What all boards (and management teams) should hear from their IRO

Oct 07, 2015
<p>A lesson from <em>Pacific Rim</em>&nbsp;on the two-way flow of information in IR</p>

‘When Jaeger pilots drift, it’s a two-way street’

You might not think an action/adventure film like Pacific Rim could hold a lesson for IR but even something as unlikely as a pair of neural-connected pilots can teach us something.

So when Ron Perlman’s character Hannibal Chau tells Charlie Day’s character Dr Newton Geiszler that information flows both ways between the pilots controlling the Jaeger robots in their fight against the Kaiju monsters, it’s a good – though unlikely – lesson for the investor relations officer in how to add strategic value to the IRO role.

It is well understood that as the primary communicator of the company, the IRO is responsible for conveying timely, accurate information to investors on a broad range of matters. The best IROs have a strong command of their company’s financial performance and the factors affecting sales, profitability and growth. Investment analysts and portfolio managers gain confidence in an IRO who is able to convey not just information, but also effectively tell the company story in such a way that provides insight and understanding.

Equally important is the flow of information from investors to the company. As Chau’s comment reminds us, the IRO is uniquely positioned in a ‘two-way street’ to provide the company’s board and management with insight into the sentiment and concerns investors have regarding the company.

Regular quarterly reporting on IR activities to the board should be the norm, supplemented by reports following significant events. In addition to relaying the latest investor concerns, which can often be boiled down to a handful at any given time, some key areas of board interest include:

Stock price performance: Who better than the IRO to have a finger on the pulse of the factors influencing a company’s stock price? How did the stock perform over the quarter, year to date or 12-month period? How was the performance relative to peers and the broad market? What are the investor concerns driving stock prices? Which industry sectors are in favor, which are out of favor?

Short interest: Short interest, or the number of shares on a given date that investors have sold short, is an indicator of market sentiment. Material changes in short interest could give insight into investor bullishness or bearishness regarding a company’s stock.

Macro indicators: Providing perspective on interest rates, foreign exchange rates and other indicators relevant to the company can be useful in illustrating investor sentiment on a company’s stock.

Institutional ownership: Understanding the institutions owning a company’s stock is simply fundamental. Pointing out the top buyers and sellers, in addition to the largest owners, can be helpful in understanding the types of investors – growth, value, GARP – that are rotating in or out of the stock. Are activist investors owning more or less stock? Are IR outreach activities successful in attracting targeted institutions?

Financial media exposure: Highlighting key mentions in the financial press helps keep everyone informed on the success of financial media outreach.

Investor relations activities: A summary of IR activities undertaken during the quarter and the schedule of activities for the upcoming period help keep management and the board informed. It is particularly useful to highlight the activities that support the strategic goals for IR, such as building sell-side coverage and meeting with targets on the buy side.

Sell-side coverage: What is the sell side saying about the company? Do analysts fully appreciate the company’s business strategy? This insight is valuable to management and the board to identify topics for improved communication, as well as a gut check of whether investors understand the company’s path to value creation

Guidance: Monitoring the company’s success in meeting or exceeding sales and earnings guidance can be a useful exercise and provide insight into the alignment of internal forecasts with external expectations.

Regulation: A regular IR report is an excellent place to highlight and explain developments in regulations affecting IR practice. Reg FD and SOX are examples of legislation that materially changed many companies’ approach to IR. Developments such as increased scrutiny of executive compensation and other corporate governance issues are other topics worthy of discussion.

So it never hurts to find the hidden IR meaning in the unlikeliest of places – even those movies filled with robots and monsters. We just might find a lesson on how to do our IR jobs a little bit better.

Doug Fox is a senior investor relations professional, having recently retired as the IRO of Zebra Technologies Corporation.  

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