Reflections on a quarter-century of IR to mark IR Magazine's silver anniversary
Most of Australia’s top 300 listed entities these days retain in-house IR expertise, whether staffed full time by a team or individual or handled by a senior executive with a dual role such as finance. Go back 20 years and IR existed only among a handful of banks and mining firms included in the MSCI Index.
This welcome trend toward shareholder engagement is a consequence of several significant changes to the capital markets, none of which was specifically designed to promote the IRO’s role.
First, federal legislation was introduced in 1992 for compulsory superannuation, with employers having to put 9 percent of every employee’s earnings into a personal retirement account. This established a huge pool of savings and, over time, significantly increased the level of institutional ownership of companies.
Politicians soon realized they had a duty to enact protection mechanisms, so the second change was a gradual toughening of disclosure regulations starting around 1994, including requiring material information to be disclosed promptly to the market.
Third came an ability to analyze a firm’s beneficial ownership, which became essential with the huge growth in institutional ownership. It had been a murky area and was often very difficult to achieve, but combined with the push toward increased voting of shares, understanding underlying ownership via share register analysis meant executives and the board now knew exactly who was calling the shots.
These three developments were all critical to the growth of the IR function in Australia and I feel they are almost essential prerequisites for IR to grow in any jurisdiction.
Working in the early 1990s as CEO of the Australian Investment Managers’ Association, I became keenly interested in the beneficial ownership issue and in the mid-1990s developed a service to help companies understand what was happening on their share registers. This type of analysis is now routinely handled by IROs, and allows them to communicate directly with their investors. Previously, that key was held solely by stockbrokers.
Nowadays major investors have one-on-one relationships with the companies they invest in, which has raised expectations for high-quality communications. Executives can no longer take a cavalier attitude toward their owners.
The market, too, is unforgiving of firms that are poor communicators (or that don’t communicate at all). IR has to remain a long-term commitment as it’s no longer possible to ignore shareholders: they don’t like being snubbed, and if they feel that way they are increasingly taking matters into their own hands.
Ian Matheson is CEO of the Australasian Investor Relations Association