Should IROs aim to build their career by sticking to a given sector or by venturing out to less-known industries?
Experiencing different industries as an IRO can be exciting and motivating – new business model, new audience, new pool of investors – but is it really a plus for your resumé?
John Dawson, head of IR at Rolls-Royce and former chair of the UK’s IR Society, is happy to have ‘come back full circle’ to his engineering roots. After a career start at specialized engineering business TI Group, he has moved through Cadbury –‘quite an exciting business, lots of things going on’ – Imperial Chemical Industries –‘slow-moving consumer goods, in a sense’ – logistics firm Exel –‘relatively risk-free and asset-light with a variety of economic models within it’ to the London and New York-listed gas and electricity giant National Grid.
Utilities, traditionally seen as a conservative and forthright business, ‘all about cash and internal assets’, turned out to be more complicated than anticipated due to regulatory accounting, Dawson says, explaining how the firm had moved from one regulatory financial regime to a new one during his five-year tenure. ‘That was quite an interesting period, because it was rather sophisticated in terms of changing people’s perceptions and understanding of the business,’ he explains.
But he finds his current firm the most complex model to comprehend in terms of its financials and how it does business, ‘due to the long-term nature of its relationships with its customers’, particularly for the large jet engines Rolls-Royce makes.
‘The key thing to be able to adapt to a new sector is to get your mind around how the business makes money, what it does to differentiate itself from its competitors, what value it creates for its customers and how it turns that into financial benefits for shareholders,’ Dawson points out.
Over at Starbucks, vice president of IR Tom Shaw says he noticed more similarities than differences when moving from Under Armour, a maker of sporting goods, to the mammoth coffee chain, thanks to ‘a lot of consistency in both stories’. Indeed, both companies – even though at different stages – consider themselves growth companies that understand ‘the importance of the brand and the need to stay ahead of the consumer. And both have huge personalities and passionate founders,’ Shaw says.
A former sell-side analyst covering the consumer sphere, Shaw believes his background was an asset for quickly grasping the business models as a new hire, although he admits both sectors were ‘very tangible and easy to get around.’ His decade of exposure to and understanding of consumer goods – ‘holistically across the value chain of wholesale to retail: where the industry had been, where it was now and where it’s going’ – was also a key selling point when he was interviewing for the top IR job at the Seattle-headquartered firm.
‘It’s not always easy to navigate those dynamics but that backdrop was key in what Starbucks was looking for; also, seeing that consistency at the core between the two gave me confidence to make the switch,’ Shaw says, adding that he’d been pleasantly surprised by the amount of overlap in knowledge, especially in terms of his conversations with the buy side.
Reflecting on the challenges of changing sectors, Dawson makes a clear distinction between straightforward and more complex industries. ‘In some sectors the simplicity of the economic model means the analysts can be more generalist in nature and still have a good underlying grasp of what’s going on in the business,’ he says. In more technical industries such as insurance or pharmaceuticals, the IR audience will be focused on the particularities of its segment. As a result, an IRO will face analysts who have spent ‘more than five or 10 years’ building a detailed understanding of clinical trials or how insurance premiums work – and who will expect a high level of granularity in return.
‘Taking those skills and using them in a different industry will be quite tough,’ Dawson says. ‘A company will require an IRO who has that specific background to differentiate, so you’ll need to have a lot of historical knowledge to do the job well.’
Shaw, who started his new job by spending a week in store as a barista – ‘It was difficult! And stressful!’ – highlights the importance of getting out in the industry. While working for Under Armour, the healthy lifestyle advocate conveniently had many occasions to ‘really get [his] hands on the products. It doesn’t matter which sector you come from, you have to go into stores, to check out the competition and see what they’re doing better or maybe worse,’ he says.
He also found he could rely on IR peers to share useful information. ‘Just because they’re competitors doesn’t mean they can’t be professional partners in the journey to building industry knowledge,’ he notes. ‘There are plenty of sell-siders who are willing to walk you through the industry, especially if you’re new. They’ll want to develop a relationship with you as the IRO, so they want to get you up to speed.’
Furthermore, Dawson believes a successful sector switch is as much about building expertise as having the willingness to listen to what investors have been told in the past. ‘Work out what it is they should be told, and then think through how to bridge the gap,’ he says, highlighting that it can’t be done overnight just by changing the message.
‘You’ve got to unpick their understanding and replace it with something else – and that can be quite a lot of work. Assuming it’s the right thing to do, of course: because there’s a reasonable chance you’re the one who’s wrong and they’ve been right all along!’
John Dawson’s top tips for succeeding in a new sector
This article appeared in the summer 2017 issue of IR Magazine