This is the second article addressing the “burning platform” moment for IR, as identified in a report from the National Investor Relations Institute (NIRI), the US industry body for the investor relations profession.
NIRI’s conclusion paints a stark picture: “Driven by changes in the capital markets, technology, financial and political activists and other pressures, investor relations is facing a crossroads moment presenting two possible scenarios: IR continues along the same path and becomes a tactical and less relevant function, or the profession changes to successfully overcome these challenges and broadly realize its full potential as trusted strategic advisor and its position at the nexus of stakeholder engagement to drive business and social value.”
While NIRI does a good job of surfacing this crossroads for the profession, it does not offer any solutions. Instead it calls for a debate and consensus from the industry. But a pathway to the solution may have arrived from another source.
NIRI’s findings arrived at the same time as consultancy PwC’s 22nd annual survey of CEOs and of professional investors. These two groups are asked for their views on growth prospects, risks, challenges and the notion of trust. As with any measurement of the views of two groups, the most interesting findings can be seen where opinions differ, rather than where they concur.
Intriguingly, the views of the CEOs surveyed by PwC also point to a potential template for Investor Relations to reclaim the role that NIRI would like to see.
Buried in the detail of the CEOs responses is a startling fact: CEOs were asked to rate the importance of “the data that you personally use to make decisions about the long-term success and durability of your business”. They were then asked about the quality of the data they receive.
Unsurprisingly, 92% said that financial forecasts and projections were “critical”. But in terms of the quality of the financial forecasts and projections they receive, only 42% rated it as “comprehensive”.
Similarly, 84% see data benchmarking their peers and competitors as critical, yet only 18% believe they receive comprehensive data in this regard; and 87% of CEOs say that data about the risks to which the business is exposed is critical, but a mere 22% say that the data they receive is comprehensive.
The quality of the data that CEOs are receiving is far below the importance that they assign it. In other words, CEOs do not trust their own people to give them the important data they need to make strategic decisions. The gap between what CEOs deem critical data and what they receive should be alarming enough to be concerned, but the PwC report also concludes that “one of the more striking findings in this year’s survey is the fact that the ‘information gap’ — the gap between the data CEOs need and what they get — has not closed in the ten years since we last asked them these questions.”
Another measure throws this trust gap into even sharper relief: 43% of investors believe that declining trust levels between employees and senior management is a major challenge. But this view is shared by only 19% of CEOs. 48% of investors see declining trust between companies and governments as a major issue, a view shared by only 24% of CEOs. And 36% of investors see customer trust as critical, compared to only 18% of CEOs.
There is a huge gap between what CEOs need and what they receive, and a similar gap between what investors want CEOs to be focusing on, and the cut all focus of those CEOs.
CEOs are aware that the raw materials at their disposal to aid decision making – the data – are flawed. Yet they do not share the alarm of their investors at the declining trust from various stakeholders which is caused by poor decision making. Bad decisions lead to underperformance, which in turn leads to a decline in trust. If a CEO doesn’t understand the firm’s financial and peer group, how can he or she possibly tell the company story to its investors? Yet only a minority of CEOs seem able to join these dots and see the big picture.
This is where strategic investor relations can make a real difference.
Company owners (by which we mean investors) want regular and accurate information on what is happening to their investment dollars – how the company is performing today, and its outlook for tomorrow. This is true whether the company is listed on a public market or not. And yet the majority of the output of IR teams is tactical – delivering earnings reports in a standardised format, for example. Yet the audience of this output is crying out for something else: investors want insight. This is why investors insist on meeting the CEO of their invested company, rather than simply receiving the numbers from the IRO. They crave the strategic insights that the CEO should be able to deliver, in order to understand what is happening with their investment dollars.
To enable this interaction to be fruitful, the IRO needs to take on a far more strategic role, to act, and be perceived almost as, a kind of ‘mini-CEO’. Holding a comprehensive 360 degree view of the firm’s activities, customers, markets and investors, the IRO must understand every element of the firm’s business, in a way that only the CEO and CFO also do. He or she must be able to clearly understand the strategic journey the firm is on, and to know exactly where it currently stands on that journey. And they need to be able to communicate this story to outsiders in a compelling and engaging way. In fact, the only real difference between the CEO and the mini-CEO should be that the CEO holds the decision-making power, and the mini-CEO does not.
Once this status is recognized and the right professional team is in place in the IR function, the difference is extraordinary. Engagement with investors will deepen and broaden. The benefits of engaging and collaborating with the providers of capital add materially to the fortunes of the firm. The strategy of the company is enhanced through being aligned with the strategy of its investors. Suddenly, the firm becomes a magnet for talent, and re-sets its stakeholder relationships, based on insight-driven trust. It starts to become truly meaningful to its customers, its people, and the wider society in which it operates.
And while NIRI can see the problem but not the solution, the answer is clearly illustrated by the views of the CEO as highlighted by PwC: Get the raw materials right, and the strategic application of IR will follow.
To move from the tactical to the strategic requires a quantum leap in thinking and perception from corporate leadership and the IR function. Such a transformation is not simple, and requires boldness, but without it the gap between trusted and the untrusted companies will only widen.