The Edelman Trust Barometer Special Report: Institutional Investors supported the view that trust matters to institutional investors. To them, trust in a company is a critical variable underpinning their investment decisions. Consider these significant findings: for companies that institutional investors trusted, in the last twelve months:
Furthermore, 87 percent of investors indicate that trust in management is a prerequisite to making or recommending an investment and 94 percent agree that trustworthy companies deserve a larger premium.
Given the significant impact of trust on institutional investors’ investment decisions, and the key role the Investor Relations Officer (IRO) holds as a conduit between Wall Street and the company, it begs the question – where on the Trust continuum does the IR Officer sit?
Not a Ringing Endorsement for IR
Unfortunately, the Edelman Trust Barometer, which captured the opinions of investors whose firms collectively manage more than $1 trillion in assets, did not provide a ringing endorsement for investor relations. In a question designed to understand the extent to which an investor would find company information from each company spokesperson credible, the IRO received a measly 34 percent, compared to about 70 percent for the C-Suite and key Board members. In fact, the most credible spokesperson, according to investors, is a technical expert (i.e. engineer or scientist), and, interestingly, a “regular employee” rated significantly higher than the IRO. As mentioned our executive summary, we advise that companies employ a broad bench of spokespeople to communicate information to investors, a technique that is now quite commonly used by IROs.
Are these Findings Unexpected?
I’ll admit, as a former IRO with nearly two decades of in-house experience, I was taken aback by the size of the credibility gap between the C-Suite and the IRO. So, I turned to some IRO friends to get their thoughts on the matter.
In reviewing the data, Katie Royce, CFA, Senior Director of Investor Relations at Cognizant, was primarily surprised by the IRO’s low relative credibility with only 34 percent of investors, particularly as compared to board members who traditionally have not been as accessible to investors as they are becoming today, and generally wouldn’t be expected to be as knowledgeable on specific company issues. “I would have expected IR to rank higher than 34 percent, perhaps over 50 or 60 percent” But, Katie added, “I bet if we asked the same question about specific IR executives, we would find that investors plot us on a scatter gram – we would likely be all over the map in terms of credibility.”
Jennifer Beugelmans, vice president, head of Investor Relations at Etsy, wasn’t shocked by our findings. In her view, “IR is often still not seen as involved in the business, rather it is reporting on it. Too often IR is a messenger, rather than an owner of the company’s results.”
Katie agreed wholeheartedly. “Investors still see some IROs as a guarded mouthpiece – we have our talking points and we stay on message. I suspect that many IROs are still not seen as a source of real information or explanation.”
I also showed the data to the IR team at Zillow Group, RJ Jones and Dennis Walsh, VP and Director of Investor Relations, respectively. Dennis shared Katie’s view that sometimes IR can be viewed as “just a gatekeeper, given that we are often the most well-trained in Reg FD and staying on message. So, investors may believe they’ll get more value from talking to others at the company who may provide more color than they should.” In addition to knowing the business, Dennis also pointed to financial acumen and a strong understanding of capital markets and financial modeling as being more important than ever. “If an IRO cannot adequately answer financial questions on their own, they could lose credibility with the Street.”
RJ found the survey findings surprising given his view that “a strong IRO knows everything about their company, its products, and understands the business model and industry from multiple angles, especially financial and strategic. I believe talented people in the IR position provide the most comprehensive view of a company, can speak in place of management, and are a highly-valued resource for investors.”
Darin Arita, CFA, IRC, Senior Vice President, head of Investor Relations and FP&A at Voya, was surprised by the data as well, which ranked IR lower than he would have expected. That said, he believed “the results were likely higher now than they would have been had the survey been taken 5 or 10 years ago when the IR role was viewed as less strategic.” In Darin’s view, IR has come a long way in the last decade as individuals - with broad experience from other business functions as well as those from the Street – have entered the role.
Is it time for a Chief Investor Relations Officer?
So, what’s an IRO to do to build credibility and bump up our role’s “trust barometer?”
Jennifer suggested taking additional roles in corporate development, finance, marketing or other to elevate one’s access and ability to drive decisions. By sitting on the senior level operating team, it’s “more than a seat at the table, it’s about having a front row seat with an ability to influence strategy and decisions.” She believes this is critical to formulating your own point of view on why the results are what they are, rather than “being a mouthpiece.” Dennis recommends that an IRO must be able to speak the investors’ language and provide additional color within compliance of Reg FD, versus repeating statements that have already been made publicly.
Katie’s recommendations centered on how an IRO can build their own brand as a top credible source of information on the company and the industry. Explaining financial results is table stakes, but the key for her is learning the business from the ground up so that you can explain it in a way that doesn’t sound scripted. Another critical factor for Katie is that while IR has an element of marketing, she suggests “you can’t be pitching your stock and be positive all the time. If you are overly positive, there is no way you will be credible.”
Darin’s advice was clear – “IROs need to demonstrate that they have a seat at the executive table of a company and that they are fluent in the financial results, the competitive landscape and trends, and the strategic positioning of the company.”
He also believes that the field of IR might be overdue for a rebranding of sorts, suggesting that a “C” should find its way to the front of the title – Chief Investor Relations Officer. He said, “investors need to see us as someone who is part of the management team, rather than merely representing the management team.”
There is no mistaking that IROs have significantly upped our game in the last decade – now often playing key roles across governance, compensation, corporate business development, transactions and crises. With eight in ten respondents stating that trust in the company is the most important attribute when making investment decisions, perhaps top on an IRO’s list of 2018 resolutions should be to think about ways to improve your own personal brand as a critical component of driving investor trust in your company.
Deb Wasser, IRC, U.S. Investor Relations Practice Lead, Edelman Financial Communications & Capital Markets