Sales have their quota, and marketing has qualified leads, but how should Investor Relations Officers (IROs) measure the success? The answer is likely debatable by industry professionals, but the impact should somehow determine success. But what defines a positive effect? 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, our Investor Relations Partner and a former IRO with two decades of experience. Here he shines a light on investor relations KPIs (Key Performance Indicators) for measuring success.
Matt, what are some common investor relations KPIs used today to measure the success of their IR program?
The IR program should do several things, including:
- Educate your investor base.
- Attract new capital.
- 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 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 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.” To a certain extent, I agree with that. However, you should measure the relative valuation multiples against a basket of peers, the indices, and the market in general.
That is why the standard investor relations KPIs used for IR programs are usually three metrics. The number of meetings, the number of conferences they participated in, or the number of calls they conducted. The problem with KPIs like that is that you’re measuring activity, not results. You may have talked to people who have no intention of buying the stock, which means you misplaced your scarce resources and time, and likely misused your executives’ time.
So what types of investor relations KPIs are more aligned with measuring the success of an IR program?
Ultimately, it’s vital to connect your KPIs to the results, and the results that I want are:
- A complete valuation of my stock.
- For the market to fully understand the story that we’re telling.
- Sell-side to have as much information as they need to provide an accurate and reasonable view of the company.
- To attract well-aligned long-term capital.
If those are my metrics, then I need to construct some sort of investor relations KPIs to capture those.
Now I have something that ties back to the goals I created. It’s meaningful, measurable, and drives results. For example, I want to ensure that the key themes or messages of the company are being captured and disseminated. Message absorption is becoming increasingly essential. Investor relations professionals can use excellent engagement analytics tools to measure this. I use media monitoring software that allows me to put my ticker in and calculate how many times the subject of ESG came up in association with my ticker. If an article came up six times last quarter, that could be my baseline, and my KPI for next quarter is to have it appear 25 times.
Of course, the investor relations KPIs that’s are considered are part of a debate that tied back to the stock price. In and of itself, the stock price doesn’t tell me much. The multiple the market assigns to our future results relative to how the market values our peers is essential. Claiming,” we were up by 37% last year,” is only significant if the market was up by 27%. If not, you underperformed, right? That’s why we want to look at relative valuation.
Investor relations KPIs that have been useful for me in the past has been multiple expansions. If the stock is currently trading at a multiple of 10 and my peers are trading at 12, I’m selling at a 20% discount to my peers. So we can measure IR success if I go into the market and influence people’s perception about our future results, clear up misperceptions, correct errors, and 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 return to tying your investor relations KPIs 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 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 so many other things impact that valuation. What happens if the company misses their projections? The multiple falls, the stock price struggles, and now the IRO is suddenly not hitting its KPI. But, I feel that rational business minds will prevail. You will have support as long as you can explain it. Get to the root cause of why the stock fell, and that root cause is outside your area of responsibility or influence. If the root cause is that you did not speak to the right people, were telling the wrong message, or 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 about IROs claiming influence over the stock price but avoiding measurement. Idon’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 potentially going to put a billion dollars into your stock, they won’t do it between now and next Tuesday. They will have multiple conversations with you, your CFO, your CEO, and anybody else you’ll let them talk too. Then they’ll talk to your customers, and finally, they’ll take a minimal position just to ensure you don’t burn them. When you do what you say you’re going to do, they will put a little bit more in, but the process, especially for a larger company, can take multiple years.
We often don’t have multi-year KPIs; we’re measured every quarter. Because the results of cultivating a relationship with a long-term investor might take years, there’s a disconnect between the things that I’m doing today and when the results 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 discussed with three of the five potential investors 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 minor position within two years because it’s a multi-year approach to bring somebody in, educate them, get them comfortable with your story, and then get them to dip their toe in the water, and finally building up that position over time.
So you must take a long-term approach to some 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? Also how important is it for IROs to leverage a CRM for their workflow and reporting?
I need to know who I met with and what they did, or I’m not 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. Tying engagement to ownership or investor behavior, and ultimately back to the relative multiple, is necessary to measure results. Without the data, that’s simply not possible.
Suppose you can show that you improved your valuation and combine that with other things you did. For example, hosted educational webcasts and brought in five new investors that weren’t there last year. In that case, you’ve created a compelling story for measuring your impact as an IRO. I don’t know how anybody can do that without a technology platform.
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 relatively inexpensive. 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 with a CRM that brings in settlement data, I know who’s buying my stock and who would be attracted to it. I can’t say anything because I can’t manually go through 13F filings.
The CRM helps track whether specific investors have switched firms or funds. It 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. I can’t imagine doing their job without knowing who the investment community is, how they’re behaving, and what they’re buying.
For more insights on increasing your IR program’s effectiveness and benefit from an IR-specific CRM, please read How Technology is Evolving Briefing Books.