Companies are facing a brutal assault from many fronts:
- Activist investors like Engine no. 1 has brought oil majors to its knees.
- Large institutional investors like BlackRock, Vanguard are pushing companies to up their ESG game.
- Customers are up in arms and are pushing companies through their role as shareholders in making their products and services more sustainable.
At the same time, the demand for non-financial data is increasing by leaps and bounds.
In this context, the role of the investor relations officer (IRO) becomes crucial. As a direct link between analysts and investors and the company, the IRO plays a critical role. How analysts and investors perceive a company is also contingent on how the investor relations department responds. A proactive IRO can build constructive relationships with stakeholders helping the company mitigate many risks from investor activism. With sustainability and ESG actions cutting across departments and functions, the IRO needs to link up with many departments rather than just the finance department, as was the case in the past. The IRO should also understand the company’s long-term strategy and thus needs to be included in board and strategy meetings.
There are many ways in which the IRO can add value in the net zero world:
Articulate the company strategy: With ESG increasingly getting integrated into a company’s strategy, the IRO (along with the CEO) is thrown into articulating the strategy and its impact on shareholder value. The strategy articulating also needs to keep the increasing sceptical long term investors in the loop on company plans and actions.
Gathering intelligence: Investors, now have far greater access to information and data than they previously did. The role of IRO now shifts from being a disseminator of information to that of constantly scanning the environment and stakeholder sentiments. The IRO needs to gauge the stakeholder mood (from social media posts, talks in various fora, rumours within the company etc.) and craft the company’s response before matters precipitate. These actions are likely to impact a company’s strategy, capital allocation, incentive systems, etc.
Attracting the right investors: Investors need to share the company’s philosophy. The IRO can play a crucial role in attracting the right kind of investors who relate to the company’s approach and action on financial and non-financial issues. In addition, with CEOs having to spend a significant chunk of their time with external stakeholders, the IRO can cultivate and keep the stakeholders informed and reduce the pressure on the CEO.
Tooting the horn: The IRO needs a good understanding how the sophisticated investors operate and what issues are becoming a concern to them. The IRO needs to sound the alarm before things get messy. There is a need to constantly scan analytical models and whitepapers on the company and issues of concern to the stakeholders. The IRO is like a radar that forewarns a company of impending storms.
The role of the IRO needs to change from
- Disseminator of information to proactive articulation of company’s strategy and how it will create competitive advantage for the company.
- From having limited interaction with the board (typically in an observer role) to articulating the changing landscape and what long term value creation to the board
- From focussing primarily on sell-side analysts to addressing a cross-section of stakeholders
- From focussing on financial to having a dotted line to heads of all functions on matters related to talent, compensation, ESG and capital allocation.
With changing relationships between companies and investors, the role of the IRO is also changing. The shift to the net zero world is increasing stakeholder activism, market changes and competitive disruptions. The new IRO has a critical role in navigating the turbulent seas and supporting the CEO in steering to the right course.
Utkarsh Majmudar 