Bill McNabb, the former chair and CEO of Vanguard and current board director at IBM and UnitedHealthcare, says public companies need a new, more strategic IR function in order to successfully navigate the redefined relationship between investors and companies.
Writing for the Harvard Business Review with co-authors Dennis Carey, vice chairman of Korn Ferry, and Ram Charan, an author and business adviser, McNabb says IROs should be proactive leaders with a deep knowledge of the shareholder base in order to mitigate a host of risks – whether that’s shareholder activism or enhanced interest from long-term shareholders in executive compensation and ESG.
The authors point to four ways the role of IROs need to change:
- ‘The new IRO role needs to shift from simply explaining corporate strategy and practices to laying out why the strategy is best positioned to unlock shareholder value and therefore attract and keep long-term investors. In other words, the role has to add more value to the corporation’
- ‘The IRO should understand how investors [use] their technologies and data-gathering activities to impact a company’s strategy, capital allocation, incentive systems and other issues investors think are important to the functioning of the board’
- ‘The best IROs will know how to find the right investors for the company and proactively cultivate them and try to get them on board’
- ‘IROs must be able to master analytical models as well as white papers written by activists that argue for an alternative business portfolio scenario for the company. In changing capital markets, it’s critical the IRO stays on top of capital and talent allocation and how it meshes with the company’s long-term strategy. The role should function as an early warning radar system when trouble is brewing.’
The authors write that IROs need to have a high level of emotional quotient (EQ) to be able to bring together the right decision-makers ahead of investor meetings, understand the interests of different investors and keep everyone on message.
Lorne Gorber, who led the award-wining IR function at CGI for almost 15 years, recently wrote an article for IR Magazine that covered similar ground about his own experience in IR.
‘Investor relations, in the end, is all about the fine art of interpersonal relationships,’ writes Gorber. ‘Top IROs are one of the C-suite gang, perhaps owning an experience portfolio that includes CSR/ESG, communications or corporate development. They aren’t the aspiring up-and-comers who hope to springboard into an executive role one day. They are finding and developing those future leaders… The IR function becomes a true competitive advantage, like intellectual property, data or strategic assets, owned at the executive level. Best-in-class IR programs result in a lower cost of capital and a competitive advantage.’
Carey, Charan and McNabb say so-called ‘super-IROs’ – individuals who have financial expertise, high EQ and, among other things, are capable of thinking like an activist – become ‘indispensable assets for the executive team and for the board.’
Click here to read the full article, which was published to promote Carey, Charan and McNabb’s new book, Talent, strategy, risk: How investors and boards are redefining TSR.