Investor Relations Is About Investing in Investors
Joining us around the table at Shell’s impressive office in The Hague is Thelke Gerdes, Head of Investor Relations at the lighting manufacturer Signify. She is flanked by Reinout van Ierschot, Head of Investor Relations at the telecoms company KPN. On her other side is our host, Tjerk Huysinga, Executive Vice President Investor Relations at the energy company Shell. All three participants in this roundtable have been active as IR professionals for a long time and feel it is the right job for them. Thelke Gerdes: ‘I find it difficult to imagine ever doing anything else. The most appealing aspect of my job is that it combines working internally and externally. On an external level, you are in close contact with the capital market, while internally, you are continually in discussion with the management teams.’ That view is also shared by Reinout van Ierschot: ‘The IR office is a dynamic environment that moves at a fast pace. In our role, you are in constant contact with top-level directors about topics such as strategy or financial results, much more so than you would be in other positions. That is what makes this job relevant, challenging and enjoyable.’ Tjerk Huysinga also spent a period of years working in the IR office. In his view, that period was certainly an extremely valuable one: ‘The longer you spend in this job, the more valuable you are as an IRO and the more enjoyable it becomes. The most important aspect of the job is your experience and especially your network, but a network cannot be built up overnight, it takes time. Having a network means that I know many investors and they also know me. As contacts, we go back a long way. In many jobs, it is normal that after three or four years, you switch roles and do something else. An IRO, on the other hand, is only just getting up to speed by that point. You cannot be an IRO for just a short period of time, as that would be of no benefit to anyone.’
I understand the reasons why you are in favor of staying in post for a long period, but at the same time, we can counter that by saying that times are changing, the markets are changing, and the requirements of the job are also changing. Perhaps there is a need for more specific, specialist knowledge. Not only in the area of finance, but also in the area of communication. What would the ideal IR team actually look like?
Gerdes: ‘That depends very much on the circumstances, on the company, on the environment and on the experience that exists in the senior team. A young company that has just completed its flotation is going through a completely different phase than a company that has been listed at the stock exchange for a long time. This brings a different dynamic along with it and means that the demands being made of the IR department are different. As an IRO, you will need to lead a company by the hand if it is currently undergoing a flotation on the stock exchange – that is what you are expected to do each quarter and is also what investors will expect. Maintaining an open dialog about this with management is therefore important.’
Huysinga: ‘In an ideal situation, an IR team will consist of multiple types of professional. In my view, for example, sell-side analysts could be a beneficial addition to an IR team. After all, they know how the equity market works. At the same time, you also need people who actually know the business and that know the company. In an ideal team, you would bring all of those skills together.’
Van Ierschot: ‘I think that putting together a balanced team is easier in large companies such as KPN. In smaller companies, you may only have a single person working in IR. In those cases, what you would ideally be looking for would be a true all-rounder, a rare and talented individual who has the ability to take care of strategy, finances, communication and so on. In large companies, those skills can be spread out between different members of the team. In my team, for example, there are some people who are right at home in investment banking and people who have an in-depth knowledge of the sell-side, but also others who are at home in the telecom business. Getting the right balance is very important.’
How does the organization view your role? Are people sufficiently aware of what you do?
Gerdes: ‘In my experience, management teams mostly see the in-house part of our work, even though at most, it only accounts for half of what we ultimately do. The reality is that we have two jobs. One of those is the internal part, which includes reporting to the CFO and the Supervisory Board, while our other job lies outside the company and involves going out on the road and forging and maintaining relationships with investors. I always find it striking how little those two worlds know about each other. The management teams are not always aware of the external aspects of what I do, while the financiers do not see the things that I do inside the company.’
Van Ierschot: ‘To make sure that the role of the IRO comes across more clearly on an in-company level, you need to be proactive and share knowledge as widely as possible. One of the ways you can do this is by maintaining dialog with all in-house teams and by bringing in knowledge from outside. Everyone is operating within a particular furrow and is focused on a single segment of the whole. As an IRO, you can expand people’s vision and ensure they have a broader scope. In my view, the fact that our work is not always visible is not a problem. As an IRO, you need to fulfil others’ needs. I have no wish to be in the spotlight myself. I am happy to leave that to the members of the Board. It is a case of letting them shine and be the company’s standard bearer. My aim is to make sure that on a capital markets day or at a roadshow, they are well prepared. My involvement is then appreciated by them and by the investors as well. For me, that is enough.’
The role of an IRO is often somewhat unclear. Would it help if the role were more precisely defined? Such as in the corporate governance code, for example?
Huysinga: ‘In the case of large companies, that is unnecessary, in my view. Within the company, the fact that my role is to take care of relations with investors is crystal clear. I do not get the impression that there is any misunderstanding about that. In smaller companies, that may be different. That is why it could actually be useful if aspects of the role were laid down in a code, such as a requirement that once a company reaches a certain size, it must have an IR department. After all, you cannot ask a PR officer to simply step in and get involved in IR. It is a completely different role, so that would certainly not be a long-term solution.’
If you compare your work today with how things were a few years ago, what trends and changes have you observed?
Huysinga: ‘One of the major differences is the rise of major asset managers such as BlackRock. For an IRO, this means that it is not always clear whom you need to speak to. In the past, that was clearer. In many cases, you were dealing with major pension funds. ABP invested in Shell, so then you turned to ABP whenever you had a question. Nowadays, the whole situation has become slightly less clear-cut. In some cases, ABP re-invests via BlackRock. So sometimes you will be talking to BlackRock and at other times to ABP and in some cases to both.’
Van Ierschot: ‘Right now, we are emerging from an extraordinary period dominated by COVID-19 and that has had repercussions on our work and has given rise to stricter regulation. In recent times, it has actually been quite difficult to gain access to new investors. Many IROs turned to the usual suspects, even though an important task is actually to seek out new or different long-term investors. Investor targeting is an important part of our profession. IR therefore needs to be much more proactive than it was before. We need to make contact with investors ourselves and concentrate on building up direct relationships with them. In the past, that often took place via the sell-side, via brokers, whereas now, there is more direct contact.’
Digitalization ought to give IROs a helping hand. Has the drive towards digitalization progressed far enough?
Huysinga: ‘Digitalization can certainly help, especially because the role of sell-side is tailing off. In the past, banks had six or seven people focusing on a specific sector, whereas nowadays, what you have is one person with responsibility for three or four sectors. For us, this means that we need to do and find out a lot of things ourselves. And there is yet more pressure – we are required to organize roadshows, ensure that management makes time for investors and so on. Everything is falling to us. We will therefore need to identify ways of achieving greater efficiency.’
Is the data sufficiently up to date? Imagine that stock prices fall. Will you immediately have data at your fingertips to explain why?
Gerdes: ‘Share prices do not have all that much to do with data. If prices fall, I pick up the telephone and speak to a few specialists from the sector. Share prices often fluctuate in reaction to rumors or stories and that has little to do with data. It certainly would be great though if I had a button that I could press when share prices fall to receive an explanation.’
Van Ierschot: ‘Having good data is extremely important, even though I agree with you that data cannot always explain fluctuations on the stock market. The digital market as a whole is undergoing a period of extreme change. There are so many service providers and a plethora of different platforms. But in all honesty – changing provider is not easy to do. There is quite a lot involved.’
Huysinga: ‘Roughly 70 percent of an IR team’s activities should take place externally. The remaining 30 percent can be devoted to in-house matters. Or, from now on: 60/40. In many cases though, we do not achieve that. In IR, the proportions are sometimes the other way around. And the reason for that is because we spend too long working on internal reports and finding the right data to back them up. That takes a lot of work.’
Van Ierschot: ‘Forecasting accuracy is extremely important. If your forecasting data is in good order, it can save you a whole lot of time, and it genuinely makes the work of an IRO so much easier.’
Huysinga: ‘It is also important to ensure that there is an ongoing flow of continuous reporting. The best approach is not to jump from a sustainability report to the quarterly figures, but to ensure a continuous flow of reporting. The advantage of that is that periods of peak load will become a thing of the past. Peak load is actually a major problem for an IRO. Sometimes, it seems as if the peak is threatening to become a constant.’
What areas offer potential time savings? And what areas would merit further efficiency drives?
Huysinga: ‘COVID-19 has actually been of considerable help to us. On the one hand, we have started holding virtual roadshows. That saves me a large amount of time and reduces costs. In the past, I had to spend an entire week on the road in connection with an investor roadshow in the United States, travelling with the CFO or CEO from New York to Boston and from Boston to Los Angeles. During the COVID-19 pandemic however, I could host those roadshows in the evening from behind my computer. That in itself represented a major boost to efficiency. We also make much more extensive use of pre-recorded videos. After all, why would you actually have the CFO speak for half an hour at a meeting, when you can put together a great video lasting five minutes and spend the rest of your time in another relevant way?’
Gerdes: ‘That is why we need to standardize as many things as we can and not reinvent PowerPoint from scratch every quarter. The same data and the same technology can actually be used for a variety of purposes – it is a case of automating as much as you can and considering outsourcing some things.’
How will the role of the IRO look five years from now? Will the role of the IRO change in your view?
Gerdes: ‘In the next five years, the demands being made of the IRO are set to increase. Right now, many companies still have special departments with responsibility for investor relations, ESG reports and communications. In the near future, those departments are likely to become one. I have already had more frequent discussions with investors about ESG topics than was the case five years ago and that trend will undoubtedly continue.’
Van Ierschot: ‘Another trend that is set to continue is that investors are becoming more like stakeholders. Actually, it is the other way around – various stakeholders will start to invest with specific objectives in mind. They increasingly have a much clearer view about why they wish to invest in specific companies and that is altering our role when taking part in discussions with that investor. I sincerely hope that the IRO can continue to focus on the investor. In a number of companies, investor relations has been merged with communications. That is not my personal preference. After all, IR actually calls for a specific skill set.’
Huysinga: ‘To be ready for the future, we need to start preparing right now. We need to become more efficient; we need to utilize technology and we need to make use of the knowledge that is available internally and externally. For example, it is important not only to do business with the Board of Directors. The layer below them also needs to be involved in all discussions.’
Gerdes: ‘That is also good for the company itself. It can only be a good thing if as many people as possible get a feel for what the capital market wants and for the concerns that exist there. What I have noticed is that CEOs or CFOs do not always welcome others getting involved in discussions. They actually want to deal with matters themselves. Ultimately, however, it is better for the company if more people are involved.’
This article was published in Management Scope 05 2022.
This article was last changed on 25-05-2022