Smaller companies are more likely to combine the roles, which at least keeps investor relations in the C-suite.
If you were writing a job advertisement for an IRO, your top two requirements would obviously be finance and communications expertise. But which matters most? Ideally, the question will be irrelevant because there will be a long line of applicants boasting experience in accounting, capital markets and corporate communications. But in what we still like to think of as normal times, it’s not always an employer’s market and difficult choices have to be made.
The trouble is that both skills are crucial. Some companies solve the problem by giving the CFO responsibility for IR as well – but is this practicable? There’s no doubt it can be demanding but many would argue that it’s the best arrangement, at least for smaller companies. ‘It certainly is a model for IR,’ concurs Jeff Morgan, CEO of NIRI. ‘For smaller companies, using the CFO or other members of senior management makes perfect sense.’
Heather McGregor, director of executive search firm Taylor Bennett in London, agrees. ‘In the UK it’s really only companies with a market cap of £1 bn ($1.7 bn) or more that need an IRO,’ she suggests. ‘Below that size, they tend to use a financial PR firm to deal with the sell side and handle the buy side themselves. I think it’s important CFOs do it themselves – it’s one of the most enjoyable parts of their job and it’s valuable to be getting direct feedback.’
Time of the essence
It’s clearly an approach that pleases many investors and analysts – provided the CFO has sufficient time to devote to IR. This may be a function as much of the nature of the company as its size.
At Sligro Group in the Netherlands (see Dutch dealings, below), for example, Huub van Rozendaal serves as both CFO and IRO. He suggests it’s the structure of Sligro that makes his dual role manageable. ‘Although we are called Sligro Food Group, we’re not actually a group of companies,’ he explains. ‘The Sligro board manages the business, with only one finance director, so I know everything about the business and can easily explain it to others.’
In Van Rozendaal’s view this means having a separate IR department wouldn’t actually make his life significantly easier. ‘It would save a bit of time, but not much,’ he argues, suggesting that he’d spend almost as much time explaining everything to the IR staff as he currently does explaining it to investors.
In the UK, David Keens is CFO at Leicester-headquartered retailer Next and also charged with the IR function (see Next steps, below). As with Sligro, Keens says Next’s straightforward structure helps: ‘It’s not hugely complex to explain and I’m happy to be the front person for IR purposes.’
Size matters
The size of a company is key to this issue, however. Limited internal resources at very small companies often make the appointment of a full-time IRO impossible and, in such circumstances, the CFO generally steps in. In the Bank of New York Mellon’s survey of IR trends conducted in November 2008, 5 percent of respondents are CFOs. Of the 270 individuals who completed the survey, just over 10 percent say the CFO is the primary contact for communicating with the investment community, a number that rises to 23 percent for companies with a market cap below $150 mn.
Tyler Technologies is a $600 mn market cap company in Dallas, Texas (see Outside influence, below). CFO Brian Miller handles the IR, and sees this as largely a function of the company’s size. ‘But we may be getting close to a time when we have an IRO,’ he says. ‘We’ve already talked about it and when it gets to a point where my other responsibilities require more of my time, we’ll delegate the investor relations to someone else.’
For now, however, Miller has no doubt about the benefits of his dual role. ‘It keeps me in touch with issues of importance to investors and, anyway, I enjoy talking to people outside the company,’ he says.
Having the CFO serving as IRO reduces the chance of the board becoming distant from the investment community. Many boards have their IRO provide written reports to them; fewer really hammer out strategic or sensitive issues with the person who best understands investor sentiment. Being too small to run a separate IR division at least allows firms to anchor their IR firmly to the C-suite, where it belongs.
Dutch dealings At Sligro Food Group, the owner of supermarkets and other retail stores in the Netherlands, CFO Huub van Rozendaal has been CFO and financial spokesperson for 18 years. ‘I think it works well,’ says analyst Paul Hofman of Cheuvreux in Amsterdam. ‘It’s a good combination.’
Van Rozendaal reckons he spends between a quarter and a third of his time on IR overall, and 95 percent of that dealing with institutional investors. He makes no use of outside IR firms and his IR activities range from writing the first drafts of financial press releases and the annual report to being at every meeting with investors and analysts and attending every investor conference Sligro takes part in.
Van Rozendaal is happy with his combined role. ‘I believe IR is an important part of my work,’ he says. ‘Investors want to see board members and it’s not as if it’s something I hate to do.’ So does he regard himself as overworked? ‘No,’ he responds, but then adds, thoughtfully: ‘Although my wife sometimes complains a bit.’
Next stepsDavid Keens first joined Next to establish its treasury department in 1986 and has been CFO since 1991. He spends about 20 percent of his time on meetings and phone calls with investors and analysts, and a further 5 percent on other IR activities.
Next’s corporate secretary department deals with retail and employee shareholders, although Keens and CEO Simon Wolfson also make three large group presentations to the staff on results day.
Keens’ other activities include the annual report. ‘The financial controller is responsible for the technical side of the report’s contents, but I draft and redraft the CEO’s review and other non-technical aspects,’ he explains. ‘We regard the annual report as the most important document the company produces.’ He gets help in his IR effort, particularly on the financial PR side, from Hudson Sandler in London. UBS, the company’s broker, also helps with setting up meetings.
‘When I knew I needed to spend time on IR, I wanted to avoid being pulled in all directions all the time,’ Keens says. ‘So I decided to focus on it in two concerted periods.’ This is why, twice a year, Keens and Wolfson spend two days in back-to-back meetings in London with institutional investors, who they see one at a time.
He also does two days like this in Scotland, on one of which he’s joined by Wolfson. It’s a period of intense activity. ‘But it’s very satisfactory from a regulatory point of view because you can be sure everyone is being told the same story,’ Keens says.
Outside influence
Brian Miller has been with Tyler Technologies in Texas for 11 years, during 10 of which the company has had the same local IR firm, Halliburton IR. It provides a good deal of back-up and support, targeting, roadshow coordination, and so on. ‘It serves as our IR department,’ says Miller.
But Miller also does a good deal of the IR footwork himself. He attends ‘pretty well all the meetings’ with members of the investment community, although his vice president of finance steps in if he’s unavailable, and the CEO or a divisional manager will sometimes attend as well. The same vice president and the financial controller manage releases; Miller is the point person for the annual report.
He’s happy to perform his IR duties, which he enjoys, and is confident that it works for investors as well. ‘It’s attractive to investors to talk to the CFO,’ he says. ‘After all, I have the best overview of the company.’
