Sales has their quota, marketing has qualified leads, but how should IROs measure the success of their IR program? The answer is likely debatable by those in the industry, but success should in some way be determined by impact. But, what defines a positive impact? How is it quantified? And how can IROs leverage today’s tools to measure and report on their IR program? We sat down with Q4’s Matt Tractenberg, Investor Relations Partner, and a former IRO with nearly two decades of experience, to have him shine a light on these questions.
Matt, for starters, what are some common KPIs that IROs use today to measure the success of their IR program?
The IR program is designed to do a number of things, including:
- educate your investor base,
- attract new capital and,
- capture and communicate the themes or messages that you want to be absorbed.
Everything needs to be turned into a number at some point in time. The hard part is how do you measure progress towards these desired outcomes? Most IROs have been in a position where, if you’ve been in it long enough, you’ve been in good periods and bad periods. So most people will say, “The stock price is going to do what it’s going to do, and my job is not to manage the stock price” and to a certain extent, I agree with that. However, I am suggesting that you consider measuring the relative valuation multiple against a basket of peers, the indices, and the market in general.
That is why the standard types of KPIs that IROs use for their IR program are things like the number of meetings, number of conferences they participated in, or number of calls they conducted. The problem with a KPI like that is you’re measuring activity, you’re not measuring results, and there’s a very big difference. You may have talked to people who have no intention of buying the stock, which means that you misplaced your scarcest resource, time, and likely misused your executives’ time as well.
So what are some types of KPIs that are more aligned with measuring the success of an IR program?
Ultimately, it’s key to connect your KPIs to the results, and the results that I want are:
- A full multiple on my stock,
- For the market to fully understand the story that we’re telling, without misunderstandings or misperceptions.
- I want the sell-side to have as much information as they need to provide an accurate and reasonable view on the company, and
- I want to attract well-aligned long-term capital.
If those are my metrics, then I need to construct some sort of KPI to capture those.
For example, I want to ensure that the key themes or messages of the company are being captured and disseminated. I think message absorption is becoming increasingly important and nowadays there are some really cool tools that can be used to measure this. I use media monitoring software that allows me to put my ticker in and measure how many times the subject of ESG came up in association with my ticker. If an article came up 6 times last quarter, that can be my baseline, and maybe my KPI for next quarter is to have it appear 25 times. Now I have something that actually ties back to the goals I created and it’s meaningful, measurable, and drives results.
Of course, the KPI that’s always a big debate, goes back to the stock price. In and of itself, the stock price doesn’t really tell me much. The multiple the market is assigning to our future results relative to how the market is valuing our peers is what’s important. Claiming, ”we were up by 37% last year” is only great if the market was up by 27%. If not, you underperformed, right? That’s why we want to look at relative valuation. A KPI that has been useful for me in the past has been multiple expansion. If the stock is currently trading at a multiple of 10 and my peers are trading at 12, I’m trading at a 20% discount to my peers, all else equal. So a way we can measure IR success is if I can go out into the market and influence people’s perception about our future results, clear up misperceptions, correct errors, and as a result move the multiple closer to my peer group.
Is there a concern that some of these measurements don’t support the efforts of an IRO within their organization?
Let’s go back to the whole concept of tying your KPI directly or indirectly to stock price or valuation. I’ve had this debate with large, mature clients that were desperately looking for new KPIs. Encouraging them to think outside the box, I suggested that “If you really think that IR is of value and has influence, you should consider putting your money where your mouth is. Take a position that “we think that we can generate half a turn of multiple if we do X, Y, and Z.” I agree though, the catch is that there are so many other things that impact that valuation. What happens if the company misses their projections? The multiple falls, the stock price struggles, and now all of a sudden the IRO is not hitting their KPI. But, I feel that rational business minds will prevail. As long as you can explain it, and can get to the root cause of why the stock fell, and that root cause is outside of your area of responsibility or influence, you will have support. But if the root cause is that you did not speak to the right people, or you were telling the wrong message, or you didn’t put effective educational material out there, then you didn’t meet your KPI and didn’t perform as expected.
There has always been a long standing debate of IROs claiming influence over the stock price, but avoiding measurement. I don’t believe you can have it both ways. Pick one or the other.
Historically, why has it been so difficult for IROs to create KPIs that directly link their efforts, such as engagements with current and potential investors, to the impact on the stock price or ownership?
Understandably, if somebody is going to put a billion dollars into your stock, they’re not going to do it between now and next Tuesday. They’re going to have multiple conversations with you, your CFO, your CEO, and anybody else you’ll let them talk to. Then they’re going to talk to your customers, and finally, they’ll take a very small position just to make sure you don’t burn them. When you do what you say you’re going to do, they’re going to put a little bit more in, but the process, especially for a larger company, can take multiple years.
The difficult part is that we often don’t have multi-year KPIs. Instead, we’re measured on a quarterly basis. However, a great deal of this function is based on relationships. Because the results of cultivating a relationship with a long-term, large investor might take years, there’s a disconnect between the things that I’m doing today and when the results are going to show up.
We have to break our goals down first to create our metrics. Start with securing meetings and planting some seeds with new investors. Then you can measure if you had conversations with new investors or not. Let’s say you had meetings with three out of the five potential investors you had on your list. Maybe next year you want to take those investors and have two of them initiate a position.
I’m going from zero conversations with them to a small position within a two year period because it’s a multi-year approach to bring somebody in, educate them, get them comfortable with your story, and then getting them to dip their toe in the water, and finally building up that position over time.
This just means that you have to take a long-term approach to some of these KPIs and not skip the process to measure success based only on the investment.
This is a two-parter. Firstly, do you see access to data changing how we measure IR success in the future? And on that topic, how important is it for IROs to leverage a CRM, both for their day-to-day workflow, but also to report on their IR program impact?
Firstly, if I don’t have the ability to look back and know who I met with and what those investors did, I can’t illustrate the fact that I’m using my C-suite’s time effectively. I need the ability to say that those meetings are driving demand, driving ownership, and resulting in change. Without the data, that’s simply not possible. Tying engagement to ownership or to investor behavior, and ultimately back to the relative multiple, is necessary to measure results. If you can show that you improved your valuation and then combine that with other things you did, i.e. hosted educational webcasts, brought in five new investors that weren’t on the list last year, then you’ve created a very compelling story for measuring your impact as an IRO. Without a technology platform, I don’t know how anybody can do that.
Regarding the second part of your question, I can’t imagine working for a company that doesn’t have a CRM. As a percentage of my budget, it’s not particularly expensive. That’s like a sales team working without Salesforce or a customer list. How do you know who to call? How do you know who wants your product? It’s virtually impossible, and without a CRM that brings in settlement data, I don’t know who’s buying my stock or who would be attracted to my stock. I can’t tell any of those things because I can’t really manually go through 13F filings.
The CRM not only helps you track whether specific investors have switched firms or funds, but also enables you to keep a record of discussions, key topics, and concerns. This way, you are always prepared for meetings and can also efficiently leverage the use of your C-suite. Ultimately, you are trying to maximize your efforts and effectiveness, and a CRM is essential to that goal. In today’s day and age, I can’t imagine IROs doing their job without knowing who the investment community is, how they’re behaving, and what they’re buying.
For more insights on how you can increase the effectiveness of your IR program and benefit from an IR-specific CRM, please read How Technology is Evolving Briefing Books.