Just as the relationship between companies and investors has changed, the role of an investor relations officer (IRO) must change with it. IROs are indispensable assets for the executive team and for the board.
In a new world of activist investors who are increasingly willing to weigh in on company strategy, today’s IRO must be a more proactive leader, building constructive relationships throughout the shareholder base to help the company mitigate various risks.
With investor activism increasing and world markets passing uncertain times, CEOs need investor relations officers with a better set of skills to bridge the gap. CEOs must empower the IRO to be a proactive leader, building constructive relationships throughout the shareholder base to help the company mitigate various risks.
The Traditional vs New IRO Role
The traditional role of the Investor Relations Officer
- Manages sell-side analysts and helps shape their opinions about the company strategy.
- Communicates company results and needed documents to investors.
- Responds to activist’s inquiries by preparing financial statements, proxy materials, etc.
- Reports to CFO and focuses mostly on financial matters.
The new role of the Investor Relations Officer
- Takes an active role in improving company strategy and purpose to all classes of investors.
- Communicates company strategy and why it is best suited to enhance long-term value and competitive advantage.
- Articulates investor landscape and what will drive value over the long term of the board.
- Takes initiative to think like an activist, acting as an early warning system before an activist arrives.
- Reports to all C-suite members and is educated on various topics, including operations, compensation, ESG, capital allocation, and talent.
How IRO Job Should Change?
The IRO must be part of a unified board and C-suite investor planning group, and their responsibilities should include building and sustaining credibility with long-term investors, and providing useful information on a timely basis. More specifically, the IRO job needs to change in four major ways:
Strategy Articulation. Today an investor relation officer must articulate the alignment with the capital allocation to investors with a clear and cogent rationale for long-term value creation. The new IRO role needs to shift from simply explaining corporate strategy and practices to laying out why the strategy is best positioned to unlock shareholder value and therefore attract and keep long-term investors. In other words, the role has to add more value to the corporation.
Intelligence Gathering. An IRO must become an intelligence agent who identifies the hot-button issues investors care about. The IRO should understand how investors utilize their technologies and data-gathering activities to impact a company’s strategy, capital allocation, incentive systems, and other issues that investors think are important to the functioning of the board. A good IRO can take some of the pressure off of a CEO by finding and cultivating the right investors.
Sounding the Alarm. The new role of the investor relations officer requires the ability to truly understand how today’s sophisticated investors operate as well. IROs must be able to master analytical models as well as white papers written by activists that argue for an alternative business portfolio scenario for the company. In changing capital markets, it’s critical that the IRO stays on top of capital and talent allocation and how it meshes with the company’s long-term strategy.
Skill Set for a Successful IRO
A successful investor relations officer has to be a relationship builder, orchestrating the creation of teams, and bringing the right decision-makers together to provide a consistent message, whether dealing with a passive investor who has questions about the board’s process or an activist who is mining for data. An IRO should possess the ability to know your investor base, skillfully coordinate how the board and the C-suite interact with different investor classes while keeping everyone in the loop.
We recommend making sure the IRO job provides an attractive career path by exposing the person in it to different functions in the organization. This way, not only would the IRO learn about the company from an investing and risk perspective, but their business experience would also bring value to the role.
The IRO must be part of a unified board and C-suite investor planning group, and their responsibilities should include building and sustaining credibility with long-term investors, and providing useful information on a timely basis.
Those companies which continue to find ways to add value to their IR program particularly in uncertain times by hiring proactive IROs will pave their own path toward achieving success.