Distilling Investor Voice to Inform Business Decisions

IROs need to become more effective strategic partners to the CFO and CEO. As executive teams struggle with market volatility and pressure on growth, CFOs tell us they are increasingly reliant on IR’s guidance on the market and competitive landscape. However, our research shows that 80% of IR’s time is tied up with external work, preventing many IROs from playing their more valuable internal role. IROs need to rebalance their efforts, emphasizing timely market insight that can inform management’s strategic and operating decisions.

The IR function has evolved in the past decade, moving from financial reporting and governance to competitive intelligence and strategy support. Indeed, CFOs now tell us that they place a premium on IR’s internal performance. This does not mean the external fundamentals have lost their value; they are still critical. But too often, IR is ineffective in its internal role. For example, 49% of CFOs polled say that IR is not an effective internal advisor.

Three internal imperatives

Despite competing demands, it is possible to achieve the right balance between internal and external work. Our research tells us that there are three core areas where IR should focus in order to develop a more balanced role.

1. Adopt the most efficient channels for investor communications. Leading IROs ensure that there is time for critical internal decision support by identifying common themes in investor interactions and using scalable channels to address them. IROs should take a critical look at their investor outreach activities and determine which can be done more efficiently.
2. Focus market feedback on issues that impact business performance. Leading IROs increase the relevance of investors’ feedback to internal decision makers by providing business and market context and their personal perspective. IROs should not pass analyst reports and stock performance data to company leaders without providing their own perspectives. The message must be tailored to the audience’s needs.
3. Create demand for IR’s insight. Leading IROs build credibility with business partners by increasing awareness of market feedback and how it can help inform their decisions, such as capital deployment or investing in new markets. IR should provide management with controlled, but direct, market feedback.

What CEB is doing for its members

• Investor Relations Roundtable (IRR) Annual Executive Retreat: Distilling Investor Voice to Inform the Business – March 20th, 2012 in New York. Register here to join other heads of IR and better understand how to rebalance your function to focus on the internal role.
• Targeted buy-side questioning – an example from Corning: Click here to learn how Corning puts a formal structure around investor interactions to systematically gather market feedback on management’s key strategic issues.
• IRR’s Message Absorption Diagnostic: Pressure-test your company’s strategic messaging and growth drivers with the market to provide comprehensive qualitative and quantitative feedback to management. Click here to learn more about the MAD process.

If you would like further information on this or related topics, please contact Zander Ross.