Today, many investor relations professionals around the world can sing the praises of their role, which they say is becoming increasingly vital for companies, boards and investors. In areas such as the US and Europe, IR practitioners often highlight the great strides the function has made over the last decade, claiming the C-suite now sees them as their best advisers and that in today’s business landscape, everyone wants a piece of IR.
While that might be the reality in developed economies, casting an eye on emerging markets reveals a different picture. In countries like South Africa the profession is still not fully recognized as a stand-alone role within companies and the line between IR and other administrative tasks is often blurred.
‘In South Africa, the IR function is often combined with another role, sitting alongside traditional finance, communication, marketing or treasury in a combined role,’ says Debbie Millar, chair of the Investor Relations Society of South Africa. ‘What we have battled for – and are still battling for in South Africa – is for IR to be a stand-alone role with substance.’
Millar also notes that when it comes to career progression, ‘traditionally IROs have managed to achieve a certain level of seniority within businesses only because their role is attached to another one.’
But things could be about to change. Millar tells IR Magazine that growing investor interest in ESG is possibly going to act as a catalyst to increase the relevance of IR for companies.
‘ESG needs strategic, targeted and defined communication with investors, and a consistent narrative,’ she explains. ‘Therefore, there will be an increasing need for companies to have professionals who curate that aspect and embed ESG into both the financial narrative and sustainability goals.’
Yuraisha Moodley, director of the Investor Relations Society of South Africa, says in the 16 years she has spent in IR the function has made some progress and evolved from being mainly a co-ordination role to establishing itself as a career path.
She argues, however, that the role is not yet where it needs to be. ‘That’s what we’re trying to do at the IR society: professionalize the IR role,’ she notes.
Moodley says that today the perception of the IR role, at both an investor and a company level, is proportional to company size and management. Simply put, it’s easier to find IROs performing true IR tasks at larger companies that boast a more diverse shareholder base and operations in different jurisdictions. This is because international investors with investment portfolios in developed markets are accustomed to engaging with IR.
Conversely, Moodley argues that South African shareholders have traditionally been spoiled with direct engagement with companies’ CEOs and CFOs – and that’s who they trust. ‘In South Africa, investors are accustomed to direct access to management and would often expect management to be present at meetings,’ she says.
Millar agrees. ‘The C-suite is very much the star of the show for investors and that can diminish other roles such as IR, which could otherwise significantly enhance C-suite effectiveness,’ she points out. ‘We are starting to see a change at larger companies more than at small and mid-caps.’
Looking at the steps companies should take to start trusting IR and leveraging the function both internally and externally, Moodley urges businesses and their C-suites to look at IR professionals as partners ‘who can provide them with insights that facilitate the decision-making process and drive fair valuations.’
She explains the starting point is for businesses to enable IROs to gain deeper insights into the corporate processes, narrative and strategy that they want to deliver to shareholders. ‘You need a senior person within the IR function who can reassure the C-suite that he or she can handle that external communication with investors,’ Moodley says.
Lack of understanding
Vanessa Rech, co-owner of Johannesburg-headquartered firm Keyter Rech Investor Solutions, identifies two macro challenges facing IR professionals in the region.
First, ‘the current economic and political environment in South Africa presents significant structural challenges to businesses, including load shedding [scheduled power blackouts], a poor economic growth rate, corruption and being graylisted,’ she says.
‘As a result, IROs will need to invest considerable time and effort into educating international investors on the intricacies of doing business effectively in South Africa, as well as on risk-mitigation strategies.’
Beyond these external factors, Rech points out a deep and fundamental lack of understanding of the nature of the IR role as a second challenge. ‘A lack of understanding of IR practices and limited training and education in the field are key constraints for new work entrants seeing IR as a viable career opportunity,’ she says.
‘Many current IROs enter the profession after being involved in finance, company research or public relations, meaning they could lack fundamental skills when starting out.’
Looking at the evolution of the function, Rech says ‘the South African IR market took quite some time to reach the level of maturity it’s at now.’ That ‘level’ is one at which listed companies have started recognizing the importance of establishing the function internally rather than outsourcing it.
For Sylvie Harton, chief business strategy officer at Lumi, ESG is the main challenge facing South African IROs right now.
‘We have seen a progressive shift in shareholder activism in South Africa, as shareholder demands for greater levels of accountability, reasonable executive remuneration and disclosure and transparency have increased,’ she tells IR Magazine.
‘Although it has not yet reached the levels seen in the US, the UK and Australia, it has been steadily increasing. This trend will have a significant impact not only on the role of the IRO but also on how proactive South African companies are in their ESG reporting.’
Defining the role
Rech says South Africa ‘has made significant efforts in recent years’ to enhance its IR.
‘Companies are striving to improve their transparency and communication with both domestic and foreign investors to foster better relationships,’ she says. ‘This has included proactive efforts to engage with shareholders and stakeholders alike.’
But some argue that the pace of change is still too slow.
‘More work needs to be done for IR to be professionalized,’ Moodley says. ‘The role of strategic IR professionals needs to be more defined for them to be able to add value for the company. We can get bogged down in purely administrative and reporting tasks, which are part of our role, but they are not all our role is.’