IR Magazine spoke to the long-standing head of IR for its summer edition cover story
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For Catherine James, head of IR at Diageo, the practice of investor relations is intrinsically connected to what the company does: selling Guinness, Smirnoff, Crown Royal, Bailey’s and other premium liquor brands to a loyal consumer audience.
‘If you want to understand Diageo, you have to understand the life cycles of the brands and have a fairly long-term view about investment,’ says James, who has headed Diageo’s IR department for the past 18 years. She notes that it took a decade for Bulleit Bourbon to become one of the leading bourbon brands in the US. ‘An investor should know it might take you 10 years to grow a brand from a small name to a big one,’ she says.
Catherine James, Diageo's head of IR
More importantly, James sees no point in trying to convince the wrong investors to buy a company’s stock. ‘We hope that if you’re a whiskey drinker, you’re going to love Johnnie Walker,’ she says. ‘But if you don’t love Johnnie Walker for some reason, we won’t change Johnnie Walker to attract you as a consumer.’
When it comes to Diageo as an investment brand, James takes a similarly no-nonsense approach: ‘There might be some people out there who would invest in us if they thought our next quarter’s earnings would be better than they’re going to be, but we can’t do that. We’re privileged to work in an industry that has a long-term dynamic and therefore we have to think about our business on a long-term basis.’
No traditional targeting
James is not a believer in conventional investor targeting and distances herself from some traditional notions of how investors should be wooed. Instead of researching investors that buy Diageo’s peers or own a given percentage in consumer goods, she talks to sell-side brokers and tries to identify institutions that are kindred spirits.
‘We ask, Is this an investor for which the Diageo story is interesting?’ James says. ‘It’s more a feel for the ethos of the investment house than a numbers game.’
So what makes a quintessential Diageo investor? ‘We’re talking about an average consumer who may adore the Johnny Walker brand but probably buys three bottles a year. What he or she buys this week or this quarter is almost irrelevant,’ James explains. ‘[With investors], they have to be ones that understand the longevity of our brands and what we’re trying to achieve.’ Beyond that, she says Diageo investors tend to focus on cash flow and margins, two counts on which Diageo shines.
James also looks to countries that have long-term investing horizons as fertile ground. She is, for instance, intrigued by the opening of the South African investment market, which has grown out of a need to fulfill the long-term goal of providing pensions. She points out that Diageo already has a high proportion of Canadian and Scandinavian investors because state-owned pension funds play a major role in both places. When she approaches a new geographical market like South Africa, she usually turns to a local broker that can design a roadshow from an intimate knowledge of investors. ‘We use local brokers rather than going with the bulge-bracket banks that are as much foreigners as we are in these markets,’ she explains.
Diageo is also owned by some high-profile family firms, such as Cascade Investment, which manages Bill Gates’ fortune. ‘We didn’t target Cascade, but we came onto its radar because we have what it so obviously values in companies,’ says James, citing appealing attributes like the company’s strong brand, good cash flow, high margins and competitive advantage. When she finds an investor that has ‘a common view’, her IR team of five works tirelessly to supply it with data to further its analysis.
James is proud of the stability of Diageo’s shareholder base. ‘If you look at our shareholder register 10 years ago and look at it now, I suspect 70 percent of those names are exactly the same,’ she says.
‘We find ourselves with long-term investors that share our view – and part of that is because we’re very transparent about what we stand for.’
Because of Diageo’s dedication to cultivating strong investor prospects, James has organized the IR department for maximum responsiveness. One individual schedules roadshows and investor meetings, and the three IR directors each communicate exclusively with a specific subset of the 24 sell-side analysts covering Diageo, as well as the analysts following Diageo’s three listed subsidiaries: Guinness Nigeria, East African Breweries and United Spirits. When an investor phones, however, any member of Diageo’s investor relations team will respond so that the investor isn’t waiting for an answer.
Being a company that thinks of itself as having no home country also affects how IR operates. James points out that while Diageo’s corporate headquarters are in London, most of its investors are in the US, where its most profitable businesses are, too. India, Mexico, Colombia and East Africa are home to Diageo’s fastest-growing businesses, while many of its iconic brands originate in Canada, Ireland, Scotland and Australia.
In order to show no bias toward London, Diageo delivers its two results presentations virtually. The company hosts a capital markets day every 18 months, alternating venues between London and New York. And the IR team travels with its five regional presidents on a rotating basis, visiting Europe in September, Asia-Pacific in October, the US in December, Africa in February and Latin America in May.
Generating new ideas
James, who studied politics, philosophy and economics at Oxford before joining the business world, differs from some of her IR peers in viewing the IRO role as essentially a finance job. That said, communications matter, too, especially given that Diageo places so great an emphasis on ‘bringing the thinking from investors and analysts into the business,’ James says, adding that ‘we do lots of internal communication of the views of investors and sell-side analysts.’
In recent years, for instance, she has fielded investor questions that have prompted fresh thinking on how to measure the effectiveness of digital marketing, on whether the company’s incentive schemes are promoting the right behavior, and on the depth of marketing at Diageo. ‘Business is not so radical that somebody is going to say anything you haven’t thought of,’ says James. ‘We use what is said to check priorities and make sure we’re cognizant of changes in the world.’
Internally, James relies on informal dialogue (her desk is close to the CFO’s for impromptu exchanges) and more formal summaries. After a roadshow, she typically writes an email to Diageo executives telling them what investors are thinking and what questions they have asked.
Here, too, longevity matters and Diageo’s investors can add value thanks to their shared history with the company. ‘Our management team is going to be more impressed with an idea from someone who’s known Diageo for five years than somebody who just discovered we existed a week ago and has got some new ideas,’ laughs James.
Future of IR
In her nearly two decades as an IRO, James has seen a steady evolution. ‘When I first joined IR, it was a kind of one-man band,’ she says, recalling that she performed the job solo with the aid of only a personal assistant. In those days, instead of being a global role, investor relations was ideally suited to James’ lifestyle as a mother with small children.
Disclosure rules have changed during her tenure so IROs now interact more with investors and less with intermediaries like sell-side analysts. In addition, James notes that technology has spurred greater professionalism. ‘You have to keep your promises,’ she says. ‘Investors can remember what your promises were; they can look at the website to see what you promised them.’
Looking to the future, James foresees greater accountability and a need to perform at an increasingly high level. ‘What was 6 percent top-line growth now is 4 percent,’ she observes, noting that in periods of higher inflation, strong returns could mask problems, but ‘with small numbers, investors can see the detail quite quickly.’
In a less-forgiving environment, James’ lengthy IR experience seems like a tremendous boon, but she’s quick to point out that even longevity has its pitfalls. ‘When something unexpected happens, you don’t panic because you’ve always dealt with something worse,’ she says. ‘At the same time, you should never fall into the trap of thinking what worked two years ago is going to work now – or worse, what worked five years ago will work now.’
In the end, she says, ‘you absolutely have to ensure longevity doesn’t become a comfort blanket. You have to make sure you’re very, very aware of changes in the environment.’
This article appeared in the summer 2016 issue of IR Magazine