CHAPTER 11 Staffing and Sourcing the New IR

In public companies, the IR function is either a department, a specified task

of a professional, or a need that is fully or partially outsourced to an outside

agency. Private companies looking for a voice in the capital markets

might engage an investment bank or a public relations firm to raise their visibility,

but usually fall short of hiring an investor relations officer (IRO).

The backgrounds of professionals performing the IR task vary: public

relations, media relations, accounting, finance, and legal. One traditional

route to IR has been as follows: a professional takes on the IR role, learns

the company’s business, devises a communications system, and then

manages in-flow and out-flow from the various constituencies. Though

IR was frequently viewed as an administrative function, more recently

many IR professionals and senior executives have understood its strategic

importance.

IR as the tip of the spear in a strategic corporate communications plan

suggests that someone with capital markets experience should quarterback,

or at least play a significant part in, the communications strategy. This type

of ramped-up IR means staffing and sourcing the IR function with a team

of people, internally or externally, who have the knowledge and skills necessary

to provide the advice and execution that the competitive global markets

demand.

IR professionals must be able to do the basic IR requisites:

Oversee preparation of SEC documents

Administer dissemination of SEC disclosures

Develop core communications

Create scripts and templates

Organize conferences and events

Manage meetings and calls

Direct inflow and outflow of corporate information and communications

Detect industry and competitive currents

Track Wall Street behavior

Discern media opportunities

To perform these essential tasks, IR professionals must be proficient in

Accounting

Communications

Finance

Investments

Management

Strategy

Writing

As we’ve pointed out, traditional IR, born strictly out of communications,

is no longer enough to ensure optimal valuation. The job requires an

added skill set to really maximize the time and money spent on the function.

THE COLLABORATION

To be effective, IR needs to have an eye on the stock market, an ear on

industry buzz, and a finger on the pulse of the buy-side, the sell-side, and

the media. Finding this myriad of basic skills in one person, plus the scope

of proficiencies and range of experiences, is no easy task. It takes a team

approach.

Companies that have IR departments staffed with several professionals

experienced in all of these areas have the luxury of pursuing an integrated,

strategic approach to IR. But every company should at least attempt this

level of professionalism. After all, valuation and management’s reputation

are at stake. Engaging a capable team is the first step.

An effective IR team should utilize two areas of expertise:

Capital Markets Experience—Analysts, Portfolio

Managers, and Investment Bankers

The IR team should consist of professionals with senior-level capital markets

experience. IR professionals who were once senior-level Wall Street analysts, portfolio managers, and/or investment bankers are probably best qualified

because they understand the perceptions and behaviors of the sell-side and

the buy-side; more importantly, they understand financial performance in

the context of valuation. Additionally they undoubtedly have relationships

with former co-workers in the markets, which is invaluable for keeping

abreast of the current tides.

Public Relations Expertise—Reporters, Editors,

and Broadcasters

The other vital component of the optimal IR team is public relations or corporate

communications experts. Because the media is the most penetrating

conduit to the general public and vital stakeholders, IR needs to work

closely with PR to actively approach and address the media.

Like the capital markets experts, PR professionals know how to say

what the media needs to hear, which contributes significantly to the IR strategy.

In as much as IR packages a financial product for consumption on Wall

Street, PR professionals create an easily digestible package for the media and

other constituents.

MAXIMIZING VALUE THROUGH

AN INTEGRATED APPROACH

Hiring a PR group to run the IR function can have problems at its very core.

IR demands an integrated approach where IR and PR strategies are discussed

and overlapped to maximize the event for all company constituents.

Easier said than done, however, when budgets preclude two senior professionals

from each discipline. There are alternatives, however. A solid program,

particularly at a small-cap company, uses inside and outside help to

achieve stated goals.

Working in-sync is the key. When hiring a traditional public relations

firm to create a strategic IR plan, a company may be taking a risk. Many

talented agency staffers are Wall Street outsiders looking in, and they lack

the high-level experience to counsel a CEO on what the capital markets

want. Another potential problem is that the functions of IR and PR can

have very different goals. IR works best in a low-key, nonpromotional context

delivering information systematically and conservatively wrapped in financial

understanding. PR, on the other hand, can solely exist to promote

and raise visibility, which can be the kiss of death on Wall Street if not handled

properly.

Therefore, IR, whether internal or external, is best when fully integrated

with PR. The interlocking arrangement creates the checks and balances that

ensure all of the constituencies receive relevant information that manages

their expectations and meets their needs.

ONE-TWO PUNCH

IR needs to quarterback the communications process to make sure that the

company accurately sets financial expectations with Wall Street before the

other communications plans commence. For example, if a company allows

the media to run with a story before The Street is formally apprised of its financial

consequences, analysts might quantify the story and translate it into

earnings per share guidance, without management’s blessing. For example,

the newspaper might read: “Profits to Soar Next Year.” Wall Street pros

don’t really know what that means. Their job is to quantify language like

that. We see “Profits Soar” as a PR win, yet an IR loss.

To that end, dealing with The Street is more clear-cut than dealing with

the media, because the analysts don’t need the dramatic angle or story the

media must have. The Street provides an unfiltered, straightforward, credible,

third-party platform from which the media can build its story. The fact

that reporters often get their quotes and sources off of analyst research creates

an opportunity for the company to reach the media through Wall Street.

Having the company story out on research and in the minds of analysts establishes

the company’s thesis and maximizes any PR effort.

Company strategy usually pans out over long periods, often three to five

years at a time. IR must patiently build and execute its plan dovetailed with

corporate communications each step of the way. But at other times, the

whole strategy and its execution can be formulated and communicated in a

few minutes, such as in the case of a merger or a takeover bid. Although either

timeframe calls for a plan, quick-fire reactions to situations can define

a company. And that’s when, and why, IR and PR should have a structure

within which they can work together.

HIRING IR

As stated, an IR department that is fully staffed with capital markets and PR

experts is best, but this is usually a luxury of only the biggest public companies.

What about the micro, small, and mid-caps?

Each company should field the best team possible. One way to bring these people on board is for a company to go directly to the capital markets

and the media and hire these professionals. Even after paying the inevitably

high price to obtain these experts, the new hires still have to do a lot of

catch-up on the company, its operations, its metrics, its industry, the competition,

and the marketplace. One solution is to transfer a current employee,

who knows the operations, into the IR space to work with these experts.

This strategy is not bad, nor is it the holy grail.

INTERNAL VS. EXTERNAL IR

In order to cost-efficiently obtain an effective, experienced, and integrated

IR/PR team, every company, whether it has an internal investor relations officer

or not, should consider hiring outside IR counsel with capital markets

experience and the ability to work with corporate communications. An internal

IR point person, whether it’s the CFO or a designated IRO, can help

steer these efforts and ultimately be responsible to Wall Street.

The advantages of integrating internal and external IR are many:

Specific, productive expertise of a team

A deep bench of capital markets and public relations experience

Advisors on the front lines, aware of current capital markets and media

tides

Viewpoints beyond an internal, company perspective

Go-betweens who garner honest feedback from capital markets and

media

Specific industry knowledge

Multiple databases that would be cost-prohibitive for one company to

purchase

Checks and balances to ensure communications are specific to each

constituency

The integrated approach takes ample risk out of the communications

equation and frees up management to focus on operations. External IR can

see what the company, steeped in its own story, doesn’t have time to see and

be a nay-sayer in a sea of yes men. External IR can also support the IRO or

CFO by doing reconnaissance, tracking shareholder shifts, and executing the

necessary strategy relative to valuation.

What all this leads to is that IR is about intelligence. The IR staff,

whether internal or external, needs sources and resources. The best sources

are the market professionals, the players on the sell-side and the buy-side.

Another is the industry, specifically strategic partners in the arena who might

have insights into competitors and consumers. Awareness of industry goings-

on is invaluable.

In addition to relationships, there are other valuable forms of intelligence,

such as shareholder databases. Some of the good ones include Big

Dough, Thomson Financial’s First Call, Reuters, Bloomberg, IBES, the

trades, and news services. You cannot do the job, let alone do it well, without

this information, and those who are at the top of their game know how

to interpret the data.

ONWARD AND UPWARD

Ultimately, the goal of IR, which is fully aligned with the CEO’s, is to maximize

equity value. Professionals who understand how to do this are the professionals

an IR department needs, regardless of company’s size.

Too much is at stake to not take this course—a company’s next equity

raise, employee motivation through option value, or preventing a hostile

take-over, to give a few examples. By maximizing stock price the company is

in a better position for all of these scenarios.

The basics of disclosure, event, and presentation administration need to

be supplemented with strategic IR that ingrains itself into every aspect of

corporate decision making. Once the basics are understood and the team is

in place, it’s onward and upward to a new approach to IR. That is, IR at the

tip of the spear in terms of maximizing corporate communications and, ultimately,

equity value.

In public companies, the IR function is either a department, a specified task

of a professional, or a need that is fully or partially outsourced to an outside

agency. Private companies looking for a voice in the capital markets

might engage an investment bank or a public relations firm to raise their visibility,

but usually fall short of hiring an investor relations officer (IRO).

The backgrounds of professionals performing the IR task vary: public

relations, media relations, accounting, finance, and legal. One traditional

route to IR has been as follows: a professional takes on the IR role, learns

the company’s business, devises a communications system, and then

manages in-flow and out-flow from the various constituencies. Though

IR was frequently viewed as an administrative function, more recently

many IR professionals and senior executives have understood its strategic

importance.

IR as the tip of the spear in a strategic corporate communications plan

suggests that someone with capital markets experience should quarterback,

or at least play a significant part in, the communications strategy. This type

of ramped-up IR means staffing and sourcing the IR function with a team

of people, internally or externally, who have the knowledge and skills necessary

to provide the advice and execution that the competitive global markets

demand.

IR professionals must be able to do the basic IR requisites:

Oversee preparation of SEC documents

Administer dissemination of SEC disclosures

Develop core communications

Create scripts and templates

Organize conferences and events

Manage meetings and calls

Direct inflow and outflow of corporate information and communications

Detect industry and competitive currents

Track Wall Street behavior

Discern media opportunities

To perform these essential tasks, IR professionals must be proficient in

Accounting

Communications

Finance

Investments

Management

Strategy

Writing

As we’ve pointed out, traditional IR, born strictly out of communications,

is no longer enough to ensure optimal valuation. The job requires an

added skill set to really maximize the time and money spent on the function.

THE COLLABORATION

To be effective, IR needs to have an eye on the stock market, an ear on

industry buzz, and a finger on the pulse of the buy-side, the sell-side, and

the media. Finding this myriad of basic skills in one person, plus the scope

of proficiencies and range of experiences, is no easy task. It takes a team

approach.

Companies that have IR departments staffed with several professionals

experienced in all of these areas have the luxury of pursuing an integrated,

strategic approach to IR. But every company should at least attempt this

level of professionalism. After all, valuation and management’s reputation

are at stake. Engaging a capable team is the first step.

An effective IR team should utilize two areas of expertise:

Capital Markets Experience—Analysts, Portfolio

Managers, and Investment Bankers

The IR team should consist of professionals with senior-level capital markets

experience. IR professionals who were once senior-level Wall Street analysts, portfolio managers, and/or investment bankers are probably best qualified

because they understand the perceptions and behaviors of the sell-side and

the buy-side; more importantly, they understand financial performance in

the context of valuation. Additionally they undoubtedly have relationships

with former co-workers in the markets, which is invaluable for keeping

abreast of the current tides.

Public Relations Expertise—Reporters, Editors,

and Broadcasters

The other vital component of the optimal IR team is public relations or corporate

communications experts. Because the media is the most penetrating

conduit to the general public and vital stakeholders, IR needs to work

closely with PR to actively approach and address the media.

Like the capital markets experts, PR professionals know how to say

what the media needs to hear, which contributes significantly to the IR strategy.

In as much as IR packages a financial product for consumption on Wall

Street, PR professionals create an easily digestible package for the media and

other constituents.

MAXIMIZING VALUE THROUGH

AN INTEGRATED APPROACH

Hiring a PR group to run the IR function can have problems at its very core.

IR demands an integrated approach where IR and PR strategies are discussed

and overlapped to maximize the event for all company constituents.

Easier said than done, however, when budgets preclude two senior professionals

from each discipline. There are alternatives, however. A solid program,

particularly at a small-cap company, uses inside and outside help to

achieve stated goals.

Working in-sync is the key. When hiring a traditional public relations

firm to create a strategic IR plan, a company may be taking a risk. Many

talented agency staffers are Wall Street outsiders looking in, and they lack

the high-level experience to counsel a CEO on what the capital markets

want. Another potential problem is that the functions of IR and PR can

have very different goals. IR works best in a low-key, nonpromotional context

delivering information systematically and conservatively wrapped in financial

understanding. PR, on the other hand, can solely exist to promote

and raise visibility, which can be the kiss of death on Wall Street if not handled

properly.

Therefore, IR, whether internal or external, is best when fully integrated

with PR. The interlocking arrangement creates the checks and balances that

ensure all of the constituencies receive relevant information that manages

their expectations and meets their needs.

ONE-TWO PUNCH

IR needs to quarterback the communications process to make sure that the

company accurately sets financial expectations with Wall Street before the

other communications plans commence. For example, if a company allows

the media to run with a story before The Street is formally apprised of its financial

consequences, analysts might quantify the story and translate it into

earnings per share guidance, without management’s blessing. For example,

the newspaper might read: “Profits to Soar Next Year.” Wall Street pros

don’t really know what that means. Their job is to quantify language like

that. We see “Profits Soar” as a PR win, yet an IR loss.

To that end, dealing with The Street is more clear-cut than dealing with

the media, because the analysts don’t need the dramatic angle or story the

media must have. The Street provides an unfiltered, straightforward, credible,

third-party platform from which the media can build its story. The fact

that reporters often get their quotes and sources off of analyst research creates

an opportunity for the company to reach the media through Wall Street.

Having the company story out on research and in the minds of analysts establishes

the company’s thesis and maximizes any PR effort.

Company strategy usually pans out over long periods, often three to five

years at a time. IR must patiently build and execute its plan dovetailed with

corporate communications each step of the way. But at other times, the

whole strategy and its execution can be formulated and communicated in a

few minutes, such as in the case of a merger or a takeover bid. Although either

timeframe calls for a plan, quick-fire reactions to situations can define

a company. And that’s when, and why, IR and PR should have a structure

within which they can work together.

HIRING IR

As stated, an IR department that is fully staffed with capital markets and PR

experts is best, but this is usually a luxury of only the biggest public companies.

What about the micro, small, and mid-caps?

Each company should field the best team possible. One way to bring these people on board is for a company to go directly to the capital markets

and the media and hire these professionals. Even after paying the inevitably

high price to obtain these experts, the new hires still have to do a lot of

catch-up on the company, its operations, its metrics, its industry, the competition,

and the marketplace. One solution is to transfer a current employee,

who knows the operations, into the IR space to work with these experts.

This strategy is not bad, nor is it the holy grail.

INTERNAL VS. EXTERNAL IR

In order to cost-efficiently obtain an effective, experienced, and integrated

IR/PR team, every company, whether it has an internal investor relations officer

or not, should consider hiring outside IR counsel with capital markets

experience and the ability to work with corporate communications. An internal

IR point person, whether it’s the CFO or a designated IRO, can help

steer these efforts and ultimately be responsible to Wall Street.

The advantages of integrating internal and external IR are many:

Specific, productive expertise of a team

A deep bench of capital markets and public relations experience

Advisors on the front lines, aware of current capital markets and media

tides

Viewpoints beyond an internal, company perspective

Go-betweens who garner honest feedback from capital markets and

media

Specific industry knowledge

Multiple databases that would be cost-prohibitive for one company to

purchase

Checks and balances to ensure communications are specific to each

constituency

The integrated approach takes ample risk out of the communications

equation and frees up management to focus on operations. External IR can

see what the company, steeped in its own story, doesn’t have time to see and

be a nay-sayer in a sea of yes men. External IR can also support the IRO or

CFO by doing reconnaissance, tracking shareholder shifts, and executing the

necessary strategy relative to valuation.

What all this leads to is that IR is about intelligence. The IR staff,

whether internal or external, needs sources and resources. The best sources

are the market professionals, the players on the sell-side and the buy-side.

Another is the industry, specifically strategic partners in the arena who might

have insights into competitors and consumers. Awareness of industry goings-

on is invaluable.

In addition to relationships, there are other valuable forms of intelligence,

such as shareholder databases. Some of the good ones include Big

Dough, Thomson Financial’s First Call, Reuters, Bloomberg, IBES, the

trades, and news services. You cannot do the job, let alone do it well, without

this information, and those who are at the top of their game know how

to interpret the data.

ONWARD AND UPWARD

Ultimately, the goal of IR, which is fully aligned with the CEO’s, is to maximize

equity value. Professionals who understand how to do this are the professionals

an IR department needs, regardless of company’s size.

Too much is at stake to not take this course—a company’s next equity

raise, employee motivation through option value, or preventing a hostile

take-over, to give a few examples. By maximizing stock price the company is

in a better position for all of these scenarios.

The basics of disclosure, event, and presentation administration need to

be supplemented with strategic IR that ingrains itself into every aspect of

corporate decision making. Once the basics are understood and the team is

in place, it’s onward and upward to a new approach to IR. That is, IR at the

tip of the spear in terms of maximizing corporate communications and, ultimately,

equity value.