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Feb 28, 2002

IR at any cost

Tips to stretch corporate budgets

Few IR department budgets have been left untouched by the wave of cost cuts rolling across the corporate landscape. Buffeted by the onslaught, IROs have been forced to hone their skills at 'internal marketing' as they endeavor to justify their value to senior management. Concurrently, they've been grasping for ways to cut costs and add value for every dollar spent.

'Our management is committed to reducing costs across the company,' comments one veteran investor relations officer. 'I have to look at my IR budget constantly.'

No-one likes to budget - it sure can take all the fun out of money. But with a dash of imagination and a touch of common sense, even an IR budget chopped down to pint-size can be fortified with extra kick.

When formulating a potent IR budget, the most important ingredient is probably the IRO's time. By all accounts, unseasoned IROs can spend a remarkable amount of time on activities that don't really add value. It is critical to prioritize, especially when staffing cuts are leading to fewer people doing more.

For example, spending eight hours a day on the phone retelling the same story is probably not the best use of an IRO's time. By providing alternative ways for investors to get information, more time is left over for a more proactive approach. It can be as simple as a voicemail message at earnings time with answers to five popular questions. A more elaborate path to information is the internet.

Today - and tomorrow - the most strikingly cost-effective way to communicate with investors is, and will be, the internet. If you are not acquainted with the fiscal advantages posed by this medium, you've probably already joined the unemployment rolls.

Thrift appreciation

'The internet has completely changed the economics of communicating with the Street,' says Kira Bacon, vice president of investor relations at visual content provider Getty Images. 'Most investors and analysts would rather get information on a web site than request a hard copy. Fewer annual reports and other documents need to be printed and mailed and they don't need to be flashy and expensive because they are simply less important.' Indeed, many investors appreciate such thrift.

So from a cost/benefit viewpoint, it behooves IR departments to ensure they maintain information-rich IR web sites. Note that maintain is the operative word. Before you set it up, make sure someone is responsible for keeping the site current. 'Keeping it going is a huge project and you must budget for that as well,' comments Bacon.

On the other side of the info in/info out equation are research tools. Kelley MacDonald, senior vice president and head of investor relations at financial services provider State Street, begins (as with any budgeting exercise) by evaluating services, materials, subscriptions and so on, according to where they come on the 'nice-to-have/ need-to-have' spectrum. Then she looks for overlap. 'Today's technology means you may often be getting the same information from two or three different sources,' says MacDonald. 'You have to ask which source presents the material best.'

A further budget-stretching technique is to examine resources across functions seeking ways to more efficiently share data. 'Particularly in large companies, you can find multiple departments such as finance and corporate marketing buying the same thing,' adds MacDonald.

Online databases are precious. So can cost-conscious IR efforts be run without these unequivocally valuable tools? You could, at a pinch, ask analysts to send you their reports (and hope they remember to) instead of using a service like Multex that delivers the reports online. But it might be a stretch to expect prompt reports on your competitors as well. And you could, at least in theory, devise your own targeting list instead of using a service like Thomson Financial's IRChannel. But then you'd be more reliant on contacts over the transom and your investment bankers' goodwill.

Still, the web's wide open spaces offer plenty of spots to graze for free, and companies that just have to skimp might do well to explore them. For example, Anna Marie Dunlap, vice president of investor relations at healthcare technology company TriZetto Group, praises Nasdaq for offering an increasingly robust online product exclusive to its roster of companies. 'You can get around almost any obstacle,' comments Dunlap. 'It all boils down to prioritization.' (Dunlap, incidentally, makes subscription to a high-end database a condition of employment.) Other stock exchanges offer their listed companies similarly useful sites.

Most IROs need the help of outside services. Often these services overlap, however, and the challenge for thrifty IR practitioners is finding the best combination of services at the best price.

'Whereas once I might have written a check for all my vendors, I'm now spending much more time looking at packages of services that may entail compromise but lower overall cost,' says one IR officer. Retorts another: 'Soup-to-nuts is only valuable if you want a full course meal. If you're not eating the appetizer, you may be better off choosing à la carte.'

Whatever your needs, it is undoubtedly worth evaluating your vendors on an annual basis to make sure you're getting the most bang for your buck. Demonstrating your attention to expenses in this way will have the added advantage of highlighting your commitment to the corporate team's overarching objectives while enhancing your budget's credibility.

Boosting the budget

Given current business conditions, few IR departments can expect hefty budget increases any time soon. Indeed, what would they spend them on? For firms with murky visibility and maybe a recent history of earnings expectations missed, now is perhaps not the greatest time to aggressively entice investors.

Once again, the appropriate action to take will depend on your priorities. Just as there are situations in which you can be less aggressive, there are times when you need to step on the gas. Certainly any company that's going through a particularly tough patch in trading terms, or is in a period of transition - bringing on a new CEO, entering a new business line, acquiring or divesting, and so on - needs to commit extra resources to IR. 'A company in change definitely needs to communicate that change,' says State Street's MacDonald. 'If not, its valuation will be penalized because investors won't understand the company. Absent information, investors make up their own. You don't want them left with that.'

In a business world increasingly premised on acquirers and the acquired, one great argument for a bigger IR budget is the desire to stay on the most advantageous side of the ledger. 'Even a small difference in valuation can add up to a tremendous value when using shares as acquisition currency,' notes Crocker Coulson, a partner at Coffin Communications. 'If you want to put yourself in front of the pack in a consolidating industry, you have to devote resources to IR.'

In addition, says Coulson, many companies that participated in wholesale industry sell-offs have now emerged with effective data showing their valuation should be far greater. 'We are seeing a real attempt on the buy side to come up with normalized valuations beyond the current environment,' says Coulson. 'Engaging in that exercise, they need high quality information. That leaves a real opportunity for companies with a better than average story to leverage it and really distinguish themselves.'

Confirming value

Ultimately, maximizing relative valuation is management's primary job. While management's compensation is often tied to stock performance, an IRO's probably shouldn't be. TriZetto Group's Anna Marie Dunlap argues that too many factors affect share price to make it a useful measure of IR success. 'A strategic business unit could blow up on you, or markets could collapse,' she says. 'IR adds value if the company is performing or has the strong potential to perform and that story has not been told in the marketplace.'

In the course of telling that story, an investor relations department's budget will balance what can be done with what resources the company can afford. 'IR is like yard work,' comments Dunlap.

'You can just mow the lawn, or you can build an elaborate garden - or do everything in between.' But Dunlap cautions that for smaller companies especially, an IRO's reach should not far exceed her grasp. 'IROs do their job as part of a team,' she notes. 'If I prepare a budget that's way out of whack - lots of bells and whistles - I won't be taken seriously. I need to put together a responsible budget that recognizes the company's situation.'

Indeed, increasing a budget for its own sake is of no value. It must support the IR program's strategic objectives. How resources are deployed depends on a risk/return equation based on the company's situation and the efforts needed on its behalf. The wrong way to plan an IR budget is to slash it because the market seems less receptive. It would be better to adjust strategies.

Travel tips
Travel is a high priority, big ticket item in most IR budgets. After all, IR is a relationship business, and no company can afford not to have face time with investors. But many firms today are re-learning the standard home economics trick of bunching errands when they go into town - and saving thousands of dollars in the process.

'It's not rocket science,' says Janet Craig, IR director at graphics chip maker ATI Technologies, 'it's just using your resources more effectively. For example, if we are visiting New York for an investment conference, we'll take the opportunity to schedule one-on-ones as well.' Of course, depending on how often you travel, conferencing and webcasting technologies can also significantly reduce costs.