IR only emerged as a stand-alone role in the 1970s and, while the profession has grown rapidly led by the US, getting the role right remains a challenge.
Rewind, for a minute, to the late 1960s and early 1970s: American efficiency and entrepreneurship in computers, aerospace and manufacturing was booming. Household names like ITT, Sheraton, Honeywell and Pan Am dominated. Radio stations played Carole King and soft rock and Rowan & Martin’s Laugh-In was on NBC. And IR – at least as we now know it – was at last beginning to emerge as a profession in its own right, albeit after a lengthy incubation.
In fact, General Electric sowed the first seeds of formalizing the IR function back in 1953 but it took some 20 years for IR to properly emerge as a stand-alone profession. So how has IR developed since the time of Zapata mustaches and long hair, not just in the US, but also internationally? And to what extent has the focus of the role changed in this time?
Gene Stevenson, senior research practice leader at Kennedy Information’s Global IR Leadership Network, started his corporate communications career in 1971, moving into IR by 1976. Even then IR was still part of public relations or corporate communications, he says.
‘PR people were often ex-journalists who would hire business reporters for the financial media relations like earnings releases, annual reports, writing the chairman’s presentation, and the like,’ Stevenson recalls. ‘It was a fairly simple role compared with today.’
It was also when IR started to court institutional investors and pension funds actively, building long-term relationships. ‘Site visits and analyst days began to develop in a big way in the 1970s,’ Stevenson adds. ‘It was a combination of financial markets getting more sophisticated and – though this sounds like the Stone Age – of companies thinking institutional investors were the primary targets for their investor base, as opposed to individuals.’
Len Griehs, head of IR at Campbell Soup, also remembers IR as a very different beast in the 1970s. Real change had to wait until the end of that decade, however. ‘That was when IR moved from the responsibility of corporate communications to a more financial function,’ Griehs says. ‘Then the bull market began in 1982. There was a lot of takeover mentality where firms were undervalued because stock prices didn’t perform well. This was an era when people started to feel they should pay more attention to IR.’
Developments across the pond
Meanwhile, the British were also moving, albeit at their own pace. Mike Mitchell from the UK’s Investor Relations Society (IRS) remembers how UK IR professionals in the 1980s still struggled to get their role recognized as a full-time corporate need.
‘Back then when people asked what I did I’d say IR,’ Mitchell says. ‘Then they’d say, But what do you do? And I’d say, I do IR, full time! There were very few professional IR managers then. I was working at the Burton Group and I had a very perceptive and far-sighted finance director. He could see things were expanding fast with research and sell-side analysts, and he said, I need someone to talk to the market.’
Mitchell promptly did. His background as a chartered accountant helped, but finding people with the right combination of skills remains difficult, he believes. ‘Without denigrating chartered accountants, many aren’t terribly good at communicating,’ he asserts. ‘Nowadays it is possible to find good accountants who are also good communicators. That is good IR, in essence: the financial understanding with the ability to communicate it to the sell side and investors. But now you can come to IR from many different career angles, including PR that’s developed into financial PR.’
With such diverse routes into the profession, does IR’s original communication focus remain the same? Or has the emphasis shifted? Neil Ryder, a founding director of the International Investor Relations Federation (now Global IR Network), believes the emphasis has definitely changed.
‘Fifteen years ago the emphasis was on communication first, legal issues second and the financial part third, particularly in the UK,’ he says. ‘Now it’s financials first, legal second, communication third. IROs now have to know their figures backwards and legal communication is critical, which is a pity. In my view, the biggest change is that regulations have been tightened up so much that, in effect, you can’t say anything useful unless you say it publicly.’
These developments came about partly to protect smaller shareholders, but Ryder thinks such regulations now do the opposite. ‘Companies come out with price-sensitive news, like results, once a quarter, but they’re not able to adjust expectations as much as they used to in the meantime, so often there’s a big shock in the share price – and guess who gets hurt?’ he asks. ‘The market was more efficient previously; you had more news trickling in all the time, but there were only mini-shocks. Now you have huge swings in share prices.’
More prevalent than share-price swings, however, are the swings in visibility and status. Has the stature of IROs also increased over the years? That, says Angus Maitland of London-based financial communications company Maitland, depends on which side of the Atlantic you live.
Despite European IR practice moving toward a US model in the last 15 years, IR as a stand-alone professional role in the UK still lags. ‘The job title of IR manager only started to be adopted in the UK in the mid-1980s, with one or two earlier exceptions,’ Maitland says. ‘By that time very senior IR vice presidents were quite common in the US. In the UK, IRO status varies markedly from company to company and has yet to have the consistency evident in the US.’
US vs European IROs: who has it better?
It’s dangerous to generalize whether European IROs have it easier than their US counterparts – or the other way around – but their roles do have marked differences. Department staff numbers are definitely up in Europe. A mid-sized IR department in Europe can be between seven and nine people, and sometimes a lot more. ‘I’m not sure how you explain this,’ says one American IRO who has worked extensively in both US and European IR environments. ‘The average IR department in the US, including admin assistance, broke the three-person barrier only recently.’
This might be due to the fact that so many European public companies used to be state-owned enterprises. But the US market, though big, is highly localized – not to mention highly homogenized – in comparison with Europe. European IROs are also more likely to be on the road as they have more time zones to cover. American IROs are less likely to be involved in AGM and shareholder services issues than their European colleagues, and they are likely to have more lawyers around; US IR culture is very legally aware.
‘In my experience, the US head of IR tends to focus on the relationship-building side of the job,’ says one former US IRO. ‘It’s partly cultural and partly geographical because of the size of the US market they have to deal with. The IRO of a US company doesn’t have to worry about the rest of the world so much; he or she is only ever a few hours away on a plane, coast-to-coast, from the firm’s investors.’
