Today’s investment landscape is increasingly complex: the shift to passive investing, a deepening emphasis on ESG issues and a greater commitment to all stakeholders – not just investors – amplified by the Business Roundtable’s recent statement championing obligations to customers, employees, suppliers and communities.
This confluence of events alone presents new investor relations challenges, and makes the job of IR bigger, broader and more important.
At the same time, we are in the middle of a major transfer of investor influence from retiring baby boomers to emerging millennials. The latter are now coming of age, advancing in their careers and increasingly investing. In the US, federal data shows that the median household income for millennials tops $85,000, more than any other generation in the last 50 years on an adjusted basis.
Millennials on average also invest more in stocks than previous generations, with equities accounting for nearly 70 percent of the average portfolio, according to FactSet. Much of this generation views ESG impact as a core investing goal.
Against that backdrop, the role of IR will only escalate. Companies owe their investors an intelligent and prudent strategy, and IR teams must build compelling stories that address the needs of both passive investors and long-term active management investors.
To illustrate how to approach this, we examine three important challenges heading into 2020 – addressing millennial investors, data analytics and security, and the specter of recession – and provide best-practice suggestions on how IR teams can more effectively disseminate their investment stories.
1. Millennial investors and the long term. This generation is increasingly represented by passive investors that act for the long haul. They are pressing companies to provide more information on both opportunities and risks over periods of disruption, economic cycles and even climate change. They want to hear how companies are transitioning away from a quarter-to-quarter mindset toward long-term strategic thinking, and how they can sustain both profits and societal contributions for the decades to come.
To this end, investors increasingly want much more than marketing materials – they are asking for disclosures that provide meaningful outlooks, complete with expectations and measurable performance targets. They expect to see this in investor decks and presentations, along with ESG accomplishments and goals, including details about how this work positively affects employees, customers and society broadly.
They expect a balanced discussion about long-term opportunities and risks. How can the company capitalize on broader economic and societal trends to create and execute a viable long-term plan? And, at the same time, what are the most substantial threats and where is the company most vulnerable? What steps is management taking to mitigate these risks, again with an eye on profitability and shareholder returns but also with a focus on outcomes for all stakeholders?
2. Data analytics and security. Capitalizing on data analytics helps companies assess new and better ways to serve clients and is now mission-critical for leading companies across all sectors. Protecting that data from cyber-criminals is also paramount – and ever-more challenging. As technology advances, so does the sophistication of hackers.
Long-term investors want detail in presentations that show how companies are collecting and analyzing data to inform strategies and modernize business models. They want examples of new products and services as well as information and benchmarks that help them track and measure performance and progress. On the other hand, they want to know that corporate boards and management teams are continuously assessing cyber-threats – and making necessary investments in security programs – as well as updating plans to address the near inevitability of a breach.
Questions that should be addressed by IR include: who are the experts and what are the systems and resources available? What are the needed steps to respond quickly? Which stakeholders – and in what sequence – need to be informed? Are communications already drafted for various potential scenarios?
Data breaches can lead to sweeping bouts of PR troubles, prolonged distractions, legal issues and customer attrition. Investors want to be confident that cyber-security is a top priority, and IR teams must be on the front lines of these communications, ensuring they are comprehensive, informed and updated.
3. Recession preparedness. Given an already protracted economic cycle, management and IR teams should begin preparing for the next recession and reflect their efforts in investor communications. Most investors are asking about this, and we recommend developing a few core messages that address how companies can navigate a downturn.
Consistency and clarity of messaging are particularly important. Companies should not overstate strengths, downplay vulnerabilities or make projections that could prove difficult to realize. Missteps here could cause lasting reputational damage.
IR teams must also have a plan in place to communicate with investors throughout a downturn. Key considerations:
- Provide consistent and credible information and make management accessible. Be forthright about your risks and outlook, and demonstrate that the company has thought through worst-case scenarios. Describe the systems in place to monitor risk
- Explain to investors how you managed through a past downturn and what you learned from it. Focus investors on why your business is viable for the long term, and tell them what they should look for in the next three years – not just the next quarter
- Put the story in context by addressing the industry issues that could impact your company. Remind investors of the factors that are in your control and those that are not. For example, if your company has exposure to credit deterioration, explain how you evaluate the risk and provide investors with best-case and worst-case scenarios
- Continue to meet with existing investors and new prospects. Talk about valuation drivers – brand, digital platforms, customer relationships, leadership, human capital – and all aspects that deliver a sustainable advantage. Savvy investors will pursue strategic rebalancing to take advantage of lower equity values in a recession. Be in a position to benefit when investors step off the sidelines.
Across all of these fronts, timely and consistently delivered information from IR helps investors understand companies’ complete stories, especially the tangible and intangible strengths that make them compelling long-term investments.
Moira Conlon is founder and president and Kevin Dobbs is a vice president of Financial Profiles
