The AICD recently published an article focused on the topic of investor relations and why it should be high on the board agenda to drive investor confidence and attract future backers. It was prompted in part by the release of a global survey on IR by EY which looked at the relationship between IR and the board and how that function is managed.

The survey found the following:

• • 77 per cent of respondents reported that an IR representative regularly attended board meetings in person.
  • For 22 per cent of those surveyed, this correspondence involved quarterly meetings, and for 8 per cent, it meant bi-weekly meetings.
  • The top subject for discussion is market sentiment and investor activity, either at the board meeting or in a report.
  • 83 per cent of respondents indicated they provided written reports for boards to review.
  • For 37 per cent of these respondents, the report was quarterly – although just 3 per cent indicated they issued bi-weekly reports.

Some context is important here in that 46% of survey participants were from the Americas with 75% of those from the USA. 60% involved companies with a market capitalization of more than US$5bn, which is equivalent to the top 65 ASX listed companies. Only 8% of the survey was conducted in APAC and 80% of those respondents came from China, including Hong Kong, and South-east Asia.

Allowing for the fact that the survey is very large cap oriented and is therefore describing companies that have a well-resourced IR function, the AICD made some interesting observations regarding how Directors should view IR and the information that can be provided to them that has broader relevance. I have selected four of them, including my own perspective where relevant:

1. IR Strategy and a properly resourced IR function – pre and post IPO

Depending on the company’s size it might bring these skills in-house or access them through an external consultant, but having a dedicated IR function is essential, not desirable.

IR should work with board and management to create an IR strategy and report back regularly.

If the company is raising further capital or considering an IPO, it could make sense to supplement the IR function with an advisory board. According to the AICD the rationale for this is that it “can broaden a company’s network of potential investors and provide the expertise to refine and present a compelling business case.”

2. Understand your existing and potential investor base

Most companies understand the importance of periodically receiving a report analysing the beneficial ownership of their register. Without this intelligence, there is a vital piece missing that enables the board and management to identify who owns their stock. Insights into who a Company’s beneficial owners are is a pre-requisite for management’s engagement with major shareholders regarding results and for boards meeting with shareholders prior to AGM/EGMs. Managing this engagement is a core function of IR.

Changes in the shareholder base are a function of a company’s growth profile and provide a picture of how investors perceive its strategy and relevance in their portfolio. Institutions will often sell a well performing company, not because they are dissatisfied with its performance, but because it no longer fits the mandate of its portfolio. Alternatively, a poor performing company may attract investors who see it as a takeover target or who wish to take an activist stance by changing the board.

It is a key role of IR to ensure that Boards are aware of these shifts so they know how to react and to ensure they are appropriately prepared.

3. Demonstrate a clear commitment to ESG

In Australia companies are required to demonstrate their commitment to ESG, not just as a compliance exercise, but one which is integral their long term strategic planning. It is important because their institutional investors have their own ESG reporting requirements and targets to meet. At the extreme a company’s access to capital will be impacted if it fails to demonstrate the requisite commitment to meeting ESG standards, with investors then required to exclude them as a potential investment.

Boards need to be actively involved in overseeing this, ensuring that actions are being taken to demonstrate that ESG factors are being managed, measured and reported on.  In addition ESG targets should be meaningfully linked to CEO remuneration.

Whether ESG is resourced as a separate function or included as part of IR’s remit, the mandatory reporting requirements that are now in place for Group 1 companies, (see Sustainability reporting blog), mean that the Board’s involvement is an integral part of the process.

4. Maintain clearly delineated roles

The composition of the board and how it engages with shareholders is carefully scrutinized by investors.

Boards focus on governance, succession planning, risk management, culture and strategic direction and institutional investors want to see how effective they are in their oversight of this.

Governance roadshows in the lead up to the AGM provide an opportunity for nominated non-executive directors of the board to engage with major shareholders on these matters, separate to management. It is, in fact, important that they do so, as it provides the board with direct exposure to the owners of the business and an insight into how they think about their investment.

This is typically the only time that shareholders have the opportunity to talk directly to the people they have elected to be their representative, about matters that are not within the purview of management. By contrast, institutional investors have regular access to management throughout the year to interrogate them on implementation of the strategy and the operational performance of the business.

The IR function is uniquely placed to facilitate this interaction given the relationships they develop with fund managers and shareholders, including the asset owners who are nowadays actively engaged in governance and voting.

At the recent AIRA Conference a panel session comprising three non-executive directors, explored the role of IR in relation to the board and the unique insights an IRO can bring. They are the link between the external views of the market and directors as well as being a support to the CEO. Often there is no other way for the Board to gain access to this unfiltered feedback which can be crucial in the lead up to an AGM/EGM. As one director noted when asked what an IRO should do when their access to the board was not facilitated or seen as of no importance, “I’d be looking to move on and not waste your time.”