How to make investor relations a competitive advantage

More about the podcast

• Specific strategies for building trust and the evolving profile of IR professionals
• The impact of activist investors
• The significance of credibility, trust, and responsiveness in investor relations, and how these factors can sway portfolio managers' decisions

Here is an edited transcript of the conversation:

Welcome to the Corporate Director Podcast, where we discuss the experiences and ideas bind what's working in corporate board governance in our digital tech field world. Here you'll discover new insights from corporate leaders and governance researchers with compelling stories about corporate governance, strategy, board culture, risk management, digital transformation, and more.

Dottie Schindlinger: Hi everybody and welcome back to the Corporate Director Podcast, the Voice of Modern Governance. My name is Dottie Schindlinger, executive Director of The Diligent Institute, and I'm joined once again by my fantabulous co-host Meghan Day strategy leader here at Diligent. Meghan, how are you today?

Meghan Day: I'm hanging in there Dottie just catching up on the news as we all want to do these days and saw that the SEC has officially dropped its defense of those climate reporting rules that we were all so jazzed about, two years ago.

Dottie: Remember that, remember how we were all waiting, waiting for the rules to drop? We couldn't wait for the rules to drop. Oh, how, how young and naive we were. I watched whole thing.

Meghan: I remember I watched the whole announcement. Ah, yeah, it was a different time. Feels like it was 17 years ago at this point. Very, very different time.

Dottie: Well, you know, listen, Meghan, in addition to the SEC, finally saying, yeah, not so much with the climate rules. We're just moving on. I have to say, you know, I don't know how you're doing, but it, we just got the results back from our director Confidence index for this quarter, and yeah. Directors not feeling so good about the state of affairs. We have not seen confidence levels this low ever since we started doing this report five years ago. I mean, we started this report back before the pandemic, and even in the midst of the worst part of the pandemic, they were more optimistic than they're feeling right now. It's pretty alarming. It is, the actual, number plunged 30% from the last time we asked this question. We always ask the question about what is your, current confidence in the current conditions and, and business conditions. It is, really is at an all-time low. It was I think it was 4.6 out of 10, which is really low. We also asked, you know, how do you think things are gonna be a year from now, and they're not feeling great about that. 41% told us they think that the conditions are either are gonna be worse, 24% think they're gonna be unchanged. Only 36% told us they think that conditions are gonna improve. And then here's the one that really set me back on my heels. We asked, what's your best forecast for the US economy over the coming six months? And a whopping 60% of them said, we're headed for a recession. So Meghan. Buckle in. What do you think? We gonna go there?

Meghan: Well, I don't know that I necessarily wanna talk about the dreaded R word, but I just, I have to chuckle thinking of all of these headlines that I read, I don't know, four months ago, five months ago, about how we're gonna finally return to the IPO Boom and right.

Dottie: All this stuff honestly all seemed really possible. Like, you know, even as late as like, uh, I would say October, November of last year, we were all kind of on that same wavelength. We're thinking this is gonna be the big IPO year. And yeah, not so much. It is just not, no. Money flows in and, you know, going nuts, IPOs left and right and hey.

Dottie: Well, and to that point, Meghan, I mean it also really bears saying, and when we did our What Directors Think report, um, which we always field that survey at the, at the end of the previous year and then published the results in January. So the survey was, was being fielded mostly in October and early November. And you know, everything was like, all about growth. Like we're, we're focused on growth. We've spent the last couple of years focused on cost containment. Now we're all about growth. Well, we asked in this director confidence index, has your growth strategy changed when you're looking at the short term? And 31% said, yeah. We have now pivoted to a more cautious wait and see approach. Now, in all fairness, 56% told us no, we're not letting these fluctuations change our direction. We're sticking with our growth strategy. So that's a good sign. But the fact that, you know, nearly a third are saying, yeah, yeah, we're gonna kind of just slow down on growth. When you get a third of corporate directors saying, we're slowing down on growth, and they, 60% of them think we're headed for a recession, I kind of believe them. Uh. So, golly, it's nice to be in spring. I don't know where we go from here, Meghan, but, um, well, it's always fun talking. Tell me weather about uncertainty with a group of people accustomed to uncertainty and, and no one feeling good about the uncertainty ahead, so, exactly. Well, listen, one bright spot that we can share with you is we had the opportunity to speak with Kevin Roy, who's the global head of Issuer Solutions at S&P Global about. Shareholder engagement and you know, it doesn't matter what sort of strategy your strategy is for the year, engaging with shareholders still needs to be a priority. And he had some just great practical advice, to share with people about how to do it well. So why don't we give that, that interview a listen, and maybe that'll buck everybody up a little bit after our doom and gloom announcements.

Dottie: Joining us on the Corporate Director Podcast today is Kevin Roy, global head of Issuer and Big Dose Solutions at s and p Global Market Intelligence. Kevin, welcome to the show. Thank you for having me today. Well, Kevin, that's quite a title. I think I would be remiss if I didn't ask you to explain what Big Dough solutions are for those who are uninitiated.

Kevin Roy: Yes. A funny name. Itis a, it's a well-known name with regard to a database of institutional investors and the portfolio managers and analysts. Both public companies and, broker dealers, the sell side interact with on a daily basis. So they use that data as part of their daily workflow to, to measure and, and engage, uh, with those stakeholders.

Dottie: Well, speaking of data, one of the reasons we are excited to have you on the show right now is that you recently published a report called IR as a Competitive Advantage, and I wondered if you could share a little bit of an overview of some of the findings in that report for our audience.

Kevin: I mean, it's interesting in that, we actually conducted this study the first time back in 2020, and what we were trying to uncover was whether, what were caught kind of deemed best in class IR teams resulted in a competitive advantage, for public companies. The way that we defined, best in class is we compiled a list of global IR programs that won industry awards, from, industry publications like IR Magazine and Institutional Investor. And you know, the results of those studies indicated were that those programs as measured by both valuation and volatility achieved, higher valuation. Relative to other companies in their market caps and also reduce volatility again, relative to other companies in, the same market cap. So, the study we updated last year to see kind of post pandemic, what's evolved and, you know, does it do, do those kinds of benefits still exist?

Dottie: So Kevin, I wanna dive a little deeper on what you just said, because I know that in the findings of the report, it showed that a lot of things about kind of the fundamentals of in investor relations haven't changed, but that since the pandemic there have been some pretty significant changes. So can you share with us what, what were some of those big significant changes?

Kevin: Yeah, what's interesting is. How much more pronounced the best-in-class programs, now traded a premium valuation and experienced lower volatility relative to when we first did the study, in 2020 and back in 2020, the best-in-class programs traded at an average premium of 8%. Experience an 8% reduction in what we call beta implied volatility. Fast forward to today, and that premium has increased to 34%.

Dottie: Wow.

Kevin: And the company's experienced 37% reductions in volatility, so, you know, very immaterial.

Dottie: Yeah, I, so what accounts for that? I mean, that’s pretty astonishing. What are some of the strategies that those companies are employing that gets them to achieve those results?

Kevin: So I think there, there are a few things. There's, there's kind of the tactical aspects of, of IR, and, and those are the things that, really don't change. And that's how a company thinks about how they engage with investors, how they measure their IR programs, and more recently, how they're integrating AI. We have to say AI, right in the podcast, to increase effectiveness and efficiency. You know, some of the, the other changes that, that have occurred and have really created more of a spotlight is, you know, who are the individuals in the role of IR and how have those individuals upskilled with regard to responding to the changes in the capital markets and, and really who those individuals are today versus who they used to be. Even 10 years ago. So, you know, historically IR was generally someone who had a communications background or a marketing background, and today what we're seeing is a lot of, both former buy side and sell side analysts, moving in into the role.

Dottie: So, I know that, one of the things that was sort of flagged in the report are some of the qualities that are so important, you know, credibility, trust, responsiveness, those are really crucial for the success of investor relations. Can you elaborate a little bit why on, or a little bit more on why those specific attributes would be so important for companies to help build those relationships with investors?

Kevin: Yeah, the way I think about it. You know that question is through the lens of, what we call an active buy-side portfolio manager. Active means that they are making decisions on how they're gonna allocate the capital within a fund. And when that portfolio manager is making that decision and they're looking to, you know, buy company a stock first vs companies B stock. They're going to look at the quantitative aspects of, of those, companies, you know, what are the fundamentals? Probably very similar. So, what the portfolio manager has to do is, is then start to think about the qualitative. And that's really where IR comes into play. And, you know, the portfolio manager is probably going to ask themselves between the two companies, which one is more credible? Or, you know, how quickly do they respond when I call or email them? And that's important, particularly when there's a lot of volatility or, you know, maybe there's news that, you know, has some sort of negative impact. And, ultimately, they're gonna have to make the decision. To maintain a position or increase their position to take advantage of the decline in share price. And there's another dynamic at play here, and that is the competition that public companies have for, you know, that active capital where there is an individual who is making that decision. What has happened over the last 10 years is that capital has rotated into more passive strategies. So think about an ETF, you know, that's benchmarked to the S&P 500. And, when you look at the total assets under management, passive strategies used to account for about a third of all equity assets under management. Today that's increased to 50%.

Dottie: Wow. That's a huge change.

Kevin: It's massive. Yeah. And, that trend's not stopping. So, what it means is, as a public company, the pool of capital that you're trying to attract from the active managers is declining. And, you know, when you're competing for that capital, you have to have an effective IR team. That is going to, you know, create that trust and, credibility with, the portfolio managers.

Dottie: So, one of the things I also thought was pretty interesting in this report is that it talks about ESG as a baseline expectation now, and that AI is kind of seen as a tool to enhance IR effectiveness. So, I'd love to hear you reflect a little bit on that. I mean, how are companies integrating ESG and AI these days into their IR strategies. I mean, things have gotten a little topsy-turvy. What are you seeing?

Kevin: Well, you know, the, the ESG landscape obviously continues to kind of ebb and flow, particularly because of political change. But then, you know, depending on where you are in the world regulation and then you know, whether the, the corporations themselves buy into it. But what I do think will continue is ESG serving as a, tool to measure risk, particularly if you think about environmental and governance. You know, social, I think will still to be determined, but, I think that's what the investment community is using it as, right to, to see what potential risks there are, what's material, what's not material. I think the, the stories kind of continue to, evolve in some respects with regard to AI and how companies are leveraging it as part of their IR programs. We're at the really beginning stages here and, and I think you could say that for pretty much any department. So, there are obvious benefits that an IR team can leverage AI. An example that would be, leveraging AI to analyze large volumes of documents or research reports to understand the trends in an industry or the questions that their peers are being asked during their quarterly earnings calls. And then, the other way that we're talking to clients about integrating AI into their programs, and this relates to the partnership that, we have with, with Diligent and the new Market Insights reporting dashboard is, understanding how the buy side is integrating AI into their process. And one of the, the kind of the biggest areas. That the buy side leverages AI is to measure sentiment. So sentiment on the words that are spoken by executives during a quarterly earnings call and you know, is, are the words that they are using positive or negative? What is the complexity of the language that they use or the financial transparency. And so giving those teams the tools to, to understand, how it is being perceived by the buy side so that they can be more proactive in, their prepared remarks, but then also learn from, um, the q and a components of, of those calls to, to better answer the questions that they're asked.

Dottie: I'd love to have you project out the next couple of years. What are some of your best and final recommendations to IR teams on how they can really enhance their practices, stay competitive, stay effective? Is it all about ai? What are some of the other things that they need to be thinking about?

Kevin: I recently had the opportunity to sit down with the CEOs of the associations, the IR associations for the G five countries, and much of the conversation focused around some of the challenges that companies are facing because of that dynamic I talked about earlier around the declining size of active managers. And so that was focused on, how do you schedule and engage with the right active managers. What we, we also talked about and relates to kind of some of the findings of the, study was, how do they help drive the upskilling of their members to, ultimately what we call, get a seat at the table with the C-suite and the board. And then that to me is really important because if you really want to have a best-in-class IR program, that head of IR needs to be, at the table with senior management and the board be viewed as a strategic decision maker and to do that. Ultimately what that results in is that when the buy side is talking to that head of IR or the IR team, they know that the answers to the questions that they ask are the same as if they were speaking to the CEO, the CFO or board member. And, and that's really, you know, I think should be the focus for, any public company.

Dottie: To get that level of, of seniority in, the role seniority and consistency it sounds like. Right. So really just absolute clarity on what the plan is. What the strategy is.

Kevin: Yes.

Dottie: Well, Kevin, this has been a really great conversation, but before we let you go, there are three questions that we like to ask every guest that joins us on the show. So the first question is, what do you think will be the biggest difference between boardrooms today and 10 years from now?

Kevin: I think there's two answers to that question. One is, you know, for a public board and one would be for a private board. For a public board. I think what we'll see is the average age of a board member is going to continue to decline. Partially because of the topic around AI and how you implement technology and just, the complexities of really just understanding how it's gonna impact a business. And then on the, on the private side, there's this interesting trend that is happening because of the, lack of, of IPOs that we've seen over the last five years and that is private companies are staying private longer and, and some may never go public. And because of that, we're seeing asset managers that historically only invested in public companies are now starting to invest in private companies. And that's going to, I think, have a, a pretty big impact on how those private companies think, about their board. And then, you know, the, the challenges that exist between, what you're going to share with a, with a private owner, right? Whether you're PE backed, whatever it is, versus now having, you know, kind of public related owners and, you know, the, the challenges around disclosure. So, it'll be an interesting 10 years for sure.

Dottie: That's a really interesting prediction, I think probably the first time we've had that prediction, so thank you. It's great. I love it. We'll see. We'll talk to you in 10 years.

Kevin: Great.

Dottie: Next question is, what was the last thing that you read or watched or listened to that made you think about governance in a new light?

Kevin: Last December I was at a conference. The conference was for senior IR professionals, individuals with 10-15+years' experience. And one of the sessions was a discussion with a head of engagement at a well-known activist investor, and he asked the audience how many of them had dealt with an activist or feared that they were a target of an activist. And 95% of the room raised their hands.

Dottie: Wow. That's a big change from years ago. And finally, Kevin, what is your current passion project?

Kevin: I should say, well, I guess my answer would be projects. That is, I have a 14-year-old daughter and a 6-year-old son. So between the two of them and my wife, they, they kind of keep my perspective in check. But you know, really, it's making sure that, I balance work and life, in a way that, that doesn't, have one of them overwhelm the other. I think that's probably a lot of people would say that just given post pandemic and, the importance of balance. But there are always work things that we're doing but I think it's important on the balance side. 

Dottie: I love that. Well, Kevin, thank you so much for joining us today on the show. It's been great to speak with you.

Kevin: Thank you for having me.

Dottie: We've been joined today by Kevin Roy, Global head of Issuer and Big Dough Solutions at S&P Global Market Intelligence. Kevin, thank you so much for being our guest.

Kevin: Thank you.

Meghan: Great interview, Dottie. I don't know if it bucked everybody up, but it certainly had me thinking about just how much change we have seen and we'll continue to see, and how that flips some professions on its head. I mean, the idea of organizations now having to compete for capital in new ways, the idea of having public related owners on your board, maybe if you're a private company, that just, it changes so much.

Dottie: So much has changed. And you know, it's funny, Meghan, when he said that during the interview, that there's a lot more competition. Not just, for, for capital. Of people who have capital, more competition to get attention from the dwindling number of public companies. I just really hadn't thought about it from the investor side, which sounds really dumb. I can't believe I hadn't, but I just hadn't really thought about it from the investor side. I've always been kind of looking at it from the, the corporate side, and I thought that was a really interesting comment. I also thought it was, kind of interesting to hear him talk about the way that a lot of companies now sort of approach investor relations as it's not just table stakes. It's one of those things that you need to put a lot of muscle into and where there's a lot of dividends that pay off. From that muscle that if you just keep exercising that muscle, you keep the IR team strong, you keep the engagement strong. It doesn't matter whether you're at risk of any sort of activism or not, you just need to keep the phone lines open and keep the communication flowing. And I do think to a, a pretty large extent, that is the way most IR teams and companies approach their work now. Probably wasn't true 10, 15 years ago. I mean, it is amazing how there's kind of a whole field that has just changed in the last 10 or 15 years, and I wonder where it's gonna go with AI.

Meghan: Well, that's everybody's question about everything, but I, do think, if you're interested in this topic, definitely check out our friends over at Diligent Market Intelligence, their annual shareholder activism review. It's a great report that digs into what investors are thinking about. And again, Dottie, this is, an area that we probably don't spend too much time talking about here on the show.

Dottie: Yeah, and, by the way, that is always a great report when it comes out each year. I have not had a chance to read it. Meghan, I don't know if you've had a chance to take a look at it, but it is always worth a download and a read. It's always full of very interesting insights from the previous proxy season and can kind of help you understand what you need to be thinking about for the current proxy season. And frankly, anything that helps you figure out what to do this year is probably really good. So given how crazy things are, anything that stood out for you, Meghan, in the report?

Meghan: Well, I think a, a lot of it was like, similar to the conversations we had with, the folks over at Wilson Sonsini and a couple episodes back, the idea that, it's just, not to sound like a broken record. It's changing so much. But the number of public companies is getting smaller and the number of activists is rising. And even the comments about how everybody raised their hand and said they think they could be a at a threat to an activist inside their organization, I think that is like a very real possibility. But the, the tone in a lot of ways has changed so much that it. It was five years ago even, where people genuinely felt scared by the idea of having an activist engage in their organization. And not that it's table stakes now, but I think we are, we're at a point where we're able to have a much more open and candid conversation about, what's happening

Dottie: And don't you think the 5% that didn't raise their hand are already engaging with an activist and that's why they didn't raise their hand? I mean, cause honestly, it is, just really true. You just, expect it. And to your point, you're no longer terrified of it. You're no longer terrified of being singled out. There's no being singled out. Everyone's being singled out. It's like everyone's being, called. So it's just something you've, you've going to be ready for and, going to have good conversations. I will say, you know, we always love to ask those three questions at the end of the interview. The one that I asked about the difference between boardrooms today and 10 years from now, he said something, I didn't get a chance to push on it, but he's like, I think the average age of board members is gonna decline. And you know, really focus a lot around AI and implementation of tech. But I wondered what you think about Meghan because haven't you and I been saying that the entire time this show has been on the air and it's never happened, it has not nudged from 63 and a half years of age in living memory. And I think it's because, and frankly it does make some sense, you always have a mixture of board members. So you have some that are aging. Beyond 63.5 years of age, and then you're bringing on 50-plus year olds, and so the average doesn't really go down. I wonder what you think about that. I kind of don't think it's gonna ever go down. I think you're gonna always have this kind of diversified age in the room that's always gonna average somewhere around 63 and a half years of age.

Meghan: You know what we have not spent a time, a lot of time looking at is the average age of private company board members. Yeah, that's a good point. I mean, it's, I think intrinsically going to be lower because you have a lot of operating investors on boards and by nature of people just having day jobs makes them slightly younger in age.

Dottie: Something to think about would really be great to get, you know, more of that data. Cause of course, that's one of the natures of public versus private, right? We don't have as much data on private company boards as we do on public company boards. But yeah, would be definitely interesting to see what that looks like. Well, Meghan, that wraps up another episode of the Corporate Director Podcast, the Voice of Modern Governance. I'd like to say a few special thank yous, first and foremost to our S&P Global expert, Kevin Roy, podcast producers Kira Ciccarelli, Steve Clayton and Laura Klein, our sponsors for this show, PWC, KPMG, Wilson, Sonsini, and Meridian Compensation Partners, and most especially, thank you to Diligent for continuing to sponsor the show. If you like our show, please be sure to give us a rating on your podcast Player of Choice. You can also listen to our episodes and see more from The Diligent Institute by going to diligent.com/resources. Thank you so much for listening.

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