Rob Swystun, Pristine Advisers
The role of investor relations officer (IRO) has changed much over the last several years, starting with the financial crisis in 2008, which led to a drop in investor confidence. Growing business and market complexity has forced the role of investor relations to become more strategic.
In an article originally published on the Nasdaq site, vice president and head of Global Intelligence at Nasdaq Deirdre Dastous says IROs now have to think just as much about communicating to the board as to shareholders and potential investors.
“The typical IRO is now tasked with helping the company’s board members understand the way investors perceive business strategies and developing a more engaged shareholder community based on long-term relationships,” Dastous says.
She identifies three big trends that are affecting investor relations in the current marketplace:
1. Investor activism is growing rapidly
Activist investing in Europe has risen 126% since 2010, according to a recent Linklaters report. It’s especially prevalent in the UK, with 32 “activist actions” to date in 2015, which puts it ahead of any other European country.
Globally, by the end of September, 860 activist actions had occurred, which is on pace to exceed 2014’s total of 907. In the US, according to Westlaw Business Currents, US activist campaigns have risen by 304% since 2010, with 2015’s YTD campaigns far surpassing the annual total in each year from 2010 to 2014.
This rise in investor activism means IROs need to monitor their shareholder base more closely, Dastous says, using techniques like stock surveillance. IROs also need to hone their skills for communicating and engaging with the activist investor community.
2. Investors are changing how they classify companies
Like investor activism, thematic investing continues to grow and this requires IROs to better understand the tendencies of shareholders and prospective shareholders.
As part of this growth in thematic investing, investors are changing the way they classify companies with peer groups bunching them together based on certain conditions or investment strategies.
As an example, Dastous says stocks from a company that increases its dividend from 2% to 4% may be grouped with stocks from other companies that have drastically increased their capital return programs to form a ‘synthetic basket’ of similar stocks.
She also cites Socially Responsible Investing (SRI) as another emerging investment strategy that IROs need to be aware of, as there are now over $1.3 trillion of socially responsible assets under management, a figure that has doubled over the past two years with European shareholders leading the way.
Because of the growing trend of thematic investing like peer group considerations, SRI and passive investing, it’s no longer effective to just focus on factors like assets under management or only focus on certain sectors.
IROs now require a broader view of investor characteristics and tendencies than they can get from traditional peer analysis, says Dastous. They’ll need to identify ideal investors in new ways and adjust their companies’ stories and targeting programs accordingly to account for these thematic investing trends.
3. Delivering messages that maintain analyst coverage is becoming more difficult
Companies — especially small and medium-sized businesses — struggle to attract or maintain analyst coverage. Unlike in the past, IROs can no longer rely on analysts to regularly report on their business, meaning investor targeting has become an even more critical function for IROs.
Of critical importance for IROs is understanding how corporate access fits into your meeting schedule and to push for the most strategic meetings and performing quality research and preparation along with having a sound strategy for seeking and maintaining investors.
Proactively communicating the right message to the right investors is crucial and it all starts with understanding the investors’ decision-making criteria. IROs will also want to get an early indication of anything that may be creeping up on them, particularly activist intentions.
Perception studies can be a useful tool for IRO officers to better understand their vulnerabilities and develop a stronger offense against threats, Danous suggests. Along with this, IROs need more advanced data sets that will provide them with the insight into their company, industry, peers and prospective investors.
“It’s clear that the era of the IRO focusing on reactive communications is long gone,” Dastous says. “Instead, the modern IRO is creating proactive strategies for building long-term, engaged relationships with their shareholders. As they do so, the insights that IROs provide are becoming a critical part of board-level conversations.”
In 2016, the role of the IRO will become even more prominent within their companies and they’ll need to have access to advanced information, tools and analytics to enable them to provide the right information to the right investors at the right time, plus deliver information to the board that can help devise effective, long-term business strategies.