Europe casting shadow over British IR

Nov 14, 2011
<p>UK individualism could learn from continental integration, according to new chairman of IR Society</p>

The UK is home to Europe’s leading financial capital and yet UK companies are often overshadowed by their European peers when it comes to investor relations. At this year’s IR Magazine Europe Awards, for example, German companies dominated the field for the second year in a row. So what could UK companies do better? And what could they learn from their European peers? Those are questions John Dawson, the new chairman of the UK’s IR Society, is keen to address.

‘We’ve got some of the very best IR professionals in the world, in my view,’ Dawson says. ‘But I don’t think we’ve got the best IR teams. We have to do more work for our UK stakeholders, by bringing examples of what companies are doing around the world into the UK marketplace.’

Dawson knows the value of foreign experience. In his first job at engineer TI Group, he spent time working in Malta and Italy before taking over as head of IR in the company’s London office. He left in 2000, following a takeover by Smiths Industries, and joined Exel as director of corporate affairs. He later ran IR at ICI Group and Cadbury – both of which were taken over by overseas firms – before starting his current role in March 2011 as head of investor relations at international energy company National Grid. In June, he was made chairman of the UK’s IR Society.

Having run IR at five different UK companies, what does Dawson think the Brits could do better? In his opinion, the problems come from the fragmented way in which they manage their financial brands. This means it’s harder for firms to promote a consistent message to the investment community, argues Dawson.

‘You find UK companies tend to be more fragmented in how they run their range of activities, because historically that’s just the way it’s developed,’ he says. ‘The governance role has been quite definitely in one area, website development has generally been in corporate communications, and developing the financial brand has typically sat more with the CEO, the CFO and the brokers. And it’s generally the day-to-day contact management with investors that has sat with the IR team.’

Greater integration
What you see elsewhere is a much more integrated approach, helping companies to present a cohesive investment case over time to the investment community, Dawson adds. ‘That to me is the essence of good IR,’ he says. ‘We have a lot to do as a profession within the UK to build that style of operation.’

UK companies have a great relationship with the City, but it is often built on individual relationships rather than with the investment case, says Dawson. Without naming names, he picks out one example he thinks demonstrates this flaw. ‘It’s a darling of the City and has been for a long, long time,’ he says. ‘But the focus investors put on it is the relation- ship they have with the CEO and the CFO. It’s not the relationship they have, necessarily, with the investment case.’

Searching for an example of best practice, Dawson settles on a company that will be familiar to readers of IR magazine: BASF. The German chemicals company won six awards at this year’s IR Magazine Europe Awards 2011, including the grand prix for best overall IR. Its 16-strong IR team, led by Magdalena Moll, has also been honored this year by a range of other organizations, including Thomson Extel and Institutional Investor.

‘One of the things we’ve seen over the last few years is the emergence of two or three companies that have been very consistent in the way they have approached things,’ says Dawson. ‘They’ve invested in good teams. They’ve built an integrated function around not only getting out and meeting investors, but also backing up those efforts with the news flow, the consistency in the web presentation and the consistency in the results. ‘If you look at companies such as BASF (and one or two others), Magdalena and her team have been extremely good at making sure they control their financial brand.’

Novo Nordisk is another company that has been good at creating a consistent investment case, notes Dawson. ‘You can see that in virtually every piece of material it generates,’ he says. Another IR Magazine Award winner, Novo Nordisk picked up best IR by a CFO and best practice of CSR at the IR Magazine Europe Awards 2011. The Norwegian healthcare provider also came third in IR magazine’s inaugural Euro Top 100 ranking, which this year features four German companies in the top 10, compared with just two from the UK (see UK overshadowed, below). The Euro Top 100 ranking, as well as the IR Magazine Awards, are determined by a perception study of more than 600 members of the buy side and sell side each year.

For Dawson, European companies have had to develop greater in-house expertise because they haven’t been able to rely on the same support services UK companies have. They do their own register analysis and have their own roadshow strategies, he points out. ‘And they run their own contact management, so they are keeping on top of all their relationships rather than once again relying on intermediary sales forces to manage the outreach on a regular basis.’

Does size matter?
Does size come into it? Continental European firms have pioneered much larger IR departments than are typically found in the UK (BASF’s 16-strong team is a case in point). Dawson doesn’t believe size is the real issue, however.

‘Every business has to find a solution that fits its size, shape and model,’ he says. ‘One of the challenges for the IR Society, and for the profession, in my view, is to cut through the natural tendency of people to identify with size. We need to look through that and identify the things that differentiate and create really good pockets of best practice.’ Nor can you argue that UK companies are under- resourced, he adds: ‘To an extent, UK businesses have benefited from having support free of charge – from, for example, corporate brokers – so as a result they’ve been able to do quite a lot with not a lot.’

Dawson believes UK issuers are spending as much on building the investment case as their continental peers, it’s just that the money is spent in a more fragmented way, resulting in a lack of focus. ‘Even though UK companies don’t have a lot of cash in investor relations, they’re still spending a lot on the annual report, on corporate communications; they’re still spending a lot on other areas,’ he says.

‘Increasingly, as companies – and as IR professionals – we’ve got to find ways to take those resources and make them work better together to support the brand.’ As chairman of the UK’s IR Society, Dawson is now well placed to help make this happen. He took over in June from Richard Davies, the founder and managing director of shareholder analysis firm RD:IR, following more than four years on the board.

Dawson’s mission is, as he puts it, to aid the ‘professionalization’ of IR in the UK. ‘We want to educate not just the IROs, but also their stakeholders, the executive management team and non-executives, about the benefits of what good IR can look like,’ he says

UK overshadowed:
IR magazine’s 2011 Euro Top 10*
Company                Country
1 BASF                   Germany
2 Nestlé                  Switzerland
3 Novo Nordisk        Denmark
4 Unilever               UK
5 RWE                    Germany
6 Lanxess               Germany
7 Novartis               Switzerland  
8 E.ON                   Germany
9 Swedbank            Sweden
 10= BG Group        UK
10= Umicore           Belgium

*The rankings are determined by a perception study of 630 portfolio managers and analysts

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