A look at changes in IR and the role of the IRO during the first 20 years of IR magazine's history.
IROs have always worked at the cutting edge of technology, but 20 years ago the tools weren’t up to much. For example, IR teams were some of the first in the corporate hierarchy to get fax machines, which were crucial to communications operations but highly temperamental. They also had dot matrix printers, perhaps the marvel of their day, whose faint output made it difficult to differentiate between such things as figures three and eight; this presented obvious problems for those needing to deliver flawless information to the markets.
Reflecting on the field as it was in 1988, when this magazine first went into print, IROs and their service industry counterparts say their most vivid memories are of the logistical struggles around investor events like earnings calls. Even small and mid-cap companies would need to send earnings releases to investor lists of some 40 to 100 names.
Transmitting at six minutes per page and possibly to a printer misfed or out of paper, it was a process that was tedious and prone to error. ‘We used to fax earnings releases and pray they’d get through,’ says Claire Koeneman, co-president of the Financial Relations Board, who was beginning her career as an IR adviser at the time.
It is hard to think about IROs working without such essential tools as the internet and telephone conferencing. Brad Allen, vice president of IR for Imation, who was working for Digital Equipment in the 1980s, says the faxing was just the start. ‘Then the phone calls would start – to 20 sell-side analysts and a huge institutional base,’ he adds. ‘We’d read out the income statement and so on, line by line, for eight to 10 hours a day. Word would get out, but it didn’t have the same immediacy.’
Technological advances
The financial communications industry advanced with the invention of the blast fax and with pipelines laid by the business wires directly to the floor of every major Wall Street firm.
Fast forward to today, and the information is out on the web in an instant – and in the hands of every retail investor, too. ‘It raises the bar for performance,’ says Cathy Baron Tamraz, president and CEO of Business Wire.
Yet despite the hardships of the early days, there was something to like about them. Allen says he appreciated the fact that analysts would take three to four days to issue reports. In fact, the lack of widely available information made the analyst role stronger. ‘There was so much more give and take with analysts in those days,’ Allen notes. ‘They would do independent research on the channels, huge end-user surveys and trend analysis. They would take a few days to digest and absorb the earnings reports and put it into a context that told you a lot.’
For the IRO, the analyst has always been one to both welcome and fear. Analysts provide valuable views of entire sectors and individual companies’ places in them, but also demand frequent guidance on which way a firm is heading.
More than a few authoritative panels have been convened over the years to talk about how this practice warps management toward a short-term view of corporate performance. It is common to loathe the feature of Thomson’s First Call product that catalogs and averages earnings projections of all the analysts who follow a company, as it can push companies to make shortsighted decisions in their efforts to hit the consensus number.
Even Peter Sidoti, founder of Sidoti & Company, a broker-dealer specializing in small-cap research, is opposed. ‘I think the worst thing that ever happened was First Call,’ he said on a recent NIRI-New York panel. ‘I’d love to get rid of it.’
Trading relations
There are a lot of factors at play hyping and speeding the investment process. So-called frictionless trading allows investors to accumulate or dump shares more easily than ever. The ability to access real-time quotes from the exchanges may also be fueling interest in quick results. In the pre-internet era, this wasn’t possible. ‘We’d call our specialist three times a day to get our stock price and tape it to a sheet of paper on the transom of our office door,’ Allen says.
It is a running joke in the industry that IROs no longer practice investor relations, but rather trading relations. The investor mix has changed. Whereas at one time IROs would have spent their days communicating with bank trust departments and corporate pension funds, the big players eventually became mutual fund portfolio managers, and then hedge funds. ‘The holding period used to be measured in years,’ Allen notes. ‘It is measured in months now.’
In thinking about how IR has changed, Allen says it is a mistake to focus solely on technology: ‘What has really changed is that it is has moved from an investment mentality to a trading mentality.’
As the attention on public companies has intensified, they have honed how they present themselves. Annual report designers say company messages have shifted from overtly promotional to cautious in the wake of the accounting scandals at firms like Enron and WorldCom. ‘Management is very cautious about giving out any information that can be construed as promoting the company,’ says Denis Connors, CEO of design firm Curran & Connors. ‘Years ago, that was exactly what management was trying to do.’
Robin Zvonek, president of design company Paragraphs, says companies in this climate make an effort to look correct in the eyes of the shareholders. This includes using the internet for electronic delivery of shareholder material to avoid expensive print runs. When they do print books, clients want things like Forest Stewardship Council-certified paper. Despite these constraints, Zvonek says, in crafting the message, companies ‘are now much more open to creativity’ and seek to develop memorable themes lacking in past annual reports.
Speaking plainly
Improved messaging extends to the proxy statement, which has benefited from the Plain English movement initiated by regulators. The result is that many shareholders are more engaged. ‘The main reason you never got a high quorum in the 80s was that people were afraid of reading the proxy, or were turned off by it,’ says Joe Contorno, a managing director at proxy solicitation firm the Altman Group.
There is some unhappiness about the intrusion of the governance set. Critics point out that those pushing for a clearer view into a company may be having the opposite effect, since needing to hit compliance marks can turn conference calls and other public events into highly scripted recitations.
Nonetheless, IROs are still concentrating on how to deliver an even better message. Many are looking at XBRL, the data tagging language that should help them provide greater context around increasingly complex financial statements. This tool and others will also help them bring competitive intelligence and investor perception back into the organization. While finding ways to push the technological front is challenging, ‘we embrace it,’ says Tamraz. ‘You can embrace it, or you can go out of business.’
IR professionals and their work are sure to stay in the spotlight. While 20 years ago IR was an obscure corporate function, ‘it has since become a career, a recognized job path,’ says Allen. ‘It’s an industry now.’
