Anytime there is disruption in the financial markets such as a recession, drop in compensation or new regulations, there is interest among buy-side and sell-side professionals in taking the step into corporate IR roles, according to a leading search consultant.
But speaking to IR Magazine for part two in our IR careers video series, Smooch Repovich Reynolds, managing director of the investor relations and corporate communications practice at ZRG Partners, challenges the findings of recent academic research that suggest former sell-siders entering corporate IR roles lead to improved financial disclosures, increased stock liquidity and greater institutional investor coverage.
Repovich Reynolds cautions that there are ‘inherent risks and trade-offs’ in hiring from Wall Street. ‘IROs are expected to be close advisers to the management team and the board. Sell-siders have never done that: it’s just not part of their definition on Wall Street,’ she explains. ‘There are some who have the natural ability and DNA to be an adviser, but that’s a very small percentage of analysts.’
She adds that candidates with a Wall Street background are often better suited to a corporate finance role. IR is still a relatively young profession – NIRI celebrates only its 50th anniversary next year, for example – and Repovich Reynolds says there is still widespread misperception about what the role of IR is. ‘There’s a huge misperception on the part of management teams that by hiring a sell-sider for the top IR role there’s going to be a magical lift in the value of their equity. It doesn’t work that way… and they will be missing experience in the other half of the role,’ she says.
The tide of general sentiment about IR is beginning to turn. Repovich Reynolds notes an emerging trend of senior management teams mandating that their IROs should become better networked with the operational heads of business, to expand the understanding of what drives shareholder value and the influence of the IRO. This trend was also noted at IR Magazine’s think tanks in Toronto and Palo Alto, California last year.
Management teams are expecting IROs ‘to develop solid relationships at the operating group level with the operating leaders and their direct reports, so that the understanding of the importance of the investment community can cascade down through the organization,’ Repovich Reynolds says.
Beyond this, she explains that senior management is beginning to develop a more detailed understanding of what it takes to be an outstanding IR leader. This includes:
- Possessing gravitas: ‘When do you push your management team on a topic and when do you let up, knowing what its tolerances are?’
- Delivering challenging messages: ‘The ability to deliver challenging messages, such that the leader hears the conversation and respects the ensuing discussion’
- Developing trust: ‘IROs have to have the ability to ingratiate themselves with the organization’s leadership team at both the corporate and operating group levels’
- Being perceptive: ‘An IRO’s ability to glean nuances from the investment community by being an active listener and almost hyper-perceptive. I’ve always felt it’s not the overt moves that Wall Street makes that worry a management team and the board – it’s the nuances and what’s between the lines.’
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Stay tuned for further debate on this topic in the spring issue of IR Magazine, out next month.