Advice on transitioning from an outsourced IR solution to an in-house IRO
As a principal in a strategic communications firm specializing in investor and public relations, I find one of the most difficult challenges I encounter is identifying and hiring qualified candidates – and my guess is that I am not alone. While I typically approach hiring from an agency perspective, I have also had the benefit of assisting numerous NYSE and Nasdaq-listed clients in hiring internal IROs.
As IROs have ascended the ranks within publicly traded companies, it is imperative to embrace formalized hiring protocols when filling this increasingly critical role. It is important to remember that IROs, like many other executives, need to be well-rounded individuals capable of many tasks in order to effectively fulfill the needs of your covering analysts and investors. In general, IROs need to have interpersonal skills, an ability to comprehend your business activities, financial acumen, an understanding of the financial markets and its different players, strong writing skills, and more.
When hiring an IRO you first need to determine the type of background and mix of skills that will likely result in a strong pool of prospective candidates. Whereas a life sciences company would be compelled to hire an individual with a strong medical or science background, it would likely be less concerned if a candidate had a hardcore finance background. Conversely, a finance company would likely target someone with a strong finance and capital markets background.
While you can learn a lot about an individual from his or her resumé and gain additional insight from face-to-face interviews and reference checks, how a person ultimately integrates into your organization and/or performs is not an exact science.
For many companies, the most effective solution to transition from an outsourced IR solution to an in-house IRO is to shift an existing employee to the IRO role or expand his/her existing responsibilities to include investor relations. Candidates for this role typically come from operations, finance or marketing. The benefit of this approach is that an existing employee is a proven commodity within an organization and eliminates the uncertainty of hiring an outside candidate. An existing employee also brings to bear intimate knowledge of a company’s business, strategy and culture.
Another major consideration for companies hiring an IRO is to understand how this individual is positioned both internally and externally. For some companies, an IRO is a mid-level position that operates behind the scenes, handling the day-to-day aspects of investor relations but with minimal contact with investors. Conversely, some IROs act as the righthand-person to the CEO and in many instances serve as the face of the company at investor conferences, interface closely with the board of directors and are on the front lines with both the buy side and the sell side. The bottom line is that knowing in advance how this individual is going to be used will allow you to identify appropriate professionals and reduce the likelihood of hiring overqualified or underqualified candidates.
A trend I have seen gain momentum over the past several years is investment bankers and sell-side analysts leaving Wall Street to become internal IROs and external IR professionals. Whether they covered real estate investment trusts, life sciences or telecoms, these individuals bring tremendous industry insight and access to the buy side and are greatly coveted by their potential employers. A word of caution, however: not all of these individuals are fully prepared to relinquish their lofty position in the hierarchy of the capital markets and struggle with the transition to the day-to-day responsibilities required of investor relations – not to mention reduced compensation opportunities.
Finally, a company needs to make one last decision – transition the IR function entirely to an IRO or share these responsibilities with an outside agency. Depending upon the size of a company, the amount of internal resources dedicated to IR varies dramatically. As you might expect, mid and large-cap companies tend to have larger budgets than small and micro-cap firms. In general, companies tend to use outsourced resources to cost-effectively fill a void in their in-house capabilities – which includes access to the capital markets (buy side, sell side and investment banking), messaging expertise, presentation development and writing skills, as well as the ability to assign an entire team to the account.
In my experience, effectively staffing the IR function requires a holistic approach to determining a company’s requirements and identifying the skills and resources required by that function.
Jeffrey Goldberger is managing partner at consultancy KCSA Strategic Communications