A look back on 12 difficult months for the capital markets
In a year characterized by stuttering markets and celebrity deaths, investor relations has battled on. What have been the highs of a tough year?
More importantly, what are the appropriate resolutions for 2010? Leading investor relations professionals say the discipline is emerging from the shadow of recession stronger than ever, so IR magazine conducted a survey to find just what we should take from 2009 into 2010.
2009
What was the greatest IR challenge of 2009?
Christian Herrmann, head of investor relations firm K+S: ‘Honesty about sharply declining profits, while competitors still try to disguise the true picture.’
Lisa Cheong, director of IR at Clear Media and treasurer of the Hong Kong Investor Relations Association: ‘To continue to maintain a proactive dialogue with the investors even during difficult times, and to be forthcoming and transparent with all the bad news.’
Michael Mitchell, general manager of the UK’s IR Society: ‘Keeping the faith. From growth and leveraging up the balance sheet 18 months ago, it’s now all about survival, cash flow and paying down debt. What investors want has been completely turned on its head.’
Richard Jones, head of IR at Thai Bev: ‘Educating investors! Many Singaporeans want to know how big we really are, so we tell them one of our factories covers an area twice the size of Sentosa Island, a popular tourist destination off the coast of Singapore. Then they get it immediately.’
And a high point for IR in 2009?
Jeff Morgan, president of NIRI: ‘The NIRI board and I have made bringing the profession back to the regulatory table in Washington, DC a priority for the last two years, and a high point was our recent NIRI board meeting with Meredith Cross, the SEC’s new director of corporation finance.’
Jones: ‘After three years listed in Singapore, my personal high point may sound silly to other IROs. I noticed in the first year that local shareholders at investor briefings would append to questions, What are you going to do about this? In the past year or so, however, they have been asking, What are we going to do about this?’
Fergus MacLeod, head of investor relations at BP: ‘The highlight for us in 2009 was an analyst day and field trip at one of our major centers in the US. This gave both buy-side and sell-side analysts an opportunity to see our operations, technology and the quality of local management firsthand.’
How did IR change in 2009?
Morgan: ‘We’ve seen a steady fragmentation of the markets, dark pools, high-frequency trading, and so on, all leading to an equally steady decline in the ability of companies to identify their shareholders. We’re very pleased that SEC chair Mary Schapiro has said the commission will undertake a review of this system.’
Mitchell: ‘I think we have seen IR become much more professional over the last decade and the more difficult environment of 2009 has accelerated this process.’
Jones: ‘In 2009, I think the link between IR and corporate reputation has been more firmly established by tightening up IRO self-discipline in terms of ethics and transparency.’
How has the standing of IR departments within companies changed during the recession?
MacLeod: ‘The role of advising and guiding executive management on shareholder sentiment has become more important than ever, reminding us that while IR is external-facing, we have an important internal role to play, too.’
Cheong: ‘More frequent communication with the board.’
Jones: ‘Any IR department worth its salt will not have waited for a recession to get its act together. Those with a solid reputation are weeping less than companies that thought IR had no intrinsic value.’
Morgan: ‘Investor relations departments have been challenged to do more with less. I expect to see their budgets begin to increase with the improving economic situation.’
Suresh Kumar, head of investor relations at Chartered Semiconductor: ‘Being in the semiconductor industry, which is cyclical in nature, we are already used to the ups and downs.’
Mitchell: ‘More companies are now recognizing the benefits of an effective IR program and those that have invested in this in the past are reaping the benefits of maintained shareholder confidence. IR is a long-term investment; you can’t just turn it on when things get tough.’
2010
What will be the most significant task facing IR professionals in 2010?
Cheong: ‘Matching and managing market expectation. I think some people are more optimistic than others.’
Hermann: ‘There is no quick fix.’
Morgan: ‘In the US, the SEC’s approval of the change to NYSE Rule 452 means companies can no longer count on the broker vote for director elections, and this will have a very real impact on the proxy season that is just around the corner for calendar year-end companies. Affected companies need to plan now for a proactive shareholder education campaign to get retail investors to vote.’
Jones: ‘For any IROs who had their headcount or budgets cut in 2009 due to the recession, 2010 could be a painful year with lots of missed opportunities.’
Mitchell: ‘Keeping in touch with investors will be paramount. There will also be a sorting out of those that have survived the downturn and those that have been mortally wounded – so look out for some pragmatic M&A activity and hostile attacks.’
Do you have any exciting projects for 2010?
Morgan: ‘Strengthening the bond between local chapters and NIRI staff and programs, and supporting NIRI’s increased role in advocacy.’
Harold Woo, senior vice president for investor relations at CapitaLand: ‘We would like to expand our American depositary receipts program to further diversify our shareholder base.’
Jones: ‘ThaiBev is looking at improving the information provided during our factory visits and reexamining the issue of how we can inform investors that Thailand is doing fine, thank you very much, in the face of negative and sometimes unfair international media coverage.’
Mitchell: ‘For 2010 the IR Society is expanding its professional development program. We will also be encouraging medium and smaller-sized companies, which perhaps do not have a full-time IRO, to join the society and benefit from our services.’
Social media and IR: just a flash in the pan?
Regina Nethery, vice president of IR at Humana: ‘Yes. I don’t believe these are appropriate venues for investor relations activities.’
Hermann: ‘From our perspective, social media have yet to play a significant role with institutional investors, but it is something we do keep an eye on.’
Morgan: ‘IR has evolved to new and better ways of communicating based on the needs of investors and I think it’s clear this pattern will continue, and very likely speed up.’
Kumar: ‘I believe IROs in companies with a significant retail shareholder base will be keener than others to adopt social media for communications.’
Mitchell: ‘There is a difference between purely social media and channels that are genuinely useful for business communication. While it may be appropriate to use some of these for quasi-marketing purposes, IR professionals must always remember the legal requirements for disclosure of price-sensitive information.’
Jones: ‘I cannot envisage today recommending that IROs tweet off the cuff, which, of course, eliminates one purpose of Twitter: to liberate communications. IR is a discipline, not a social free-for-all. I would recommend IROs improve the information release on their corporate websites significantly before looking elsewhere.’
Cheong: ‘There are never any hard or fast rules for IR.’
Where will technology take IR in 2010?
Mitchell: ‘Undoubtedly we will see expanded use of the internet for IR. XBRL is the tiger in the long grass: many companies and IROs are unaware of the implications and extra costs of this technology.’
Nethery: ‘It is hard to tell what real impact (if any) XBRL will have on investor relations.’
Jones: ‘Cisco’s Telepresence is technology that looks like it could improve the video conferencing experience hugely. Unfortunately, few Asian companies will take this up in 2010 as it is still expensive. Believe it or not, most Singaporean companies still have voting by a show of hands at AGMs. I see more technology being introduced in the future.’
Kumar: ‘I think there will be pressure to come up with a more transparent and effective system of shareholder identification so companies can better identify and communicate with their owners. A real-time system may be several years away but I think we will move in that direction in the years to come.’
Will regional regulatory reactions to the crisis alongside emerging international markets change international IR?
Cheong: ‘Definitely. Requirement and expectation of IR professionals’ regional knowledge is always becoming higher and higher.’
Jones: ‘Certainly, regulations in some Asian markets could do with review but I think corporate governance can be boiled down somewhat to: if it feels like you are not doing it properly, you probably aren’t. People will continue to break rules and regulations – it’s human nature. It means you have to police the rules you have already.’
MacLeod: ‘Increasingly we are seeing ownership in countries outside Europe and the US move further up our shareholder register, which we see as a positive evolution as the economic power of the world continues to move from the West to the East.’
Mitchell: ‘Funds are going to be looking to the new industrialized countries so the pool of potential investors in UK companies will get smaller and the competition for capital greater. Combine this with the need for many UK-based pension funds to move from equities into bonds as they go into the payment phase of the pensions cycle, and you have a perfect storm developing for UK companies. Only the best will survive – and they will need good IR to help them.
