their IR programs.
