Ahead of InspIR’s event with John Gollifer in Buenos Aires, we asked the CEO of the GCC Board Directors Institute what it takes for IR to establish itself as a trusted strategic adviser to the board. Here’s a preview of that conversation.
Q. At many companies, boards still view IR primarily as a reporting function: communicate the numbers, manage the calendar and respond to analysts. You’ve helped develop IR standards across three continents. Why does this perception persist, and what do companies risk by holding on to it?
IR generally reports to the CFO and is therefore often viewed as part of the finance function. This inevitably makes IR the first port of call for finance-related inquiries. Given the sensitivity of the financial information, IR is often regarded first and foremost as a reporting function serving external audiences.
Yet IR can, and should, be much more, particularly through its role in gathering market intelligence and bringing investor perspectives back into the organization. It is understandable that companies that are new to the public markets, or particularly risk-averse, may initially focus on ensuring that statutory and financial reporting requirements are met.
What is often missing, however, is an appreciation of the opportunity that lies beyond the numbers. From the outset, IR should bring the investment proposition to life by developing a compelling narrative and articulating the conviction, context and nuance that distinguish a company in the competition for investor attention and capital.
When the C-suite, board or reporting structure does not support this broader mandate, the company loses an important strategic perspective. IR must, of course, first earn the trust of decision-makers before it can represent the company with its most important stakeholders, each of whom has competing choices for allocating capital.
A credible IRO can be a source of competitive advantage throughout the year, reflecting both the strategic importance of the role and its direct connection to the capital markets.
Q: There’s often a significant gap between how a board views a decision internally and how the market interprets it once announced. Where does that disconnect typically arise, and who is responsible for closing it?
The gap can stem from an incomplete understanding of what it means to operate in the public capital markets and of the role that strategic IR can play in addressing any communication or perception gaps. If the board sets the tone from the top in recognizing both the opportunities and responsibilities that come with being a public company, IR can be empowered to fulfill its broader mandate.
The best IR teams build confidence across an organization by maintaining accountability through to the board level. Moreover, IR needs to be properly resourced to perform its day-to-day responsibilities and supported by robust internal reporting processes so that it can translate objectives effectively for external audiences. In this way, disconnects can be narrowed, if not eliminated. In the final analysis, there is no substitute for professional communications.
Q. You’ve served as an IRO and now represent the boards to which IROs report. What enables an IRO to contribute meaningfully to boardroom discussions, and what typically prevents that from happening?
A competent IRO earns the trust of senior leadership, becomes a valued source of counsel and is given the opportunity to provide an unvarnished view of the market through to the board level. This relationship, developed through both informal engagement and regular formal reporting, takes time to build and must be continually strengthened. The true value of that relationship often becomes most apparent when the company is navigating change or confronting significant challenges.
A seasoned IRO can become a trusted voice of reason and perspective, drawing on continual exposure to market dynamics and key stakeholders while making judgments based on facts, data and, at times, incomplete or ambiguous information. The principal barriers are inevitably people, particularly those who lack conviction in the function, do not understand its value or are unwilling to accept accountability and responsibility.
The best IROs naturally embrace these responsibilities and exercise sound judgment when it matters, without shying away from difficult messages. This is why the IR role can provide a strong foundation for broader senior leadership positions over time. When performed properly and comprehensively, IR offers one of the most complete perspectives on a business.
