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The Strategic U-Turn: How IR Teams Can Ensure Success

The ancient Greek philosopher Heraclitus said “The only thing that is constant in life is change”. JM Keynes once observed “When the facts change, I change my mind.” Both men could have been speaking for the modern CEO: the relentless advance of technology, of regulation, of competition and of customer behavior means that any corporate that is unable to change is likely to fail.

And the most dramatic – yet surprisingly common – form of corporate change is the strategy U-turn.

U-Turns have long been a feature of corporate life, as companies re-invent their strategies, their leadership, sometimes their entire business model to cope with challenges, opportunities, and changing circumstances.

Nokia began life as a forestry company, before becoming a major mobile phone maker. Amazon began life as a bookseller. And IBM used to make computers. It has no manufacturing today.

Often, this urge to change direction is driven by shareholders, perhaps through dissatisfaction with performance. Sometimes it is driven by management (often with a highly-paid consultant at their shoulder) and their vision of an alternative future. Sometimes, corporate U-turns are forced upon companies: Royal Bank of Scotland has gone from being the world’s biggest international bank by assets to being a much smaller UK-focused lender, following its collapse and bail-out in the financial crisis.

Indeed, so normalized has the U-turn become that very few companies do not have some sort of “transformation programme” underway at any given time: change is business as usual in the corporate world.

Recent days have seen several more high-profile U-turns demonstrating that the corporate U-turn is alive and well.

Shell announced last week that it would not only be setting firm three- or five-year targets for cutting carbon emissions, but would also extend these targets to include emissions by users of Shell’s fuels. To demonstrate the seriousness of the promise, Shell has linked them to the pay of its CEO Ben van Beurden. 

Back in May, van Beurden said having a long-term “ambition” to cut carbon emissions made more sense than setting firm targets. Now, six months later, he has performed a U-turn and set targets.

We have written here before about Unilever’s spectacular U-turn over a “simplification” strategy change. Now CEO Paul Polden has been made to carry the can for the failed U-turn: he announced he will step down in January.

And herein lies the key to the strategy U-turn: they can come from many directions, and have many causes, but they are intrinsically linked to the senior management that designs and executes them. U-turns can be a sign of weakness (as with Royal Bank of Scotland); or they can be a sign of strength (as with IBM). Some come from within (Unilever) and others from without (Shell). But the key to a successful U-turn is for management to convince stakeholders of the logic of the move – in the same way that they themselves were convinced – and to paint a compelling picture of the post U-turn universe.

In any U-turn, investors are arguably the most important audience to convince. It was investor doubt that stopped Unilever in its tracks; and it was investor support that allowed RBS to “shrink to greatness”. Investors have skin in the game, and need to be led through the logic of any strategic change with care. In the case of a U-turn, they will need to be convinced that the logic of putting their cash into a business idea has not disappeared because the business idea has changed.

Furthermore, their support for the U-turn is crucial to making it happen. The more radical the U-turn, the more likely it is for shareholder support to be explicitly needed at an Extraordinary General Meeting (EGM). And, as with any meeting, the most successful EGMs are the ones where the doubts, questions and skepticism have already been surfaced and dealt with.

Which is where a top class IR team can make the difference between success and failure. As the conduit between the Boardroom and the shareholders, IR will be able to accurately take the pulse of investors, sound them out on prospective change, and feed back the response to management. They can identify the supporters and the naysayers in the analyst and investor community, and target management intervention accordingly.

The best IR teams can also act as a sounding board for management, predicting the response of investors to new ideas – before they have left the drawing board and incurred cost.

If change is the only constant, and strategic flexibility is central to long term corporate success, the role of the strategic IR team becomes crucial. Without them, the response of investors may come as a shock, and – worst of all – that shock may play out in public.

Minimising shocks is what great IR can achieve. And when it comes to corporate strategy, delivering a shareholder shock is the equivalent of performing a U-turn in an oil slick on the road: likely to lead to disaster without a large slice of luck. Best practice IR can ensure that the corporate tyres can cope with the slippery road.