‘The Role of the Investor Relations Officer Should Not be Underestimated’
On the day of the interview, Gerben Everts and Rients Abma had already talked about Ajax. Not so much about the Ajax 5-0 victory over FC Twente the day before, but about whether shareholder interests were violated in the case of the departure of Ajax director Marc Overmars. Were the shareholders informed on time by the stock exchange-quoted company from Amsterdam-Zuidoost, or were they misled? And how does financial settlement take place? That afternoon, a letter was sent from the VEB to Ajax.
When it comes to investors' interests in the Netherlands, you cannot ignore Rients Abma and Gerben Everts. Abma represents the institutional investors affiliated with Eumedion, while Everts represents all investors, large and small. They are very clear about the investors’ information requirements and have identified lots of opportunities for further improvement. Abma says, ‘As far as I am concerned, companies should not have investor relations – they should progress towards stakeholder relations and create a Stakeholder Relations Officer.’
Let us start in general terms: how well are listed companies in the Netherlands doing in terms of informing their shareholders?
Abma: ‘In general, things are improving. Transparency has increased everywhere. All large companies organize a Capital Markets Day or an Investor Day. Roadshows are organized everywhere, informing investors about the financial ins and outs. There has been a huge increase in separate ESG days or sustainability days over the past two years. Any serious company organizes press conferences so they can explain their annual or quarterly figures. In addition, more and more enterprises are organizing stakeholder dialogues. I am also seeing more and more one-on-ones, where large investors get the chance to ask their questions individually.’
So communication between company and investor is improving?
Abma: ‘Definitely. A good example is data supplier Wolters Kluwer. They had a proposed bonus rejected during the shareholders' meeting in 2020. After that, over 100 talks were held with stakeholders before an amended proposal was put to the shareholders again. Nowadays, that level of dialogue is quite common. According to their own figures, ING held 850 such consultations in 2019, while Boskalis held 275. Randstad says in their 2019 annual report that more than 60 full days were spent communicating with shareholders.’
Those are encouraging figures. Yet something is going wrong, if I am to believe research firm Dun & Bradstreet. They mention a lack of connection between organizations and shareholders...
Abma: ‘Yes, there are still lots of areas for improvement. That was flagged up in the last monitoring report published by the Corporate Governance Code Monitoring Committee. The committee concluded that on many aspects there was too little substantive reporting; for example, on long-term value creation strategy, risk management, internal culture and diversity policy. I certainly share this conclusion. There is a disconnect between the official reporting in the annual report and the communication that takes place outside of the annual report. Engagement discussions between investors and companies have therefore become increasingly important.’
Everts: ‘A lot of progress has been made in the Netherlands over the past two decades. We were really behind when it came to corporate governance. The government, companies and we have all put in a lot of effort. There was a lot of catching up to do. As a result, we are now an international trendsetter in many areas. Interaction between investors and companies has improved many times over, yet I still see a disconnect in many areas.’
Can you give an example of that disconnect?
Everts: ‘Communication, for example. Investor Relations Officers – or IROs – mainly focus on analysts or portfolio managers and too little on ordinary investors, investors’ associations and the public. In addition, communications are still too often focused on company results in purely numerical terms. There is too much emphasis on profits and projected earnings and too little emphasis on other social expectations. In the future, entirely different variables will determine a company’s success: The ESG aspects. We are already seeing this. Balance sheet, profit and cash flow – however important – determine only part of a company’s valuation. Society’s needs are changing, but that is not always reflected in communication. It definitely needs to improve. I also see a disconnect in the type of investors being targeted. Companies still focus a little too often on existing, well-known, large investors, while there are also large groups of potential new investors such as young or self-employed people. The trick is to reach that group and keep them away from unrealistic offers like crypto. And we also see a disconnect on the part of the investor, who is investing a little less in individual shares and opting instead for baskets of shares, fund investments and ETFs. This threatens to cause less direct interaction between individuals and companies. As far as we are concerned, that is a worrying development.’
Abma: ‘I disagree with that. I have actually noticed that major providers of index funds or ETFs – such as BlackRock, Vanguard and State Street – take the individual investor very seriously. In fact, they actively involve individual investors. BlackRock now even gives its institutional clients the option to exercise their own voting right on the shares of the companies included in the relevant index product. Partly due to the size of their capital and equity interest, providers of index funds cannot afford to remain neutral. Nor do they want to. Just look at the publications of BlackRock chief executive Larry Fink – they all cover social issues. Those asset managers really do take their responsibility seriously.’
Everts: ‘The VEB does see BlackRock as a positive exception. The Dutch institutional parties are still lagging behind in terms of active voting, which can also be against the Board's proposals.’
So there is a disconnect between the business community and investors on several aspects. What can companies do now, especially in anticipation of potential regulations?
Everts: ‘According to VEB, companies need to work on creating a culture in which transparency, diligence, honesty and engagement are paramount, especially in times of transition, which we now find ourselves in due to the climate crisis. That kind of transition costs a lot of money; companies will need to invest in order to innovate. You will therefore need to go to the investor and explain how that transition will be for you. Currently, that is the biggest challenge. In all honesty, I am very concerned about whether companies will be able to pull that off. You hear a lot of marketing language at the top of the Dutch business community. I notice an enormous gap between the things that are said and the actual execution. There are always a thousand reasons not to do something, especially in terms of ESG. “The Netherlands should not be too much of a trendsetter”, “Our expectations should not be too high”, “We are losing the competition to the Chinese”, etc.
On the contrary, the Netherlands should and can lead the way in the implementation: Solar and wind energy, for example, are already very profitable. We are on the verge of a breakthrough with geothermal energy. In my view, there is a huge advantage for the first movers. The Netherlands finds itself in a vulnerable delta and will need to and be able to lead the way in climate adaptation. If you do that, you have a wonderful proposition for international expansion. But it takes a lot of effort, commitment to innovation, trust in the collective and interaction with your investors.’
How can the Investor Relations Officer (IRO) help? Can they be a distinctive factor in the link between shareholder and company?
Abma: ‘I see the IRO primarily as a mouthpiece. You should not make the role more important than it is. We do not want to talk to the Investor Relations Officer – we want to talk to the CEO, CFO or Chair of the Supervisory Board. They draw up the policy and establish the strategy. Those things are not up to the Investor Relations Officer, although they do need to know what is happening among shareholders and be able to answer questions in the interim, for example. But for strategic issues I prefer to communicate with the Board directly.’
Even though they do not make the decisions, the IRO can keep the Board on its toes and help it see around the corner. After all, the playing field and responsibility are expanding...
Everts: ‘The IRO can identify what is happening among the investors. They can and should be the executive, they can advise the company and represent the company to the investors.” Abma: ‘Well, I do not know whether they should represent the company. For us, that really is the Board.’
Everts: ‘I agree, but you do not want to depend on an executive’s assistant when it comes to making appointments, for example. The main task of the IRO should be to serve as the easy initial contact person and actively maintain contacts, opening the door to the executives. It is good to be able to contact an IRO directly, and vice versa. I think that is an important role that should be appreciated and not be underestimated.’
Now you have said the word I was actually looking for: “Appreciation”. Can you expand on the value of an IRO?
Abma: ‘The IRO needs to know about everything that is happening among investors. They need to report those things to the Management Board and the Supervisory Board. That position should not be underestimated. Investors like predictable communication and predictable action, and they do not like surprises. It is important that the IRO knows what the major shareholders think of the company. That way, as a company you do not need to worry if a 0.7% shareholder says something in the Financial Times or Het Financieele Dagblad.”
Everts: ‘Yes, it is very important to prevent surprises. The silent majority of loyal, committed shareholders is the best defense against unwanted activism or an outburst of public opinion. It helps if there is a direct line of communication from the Board to the investors. The IRO can play a key role in that communication – they can prevent and manage back a lot of accidents. Maintaining good contact with shareholders is becoming increasingly important. The dynamics in the business community and the dynamics between shareholders and the business community are not diminishing. Reputations are made and destroyed in fewer than 280 characters. It is incredibly important to maintain shareholder trust.’
What would be your message to the leaders of stock exchange-quoted organizations on the topic of investor relations?
Everts: ‘Everyone will shape a leadership role with the best of intentions, but the difference is in the execution. We can write comprehensive strategic annual plans about higher goals, we can organize offsite retreats to define our purpose, and we can have inspiration sessions... That is great, but ultimately it is about the execution. That is a less attractive area for a leader because it does not happen on stage. On the contrary – it requires a lot of time and preparation, sleepless nights, adjusting your vacation planning from time to time, not being able to meet up with friends as often. But that is what real leadership is about... it is not giving slick presentations and delegating the execution, but about staying ahead of the game. I do not mean micro-management, but a 24/7 strategic and operational connection to the business. To put it politely, that is something that the top business leaders in the Netherlands are not particularly good at.’
What do companies need to do, in concrete terms? What is essential, in your view?
Everts: ‘Executives need to outline the transition to 2030, 2040 and 2050 through a series of scenarios. Shareholders need to be kept up to date on that transition. The ambitions need to be measurable, including the non-financial variables. You need to be extremely transparent to the outside world; you need to be open about the things you have achieved and the things you have managed. And you need to explain why.’
Abma: ‘And – this is very important – you need to include the investor in dilemmas. I still feel that dilemmas are lacking in annual reports and discussions with directors and Supervisory Board members. Dilemmas are also part of transparency. Another important task is to try to get the outsider's view of the company. Companies should really start experimenting with Sustainability Advisory Councils and Social Advisory Councils. Stakeholders need to be heard.’
Are all stakeholders equally important in that respect? Or are the investors more important?
Everts: ‘Dealing with financiers is an important lifeline for a company. Remember that financiers will also factor in how the interests of other stakeholders are served by the company.’
Abma: ‘It is broader than just the financial aspect. I think that NGOs, for example, will leave a much bigger mark on the business community. And employees are becoming more important – there will be a war for talent over the next ten years. Companies will need to cope with that. And then there are the suppliers, for example. All these stakeholders are vital, and you need to keep them close. I think all those stakeholders will be equally important in the future. As far as I am concerned, you should not have investor relations – you should progress towards stakeholder relations and create a Stakeholder Relations Officer.’
Everts: ‘It goes without saying that you need to focus on clients, staff and suppliers. However, investor relations and investors should not be the poor relation. With investors, you will soon need to respond quickly if you want to innovate or transform. These investment decisions are and will continue to be very important, especially in an evolving society. You cannot finance the transition over the next ten years using the current cash flow. You cannot say that we will do a little more of this and a little less of that. It requires bigger, more drastic decisions and therefore a more drastic revision of the modes of financing. As Johan Cruyff, the Dutch professional football player and manager once said: “Often, something has to happen before something happens”.’
Finally, the Supervisory Board – what do you think is its role in this matter?
Abma: ‘The role of the Supervisory Board is extremely important. A Supervisory Board has to challenge and advise the Board. Supervisory Board members have to carefully consider the interests of all stakeholders. The Supervisory Board has to be a driving force in investor relations and keep track of public opinion on the capital market. Supervisory Board members play a vital role.’
Everts: ‘In my opinion, many Supervisory Boards are unaware of the importance of this dynamic. There are good Supervisory Boards in the Netherlands, of course, but many have the tendency to take a back seat. They do not always understand all the ins and outs of investor relations.’
This article was published in Management Scope 03 2022.
This article was last changed on 09-03-2022