In a highly volatile business climate, shareholder activism is a concern across a variety of industries in 2023—with tech being at the top of the list. That’s not surprising: according to a recent report from EY, as tech stocks declined by 27% over the course of 2022, activist investors launched 59 campaigns against a variety of companies in the field, including the recent high-profile campaign against SalesForce.
Against that backdrop, the role of investor relations has never been more critical, with companies requiring consistent and transparent communications with shareholders that reinforce how execution on strategic goals will create competitive differentiation and sustainable shareholder value. Key to that relationship: CEOs’ understanding of and engagement with the IR function and willingness to devote time and attention to shareholder concerns even—and perhaps especially—during periods of high volatility and uncertainty.
Carpe Diem Global Partners recently spoke with 50+ Investor Relations leaders from businesses with market capitalizations of ~$10B or greater across a broad set of sectors (Technology, Consumer, Media, Industrial, CPG, Financial Services) to gain a sense of the challenges they experience working with CEOs, and the strategies they have used to overcome them.
The Challenges
Broadly, the IR-functions issues for CEOs tend to stem from one—and often more than one—of three sources:
1
CEOs who believe that their role is simply about executing a vision, and overlook the importance of working with investors
CEOs may occasionally adopt an attitude, especially common with founders— that delivering financial results, which stem from their ability to build on their long-term vision, is at odds with the shorter-term focus of many investors. As a result, many IR leaders find themselves in the position of “having to translate to the CEO the accurate view of what Wall Street thinks about their business”—a stressful task for many.
Additionally, IR leaders noted that CEOs tend to have different levels of willingness to engage with shareholders. While some are prepared to devote as much as 10% of their time to that engagement, others simply don’t value the process. As one IR leader noted, “some CEOs see the [IR] role as 100% responsible for the stock price.” That kind of misconception can pose significant issues for IR in providing effective messaging to the market.
2
CEOs who struggle with the art of storytelling and narrative
Shaping a narrative for a group of external shareholders may differ from communicating an internal vision for a product or direction for a company. As such, it’s something that often doesn’t come naturally to CEOs (or even CFOs).
The biggest challenge with effective storytelling, according to IR leaders, lies with CEOs who are the “cheerleader of the company,” and have “difficulty understanding that shareholders couldn’t care less about that but want them to speak in a down to earth manner, grounded in the realities and realistic on performance—especially when things aren’t going well.” An important skillset for IR leaders is training C-suite executives to explain how the business model is designed to create long-term value, and how they are driving execution against the plan.
3
IR being insulated from the communications team
Several IR leaders noted that companies with siloed IR and communications functions can struggle to get their message across effectively to shareholders—to the detriment of both the company as a whole and the CEO in particular.
“When Comms is in marketing and IR in finance, CEOs don’t get the most out of messaging,” one leader noted. “They miss how strategic communications can be with IR and how much leverage can be had by combining comms and IR.”
How IR Leaders Help CEOs maximize the value of the IR function
While there will always be leaders who minimize the importance of investor relations and “think they know more than anyone else,” many CEOs are open to feedback and advice from the function. The key, according to IR leaders, comes down to building relationships, planning, and honesty.
- Build relationships
Establishing trust is a key issue for many IR leaders—both with their CEO and by facilitating relationships between the CEO and key shareholders. As one leader noted, their key to success lay in helping the CEO to understand “why we want these owners, and why we don’t want these other owners.” In doing so, CEOs have the opportunity to understand the strategic importance of specific relationships, making it much more likely that they will see nurturing them as a key function of their role. - Planning
For CEOs who struggle with the storytelling aspect of investor relations, several professionals noted that helping to “anticipate the concerns of the Street” prior to investor calls or meetings can play a major role in improving performance. As such, scenario planning, dry runs, researching past statements, and even how other companies have framed results and challenges can all play a vital role in ensuring that messaging is given—and received—more smoothly.Longer-term planning can also include streamlining operations to ensure that IR and communications are working together—ideally as part of the same function—to maximize the benefit of shareholder messaging. To the extent that these activities are combined, it is essential for executive management to understand that investor communications is fundamentally a financial role, not one of marketing. - Honesty and transparency
A point that surfaced over and over in responses from IR leaders is the need to give honest feedback to CEOs, even when it’s difficult or uncomfortable to do so. In a role that often involves providing critiques from shareholders, it’s important not just to be direct, but willing to “accept the blowback or pushback” to ensure that the CEO, and the company, don’t find themselves in embarrassing positions during calls and meetings, resulting in losing the trust of shareholders. With this in mind, leaders note that it’s important to “tell them when the emperor has no clothes,” but to be sure to “back up recommendations with market, sector and competitive data.”
Conclusion
The role of a successful IR professional often comes down to an individual’s ability to build trust with their CEO. Without this, the ability to present effective advice, be seen as a valued partner, and ultimately to manage relationships with shareholders can be all but impossible to achieve. Becoming a trusted advisor, therefore, requires the ability to plan and anticipate shareholder concerns, to be unafraid to have difficult conversations with senior leaders, and to manage relationships across a wide array of stakeholders.
Jeff DeFazio
Craig Streem