Written documentation and inter-departmental links are vital
Today’s companies operate in an environment of global capital markets and ever-closer scrutiny from regulators and activist shareholders. To deal successfully with these challenges, it is critical that IR has excellent external relationships with investors, analysts and the capital market community, but also that it is appropriately organized to meet these demands.
In a world where efficiency is key, EY worked with IR Magazine to understand what best practice looks like. The subsequent report, ‘Taking it to heart: exploring how investor relations is organized in companies pre and post-IPO’, analyzes how companies across all sizes, sectors and geographies organize their IR function within the business to make it fit for purpose.
IR must have a seat at the top table
Our key finding is that, to be effective, IR must have a seat at the top table. In a globalized environment with 24/7 trading and highly engaged shareholders, companies can no longer afford to wait for their AGM to communicate with investors. IR needs to be able to act in real time as the intermediary between the markets and the board and be fully abreast of strategic and business developments.
Our survey finds that at 77 percent of companies, an IR representative regularly attends board meeting; at 83 percent, the IR function provides a regular written report to the directors.
Written documentation is key, particularly in less mature markets
Another hallmark of best practice is the existence of written documentation around the IR process. While a written IR strategy can help to remove any uncertainty or misunderstanding about what the company expects of its IR department, a written manual ensures consistency over internal processes and regulatory compliance. This is especially true for larger companies, where more formalized documents are needed to maintain consistency across larger teams.
Our survey finds that more than half of companies have written IR strategy papers, although with significant regional variations. Two thirds of teams in Asia-Pacific have a formal strategy, dropping to exactly half in the Americas. Despite being much less common globally, IR manuals follow a similar regional pattern, with just 12 percent of US companies having IR manuals, compared with 29 percent in Asia-Pacific.
The intuitive explanation for this regional variation lies in market maturity. US companies, which constitute the largest group of respondents in the Americas, have been practicing IR the longest, and may feel less need for written guidance. This contrasts with Asia-Pacific, where IR is still relatively new and a formalized approach is deemed more helpful.
It’s good to connect
Inter-departmental connectivity emerges strongly as a key feature of successful IR functions. If IR is to provide timely, accurate and compliant information that meets the demands of an engaged market, it needs close relationships with nearly all other departments. Our survey finds that accounting and finance score the highest, with an average score of 9.3 out of 10, followed closely by planning, budgeting and forecasting, with a score of 9.1.
As companies get bigger, they get more connected. For example, our survey finds that the likelihood of regular contact with the treasury doubles from 41 percent at small-cap firms to 82 percent at mega-caps.
Internal organization is key
Companies are inherently varied, and there is no guarantee that what works for one will work for another. We observed a great deal of variation by section, size and geography. What is clear from our report and from EY’s own experience, however, is that the internal organization of the IR team and its interaction with the rest of the company is critical to success.
Dr Martin Steinbach is EMEA IPO leader at EY
