Does size matter?

In the US, the birthplace of IR and a country where everything from cars to cans is usually bigger, it has always seemed an oddity that IR team sizes at public companies have traditionally been smaller than their European, Asian and Brazilian equivalents. Canadian IR teams are smaller still.

This existing order is confirmed by the latest study of IR budgets, team sizes and reporting structures from IR magazine’s research arm, IR Insight. The Global Practice Report 2011, due to be published in the autumn, finds that team sizes have not changed at all since last year. Moreover, the poll of more than 1,000 IR professionals from across the world reveals the average global IR team size of 3.7 people is marginally down on the average of 3.8 reported in the same study last year.  

Not all teams are getting smaller, however. In a possible sign that US and Canadian firms are waking up to the need for more people in IR, North America is the only region to have seen its average IR team increase in size in the 2011 report, from 2.5 to 3.3. This narrows the gap on Europe, where team sizes are 3.5 on average, while Brazilian and Asian firms continue to lead the field with an average of 4.3.

Team spirit

To investigate the effect of changing team sizes on IR practice, IR magazine selected three North American companies in various stages of development: Starbucks, the ubiquitous coffee retailer, has grown its IR team twofold since 2005; the head count at Scotiabank, the Canadian bank, has remained static in recent years; and software and computer giant Microsoft has slimmed down its IR team by three people in as many years.

JoAnn DeGrande, head of investor relations at Starbucks, believes her expanding team has much to do with the turnaround of the company, which has followed on from the well-publicized store closures of 2008 and 2009. Since the upswing, there has been a substantial growth in the investor base and an almost 100 percent increase in the number of analysts covering the stock, including big names like Credit Suisse and Wells Fargo, which picked up the stock only in the last year.

The lack of movement at Scotiabank is in keeping with the consistent performance of the big Canadian banks, all of which sailed stoically through the financial crisis. Microsoft downsized its IR department at the same time as the company-wide lay-offs in 2008.



As it stands, the IR teams at Microsoft, Starbucks and Scotiabank are all similar in size, with eight, seven and seven personnel, respectively (including assistants). This puts them comfortably above the average for North America, although this similarity in size appears to have little bearing on how the IR heads organize their resources.

On a day-to-day basis, Bill Koefoed of Microsoft organizes his team along business lines: one investor relations manager looks after Windows and Bing, one looks after Microsoft Office, and a third handles phones and the Xbox.

‘The Street generally knows who to call,’ says Koefoed, who takes questions across the board, just not in such depth. The calls are divided up after earnings, but not in any particular order.

Peter Slan at Scotiabank splits his team into an external communications team and an internal communications team. The three senior members of the IR department are the only ones allowed to speak directly to analysts and investors, to ensure consistency of message and responsiveness.

‘We don’t want to be simply intermediaries shareholders can call to ask a question and we jot it down, go and find out the answer and call them back,’ explains Slan. ‘We want to be actually delivering the responses ourselves, in real time, addressing our shareholders’ questions, comments and concerns as promptly and thoroughly as possible.’

The other half of the team is responsible for communicating market feedback to the board and executive management. This includes producing a weekly publication for internal circulation that covers investor sentiment on Scotiabank and its competitors.

Starbucks is in a period of transition: the usual divide-and-conquer approach to investors and analysts is on hold for six months to give the new IR senior manager the time to settle into the two-year rotational position. DeGrande is taking the lead on all communications for now and a new analyst has been hired to take on some of the responsibilities of the junior IR manager, who is being groomed to receive investor and analyst calls.

Maximizing resources

Organizational preferences aside, the IR heads at these companies all agree the period leading up to quarterly earnings presents the biggest challenge to their resources. The obvious solution for teams like the one at Starbucks, buoyed by a share price attracting more and more investment community interest, is to hire more people. When the numbers are less compelling – the share price at Microsoft is where it was a decade ago – the head of IR has to think creatively to relieve some of the pressure.

In the lead-up to the first quarterly earnings after Microsoft started laying people off, Koefoed borrowed a colleague who had worked for him at a different department within the company: the IR team needed help and the two-week secondee gained valuable experience. ‘Now we borrow someone for a two-week stretch every quarter,’ Koefoed says. ‘There’s a queue of people two years’ long to do the job.’

There are no formal interviews for the temporary position. Instead, internal managers and team leaders keep an eye out for likely candidates, who typically have an MBA, three years’ experience at the company and can demonstrate potential and the capacity for individual contribution. ‘The more people within Microsoft that take back with them the shareholder point of view the better,’ says Koefoed, like an IR evangelist. ‘Not that I believe shareholders are always right, but it helps to know how they think.’

Outside of earnings, Slan, DeGrande and Koefoed all report doing more investor outreach nowadays. Each IR head stresses the underlying need for physical contact, which is driving this need for more roadshows, more one-on-one meetings and more conferences. Koefoed puts the increase in his travel activity as high as 1,000 percent. ‘Sitting in the same office opposite a portfolio manager makes the difference,’ he says. ‘Relationships matter. Investors want to be able to look me in the eye and know they can trust what I say.’

Travelling time

Microsoft’s investor base is mostly US, and travel to roadshows and conferences reflects this. But the horizons for the other two North American companies have been expanding eastward. Starbucks’ roadshow to Europe in late September will be the third time the company has visited the region in as many years. Scotiabank planned a first-time trip to Japan earlier in the year, which had to be rescheduled following the devastating earthquake. Both this increase in roadshow activity and travel further afield echo the findings in the Global Roadshow Report 2011, included with this magazine.

On top of investor demand for face-to-face time, there is added pressure from brokers to travel to various parts of the world. Slan, for one, reports significant interest from several brokers in taking Scotiabank to Europe. The quid pro quo for budget-conscious IR heads is the increasing number of ways they are using the sell side. At the lower end this can mean brokers setting up meetings and paying for lunches on a Microsoft roadshow. On a grander scale it can stretch to brokers bringing groups of Asian investors to Seattle to see a string of companies like Nordstrom, Costco and Amazon at the same time as Microsoft and Starbucks, freeing these companies up from the time and expense it takes to travel to the Far East on their own dollar.  

For the Global Practice Report 2011, IR professionals were asked to estimate how they split their time between the three principal IR audiences: current institutional investors, prospective institutional investors and sell-side analysts. The global split was 37 percent, 25 percent and 29 percent, respectively, with similar averages across each of the regions. At the same time, however, the question provoked many respondents to say they didn’t split their time like this.

Time management

Koefoed, Slan and DeGrande don’t keep timesheets to record the exact amount of time they and their team spend with investors, prospective investors and analysts. Koefoed can give a rough outline of how he spends his time in each quarter. ‘I spend a third of the 12 weeks analyzing results and performance, a quarter on the road and the rest in the office, on the phone, doing internal finance stuff and people-related activities,’ he says. ‘Any remaining time I have I read and try to understand the competitive environment.’

Slan and DeGrande keep a database of how many times they have met with an investor or analyst. The team at Scotiabank uses this information in the internal reports it provides to the board. ‘We want to be able to demonstrate to the board that we are spending our time seeing the right people: big holders of our stock and influential movers of our share price,’ explains Slan.

At Starbucks, DeGrande also records the issues raised during these meetings, to allow her team to keep on top of current concerns, spot emerging issues early on and prepare for earnings as well as follow up meetings with these investors. Executive compensation is one such issue. The ‘cross-functional’ say-on-pay team at Starbucks brings together IR, the company secretary, securities lawyers and corporate communications. DeGrande believes there is an increasing need for IR to manage the corporate governance/proxy program year-round, rather than simply ramping it up in the lead-up to the proxy statement being sent out to shareholders.

‘Often we have the ability to influence a compromise or even the withdrawal of a shareholder proposal,’ she says. ‘This is not unique to Starbucks; many proactive companies follow similar practices.’

But it is not only the key investor, analyst and shareholder audiences pushing for more IR time. On the day Google announced it was taking over Motorola’s smartphone business, the press called up Koefoed to get his reaction. He says the media take up more of his time than other stakeholders such as ratings agencies or debt holders, a feeling reflected in the Global Practice Report 2011. ‘There is a constant debate internally about talking to the press,’ says Koefoed. ‘Our PR guys give the blah, blah, blah answers, but investors would kill us if we did that.’

This article appeared in the October print edition of IR magazine.