Developments in the IR role – trends from the UK, the US and Germany
The job description of the IRO is fundamentally quite simple: to communicate the company’s financial and operational performance to a diverse range of stakeholders – and thus safeguard the company’s financial reputation. What skills should the IRO have to achieve this aim, and have the requirements changed?
The job description of the IRO is fundamentally quite simple. It is to communicate the company’s financial and operational performance to a diverse range of stakeholders – investors, analysts, media and other interested parties – and in doing so safeguard the company’s financial reputation. What skills are then required for the IRO to achieve this aim, what are the requirements and how have they developed recently?
IRO – a key adviser to management
According to articles from DIRF’s counterpart in the UK, The IR Society, the IRO is the eyes and the ears for the company and a key adviser to management. And whilst the aim may seem rather simple, the skills and work behind delivering on this goal are more diverse. The IRO must use every opportunity to gather intelligence as the compilation of this intelligence will help complete the understanding of the company among its stakeholders, its strategy and its financial and operational performance. This will help management to speak publicly about the company without falling foul of the regulatory framework, thus building confidence and trust in the company and themselves.
What skills are then required of the IRO to do a good job? As the role is very strategic a high level of emotional intelligence comes first as the IRO is a key advisor to management. Secondly, a good financial understanding is essential for the communication of the company’s investment proposition and to match with the appropriate investor base. Strong analytical and writing skills are also important prerequisites to be able to weave a compelling narrative linking the past with the present and the future to demonstrate the investment proposition. A good IRO will help deliver an IR strategy that will ensure the full value of the company is recognised and reflected in its share price.
The increased number of regulatory requirements also add to the demands placed on the IROs regardless of which country your company is housed. On top of this comes the technological development with new formation of thinking about IR data and processes – not to mention the current sense of disruption and innovation. However, this gives a massive scope for IR and also new IR jobs under the current circumstances.
IRO – the corporate athlete?
In the February issue of NIRI’s IR Update, one article focus on the latest trends on IRO salaries (upward trajectory) and what skills companies find valuable in their IROs. In the US, the value of the IR profession is being more widely recognized as CFOs and the C-suite see greater strategic value in the roles. Thus, a recent study shows that in 2016 the average salary of corporate IR practitioners increased for the sixth straight year. After adjusting for inflation, US salaries ticked upwards by about 7 percent from 2014 to 2016.
IR has become more prominent in the eyes of management and corporate boards. In the most senior IRO ranks, talent is a hybrid of finance and IR offering a different value-add as the IRO is an executive with multiple functional expertise. As companies face head-on increased demands on the part of the investment community, activists and the oftentimes unpredictable effects of social media, the triumvirate of the CEO-CFO-IRO unit is expanding rapidly to include corporate boards in the relationship. And this development requires the IROs to be more facile across multiple topics rather than fewer, i.e. the corporate athlete.
There is a greater need for internal coordination because business models are shifting and things are much more dynamic, so IROs need to be incredibly facile and especially skilled at translating the outside world in as well as the inside world out. This make the IR job more challenging in addition to increased focus on share repurchases over investment and the rise of activism. And the activists are communicating more through social media. The IRO survey also showed that keeping pace with institutional investor expectations, the perpetual challenge of how best to represent the company to the financial markets and finding the ideal way to convey market feedback to the CEO and CFO all add to the complexity of the position.
Current IR trends and discussions among IROs in Germany
The German IR market is demanding with emerging EU regulation and increasing activism as some of the factors shaping the future. This add new challenges to the IR professionals from three main areas:
- Change in reporting standards – a regulatory wave
Because of the implementation of the European Transparency Directive issuers now have less stringent reporting requirements. In principle, this will make reporting easier. However, in effect it is creating a lot of work for most IR departments as existing reports have been reviewed and have undergone extensive changes thus more work in the short term.
- Dialogue between supervisory board and investors
Ever more frequently, investors from particularly outside Germany are contacting supervisory board members directly to discuss questions directly so IROs are currently discussing the possibilities and channels for appropriate communication.
- Strategic/integrated function of IR
The IR role is expanding into a more strategic role due to the relevant skills of the IROs from their close relationship with the capital market, trends and notice changes in investor behaviour and IROs often have a better idea of the company’s role on the capital market than the C-suite.
In short, German IROs deal with many of the same challenges as IROs in other nations – i.e. increasing regulation, activism, quantitive trading, new ESG reporting requirements and more. More activists now seek direct contact with supervisory board members, but according to German law there is no reporting line from the IRO to the chairman and vice versa – all contact must be through the CEO.
Time management – so many tasks, so little time
Generally, time management, especially in a one-person IR department serving constituents that include the executives, board of directors, investors, analysts, governance and sustainability audiences, media, and employees, is always top of mind. The advice is always to be very clear on what management’s objectives are for IR to prioritize time and resources. If the IRO wants to take the position beyond being a skilled tradesperson and expand the role, consider taking on additional special projects important to the c-suite to deal with managing the corporate reputation, strategy and activist shareholders. Some IROs have responsibilities for treasury, corporate strategy or media relations, and many IROs have an opportunity to expand their roles.
Overall, IROs are multi-artists in a demanding business environment, requiring strong professionals to handle the pressures – that is the common thread of the trends reported in all three countries. And especially the areas regulation, increasing activism and reporting, the common denominators are requiring multifaceted IROs.
Extracts found in:
– Informed, issue 93, Winter 2016/17: ‘The strategic role of the IRO’
– IR update, February 2017: ‘The upward trajectory of IRO salaries’
– Informed, issue 93, Winter 2016/17: ‘Current trends and discussions in Germany’ – interview with Kay Bommer, DIRK
– IR update, Novembr 2016: ‘Investor Relations in Deutschland’