How to stand out from the crowd in 2020
In an evolving landscape for listed companies worldwide, Sandra Novakov discusses the issues that IROs should be prioritising in the coming year. (This article was originally published in IR Society’s Informed magazine.)
Effective communication of long-term strategy
Ensuring that investors understand the company’s long-term strategy is a fundamental task for any IR team. However, for many, this is proving surprisingly difficult in the current environment. A disconnect between internal and external expectations has led investors to increasingly challenge management regarding their plans. The findings of our 11th annual IR survey, which are based on feedback from 479 IROs worldwide, show that 72% of IR teams have set educating investors regarding long-term strategy as by far the most important objective for the coming year. Looking ahead, we expect to see a greater focus on identifying investor perceptions (or misconceptions!), significant upgrades to IR websites and information materials optimising the delivery of key messages, as well as more frequent capital markets days.
Focus on ESG disclosure
Amid growing calls for action from multiple stakeholders, including the public, media and governments, across a wide range of ESG concerns, investor focus on non-financial performance continues to grow. Among our research sample, a significant 47% of companies state that improving ESG disclosure is a key priority for the coming year. In recent years, great strides have been made in this respect across the globe, but as scrutiny intensifies and expectations rise, those who continue to report only what is required by regulation in their jurisdiction risk falling behind.
With the buy side consuming less sell-side research, conducting more research internally and engaging with companies directly, IR teams that typically relied on the sell side to communicate their message and arrange investor roadshows on their behalf are now coming under pressure to adopt a far more proactive approach. In this respect, we recommend following the lead of North American companies. Our research has shown that companies in this region take the most proactive and commercially driven approach to IR. This is clearly evident in their attitude to investor targeting and direct engagement. North American IR teams are most likely to research investor targets internally and engage third-party consultants to support this process. Having invested this time in carefully selecting investor targets, North American companies prefer to engage through one-on-one meetings rather than attend broker-hosted conferences. The majority will also contact investors before and after a meeting to get their views on the company. By taking this approach, engagement is more effective, valuable and the company retains greater control over the process.
Strengthen shareholder relationships at all levels
Given the rise in shareholder activism and passive investment, it is critical to build strong, constructive relationships with top shareholders, not just at executive management level, but at board level too. Our research shows that, in the absence of any investor pressure regarding specific governance issues, a large proportion of chairpersons and other non-executive board directors (‘NEDs’) rarely see investors outside the AGM. Improved interaction would allow investors to more easily express any frustrations they may have and allow board directors to keep better abreast of sentiment and gauge likely support in the event of an activist investor approach. As scrutiny of board actions and effectiveness continues to rise, we expect more companies to proactively offer meetings with board directors outside the C-Suite. Ahead of any action, we recommend taking the time to thoroughly prepare any NEDs who have not met investors in the past, through appropriate training.
A fresh approach to expectation management
We have seen a rise in the number of companies that have difficulty assessing market expectations due to a decline in analyst research and availability of up-to-date consensus figures, and who feel their guidance now plays a greater role in setting market expectations. Given the changes in market dynamics, it is increasingly important to receive regular feedback from the buy side and to publish your own consensus figures on the website and/or make necessary changes to the guidance policy to ensure effective expectation management going forward.
In this dynamic environment – characterised not only by regulatory change, but also by political and economic factors – we urge IROs to step back, take stock, and ensure their practices and level of resource remain fit for purpose. Acting swiftly to evaluate your approach to IR, make the necessary adjustments and secure the appropriate support to ensure improved effectiveness in 2020.