As companies devote more time and resources to ISO certification, IROs may be able to adapt many of the same principles, such as customer focus and continual improvement, to the world of IR
‘We’re ISO certified!’ It’s a message proud companies typically plaster everywhere – on posters, banners, brochures, news releases – to tell employees, suppliers and customers about an important milestone: achieving quality-management certification from the International Organization for Standardization (ISO).
With all the time and money these companies spend on fulfilling their specific ISO quality classification, it’s a big deal. If done right, it means profitability improves, customer relationships strengthen, decisions are made faster, people are better informed, and the organization is more flexible. So what can an IRO learn from ISO?
‘As far as people using ISO or Six Sigma to manage investor relations goes, I don’t know that anyone is doing it,’ begins Keith Mabee, vice chairman of Ohio-based IR firm Dix & Eaton. ‘That doesn’t mean that they are not, however. It’s an excellent idea.’
Lou Thompson, the former NIRI CEO who recently joined US consultancy Beacon Advisors, believes an ISO-like approach could help IR professionals, but says seeking official ISO certification is a step too far.
‘I just think IR departments are way too thin, way too overloaded to engage in that process,’ says Thompson. ‘And it’s going to distract them from things that are more important.’
Thompson suggests that requirements to implement XBRL and the SEC’s adoption of IDEA, an EDGAR filing alternative, ‘are top-of-the-mind issues that IR people need to be figuring out and spending their time on when they’re not doing their normal work.’ Perhaps cherry-picking relevant ISO principles would work, he adds.
The basis of ISO is efficiency. ‘The process has controls that are designed to minimize wasting of resources,’ points out Paul Palmes, a member of the ISO’s US technical committee who has been pushing for using quality audits to help public companies and their teams comply with SOX. ‘We are intimately involved in trying to help the shareholder and the customer get a better bang for their buck. That’s the bottom line.’
Given that investors use ‘intangibles’ like management expertise, consumer loyalty, branding and other non-financial metrics to help value a company, ISO certification is one more possible measure of quality. ‘For global enterprises in particular, it’s a bit like the Good Housekeeping seal of approval,’ says Mabee. ‘It’s something that transcends different cultures and practices around the globe.’
The following are the eight quality management principles suggested by the ISO:
1: Customer focus
Understanding customer needs and meeting customer requirements comprise the first ISO principle, the customer base here being institutional investors and sell-side analysts.
‘I could well envision that there is an IR department saying, OK, how is the buy side – one of our primary customers – using information from companies today?’ says Thompson, noting developments like news-based algorithmic trading. ‘If you’re practicing investor relations in the traditional way, you’re going to be left in the dust.’
2: Leadership
Leadership, according to the ISO principles, provides unity of purpose and direction, establishing a clear vision of the organization’s future and setting challenging goals and targets. Communicating the company’s strategic vision is a natural fit for IR.
‘Investors want to know what the future will look like,’ says Mabee. ‘What kind of management team do you have, and are the members savvy enough to support the growth you are talking about? Do I believe their strategic vision is keen and appropriate?’
3: Involvement of people
Fully involving others within the company helps develop their talents for the benefit of the organization, according to the ISO principles. But what if the IR department is thinly staffed, as many are?
‘If I were the one person in that IR department, I would love to partner with the company’s quality group to see if I could put greater substance into my investor relations output,’ says Palmes. ‘If all you’re looking at are the financial statements that say everything’s fine, well, it’s not. It never is.’
The quality assurance people have the underlying operational information, he adds, ‘and wouldn’t it be a natural fit for the IR specialist to get to know how it works, and what its value proposition is to the investment community?’
4 & 5: Managing resources in an integrated way
Known as the ‘process approach’ and the ‘system approach’, these principles are based on managing activities and resources as a process. In short, the tasks to be done must be defined, and accountability apportioned for the responsibility of carrying them out. Interrelated processes should be managed as an entire system.
‘There is a shift from the early 2000s to today, where companies are taking a very hard look at the good practices they should be adhering to,’ observes Mark Zalewski, who directs electronic standards for the American Financial Services Association, which represents automotive loan, mortgage and consumer credit companies.
‘There may be shifts in the American mind-set now. The European Union is larger than the US. Previously, the US dominated the whole marketplace and Americans thought foreigners didn’t understand it as well as we did. That mentality has changed overnight.’
6 & 7: Continual improvement and a factual approach to decision making
Donna Stein, a member of the Public Relations Society of America’s executive committee on financial communications, worked with IR clients in New York City for more than 25 years.
She used an information-based approach to develop or revise the direction of an IR program, starting with a perception audit in which 25 to 30 of a company’s sell-side analysts and buy-side investors were questioned about their views on company performance, management, the IR program, communications clarity and transparency, and other topics. The information helped determine perception gaps and pointed to strategies to bridge them, Stein says.
She doesn’t use ISO herself, but adds that ‘these are the types of things everybody in management is already aware of, and you tend to try to put these into your programs anyway’.
8: Mutually beneficial supplier relationships
From webcasts and IR pages to annual reports, targeting and analysis, investor relations departments use all kinds of suppliers. According to the eighth ISO principle, a good relationship increases the ability of both parties in a customer-supplier arrangement to create value, balancing short-term gains with long-term considerations.
