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Your Guide to Creating a World-Class IR Function

By Louis M. Thompson, Jr., Compliance Week Columnist —July 21, 2009

A Fortune 500 mining company client recently asked me what constitutes a “world-class” investor relations function. That’s a question I periodically pondered during my 24 years as CEO of the National Investor Relations Institute, certainly, but I had never explored it in any formalized manner.

Well, I decided to do so, and I’m reporting my conclusions back to you.

To find out how world-class investor relations officers earn their reputations, I selected seven corporations, all with market capitalizations of $10 billion or more that have earned major awards and other forms of recognition. My partner at Beacon Advisers, Tim Croasdaile, and I interviewed the top IRO in each company to determine what characteristics put them at the head of the class. The selected companies were Aflac, Campbell Soup Co., FedEx, Lockheed-Martin, McDonald’s, Rogers Communication (of Canada), and Sony Corp. of America. Here’s what we learned.

Experience really counts. The heads of IR have an average of 23 years in investor relations, in addition to their prior business experience. Why is this important? A number of companies treat IR as a career stepping-stone and rotate the IRO through the position in three to four years. While that may benefit the individual, it can be a detriment to the function. Investor relations is a business of, well, relationships, and Wall Street likes consistency in the people it deals with. Building a credible long-term relationship and being the “go-to” source who really knows what’s going on in the company are essential.

All seven IROs we examined came into the job with backgrounds in finance or accounting; several had MBAs. If one looks at the IR profession as a whole, at least one-third come to IR with backgrounds in communication or public relations. In small- to mid-cap companies, IR and corporate communications are often combined in the same department reporting to the CFO or CEO.

Reporting relationship. Two of the IR vice presidents report directly to the CEO, four to the CFO, and one to the head of corporate communications. Yet, they all have ready access to their CEO and are often located near the CEO’s office. All are very involved in providing the perspective of the capital markets to the company’s strategic planning. When a company is considering an acquisition or divestiture, the IRO is often asked, “How will Wall Street react to this?” The IRO is expected to evaluate whether or not investors will see this as supportive of the company’s overall strategic plan.

The average size of the IR department is four professionals with one or two assistants in support roles. In a few companies with a large retail shareholder base, one person has that audience as a primary responsibility. Some have a person responsible for shareholder services and a professional designated to work primarily with the sell-side investors.

Coordinating IR and corporate communication. In all seven companies, IR and corporate communications were separate functions, each reporting to different senior managers. Yet, with one exception, each IRO said he or she was “joined at the hip” with the head of corporate communication. Most said their offices were located close together, and they communicated with each other frequently and sometimes shared support services.

It’s critically important that all communication functions sing from the same sheet of music. Effective, integrated communication springs from having a single corporate positioning statement, with supporting “message sets” used to craft all major corporate pronouncements. Companies that communicate from silos—where one message goes to investors, another to employees, and different messages to the public, customers, and other constituents—are often doomed to confusion and communication failure. While the means for communicating to various constituencies may vary, the messages must be consistent.

Some of the seven profiled companies have communication functions within their subsidiary organizations or overseas operations. Those who manage these communications are kept abreast of new or pending developments by participating in periodic communication council meetings, often by remote means.

Handling financial media queries. In most companies, a media relations manager initially handles queries from the business or financial press. If the response requires technical financial input or interpretation, however, in most cases the IRO will talk directly with the reporter. This is vital; I’ve found over the years that some IROs avoid the financial media and prefer to provide responses through a media relations person. This is a mistake. Reporters like to talk with the most knowledgeable source, and facilitating that is important to first-class media relations.

The IRO is the primary contact with the buy-side investors. This is where the experience factor of my sample group rises well above that of the average IRO. Most said they conduct several hundred meetings a year, mostly one-on-ones with portfolio managers. They go on the road monthly. Occasionally, they will take their CFO on a non-deal road show with major investors; CEOs tag along less frequently, but they do sometimes go.

That being said, the CFO and the CEO are the primary presenters at investor conferences or investor days. They typically do presentations at six to ten broker-sponsored conferences a year. In contrast, at small- to mid-cap companies, one often finds that the CFO is the one who typically meets with the buy-side investors and sell-side analysts, with the IRO at his or her side acting in a support capacity.

With one exception, the IROs aggressively target their buy-side meetings, as opposed to allowing their sell-side analysts to arrange meetings with their institutional clients. One company used the sell-side to set up investor meetings because it views that tactic as maintaining a good relationship with their analysts. Having said that, this company closely monitors whom it meets with; analysts tend to select investors who are shorter-term shareholders since they are compensated on a transaction basis and long-term holders tend not to generate the same level of fee income.

Overseas meetings with institutional investors are conducted on average twice a year, usually in concert with the CEO or CFO. Meetings with British fund managers are considered the most productive. Some do meetings with European investors. With the exception of Sony, they do not conduct investor meetings in the Far East.

Environmental or Corporate Social Responsibility programs are of growing importance. In companies that do have a CSR function, the investor relations officer plays a role in communicating what the company is doing in this regard. Campbell Soup, for example, gathered about a dozen investors from socially responsible funds for a meeting in Boston to describe the company’s corporate sustainability programs. Len Griehs, vice president for investor relations, said the meeting succeeded on two fronts: It picked up several new investors, and more importantly, it won considerable credit for taking the initiative to hold the meeting, particularly since some companies are reluctant to meet with investors identified with the socially responsible funds. (Nevermind that socially responsible funds control some $2.7 trillion in assets!)

Most conduct perception research with investors on average once every 18 months. This is used to provide feedback to senior management and the board on investor perception of the company, its strategy, and the quality of management. Most felt they had a good handle on investor opinion that they can convey to management and the board in the interim.

On average, they make two presentations to the board a year. In the interim, they provide written reports to directors that keep them abreast of the IR effort.

Obviously, many companies do not have the resources to execute an IR program at the level described in this study. Still, they can scale their efforts to their available resources while pursuing many of the characteristics of these “world-class” IR programs. These companies are blazing a trail for corporate success. We’d all do well to follow it.

About the Author

Louis Thompson Jr., a partner with Beacon Advisors, Inc., is an internationally recognized expert on corporate governance and disclosure, having served for more than two decades as president and chief executive officer of the National Investor Relations Institute until his retirement in 2007. An adviser to the Securities and Exchange Commission and the New York Stock Exchange, Thompson is currently serving a second term on the NYSE Individual Investor Advisory Committee.

Prior to joining NIRI, Thompson was assistant White House press secretary to President Gerald Ford.

A veteran of the U.S. Command in Vietnam and the Office of the Secretary of Defense, Thompson has held executive communications positions for a number of organizations, including the American Enterprise Institute for Public Policy Research, and he served on the board of directors for the National Council for Economic Education.

A former journalist and news anchor, Thompson remains chairman of the advisory council for the Greenlee School of Journalism and Communication at Iowa State University, where he was the 2001 recipient of the James W. Schwartz Award for Distinguished Service in Journalism and Communication conferred by the Greenlee School.

Thompson is a former member of the Harvard University New Foundations Working Group on corporate governance.

Now a member of the board of directors at Hanley & Associates, a consulting firm that provides management access to institutions through non-deal roadshows, Thompson can be reached at

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