Why Use an IR Consultant and What to Look For When Outsourcing
While reliable statistics are unavailable, anecdotal evidence suggests that the number of IR practitioners who wear the consultant label has increased recently in response to opportunity created by corporate outsourcing and as the downturn in natural resources has led former IROs into a new career.
Whatever the reason for growth, consultants agree on one thing: it takes specialized skills and a special attitude to be an effective (and employed) ‘hired gun.’ In this issue, IR focus examines why public companies use IR consultants, explores the skills needed to be a consultant and presents advice to IROs on selecting and working with a consultant.
Why Outsource
Consultants are used for a variety of reasons. One of the most common is specialized expertise. At the behest of their investment bankers, many companies use IR consultants before they go public (and well before they hire an IRO) to translate prospectus messaging into investor presentations, prepare management to effectively tell the corporate story and manage logistics. On an IPO, these skills are seen as critically important to selling the deal. Specialized expertise is also required on M&As and proxy contests. While the typical IRO may only work on one proxy contest in a lifetime, consultants who specialize in the field may work on five or more in a single year. This depth of experience is invaluable.
Outsourcing also occurs due to resource capacity constraints. It is common, for example, to outsource projects such as annual reports, annual meetings and investor days to a consultant to relieve pressure on the IR department. Assisting in the development of quarterly reporting packages (conference call scripts, slide decks, earnings releases, etc.) can also help companies meet reporting deadlines.
Another reason for outsourcing is impartiality. Some companies want an independent, third-party perspective on their IR programs and seek out consultants to benchmark their programs against peers or best practices. In the case of perception surveys, consultants are nearly always used because analysts, in particular, will often not speak in candid fashion directly to a company official for fear of reprisal.
These are only a few areas of practice where IR consultants find gainful employment from outsourcing. Others include outreach to retail brokers and media relations.
What It Takes to Consult
IR consultants need both hard and soft skills to be effective. Increasingly, public companies want those skills to be specialized. For example, consider the perception survey. To conduct one, consultants need to know how to i) formulate a questionnaire with exactly the right questions to elicit meaningful responses ii) engage the buy- and sell-side to get deep, ‘between-the-lines’ insight iii) present the findings to management (and occasionally the Board) and iv) recommend actions based on the findings. Since public companies are not inclined to let novices loose on their institutional shareholders, surveying is a high skill area, as are the other outsourced activities noted above.
Many of the hard skills needed involve journalistic disciplines, so it is little wonder that many consultants are former journalists. And yet as those who have come into the profession from journalism will attest, it takes more than the ability to research and write to be a successful consultant. It requires a series of soft skills, including the ability to position oneself as a trusted advisor to management. Many experienced IR practitioners fail to earn this coveted status because they lack intimacy with their client’s corporate culture and the personalities of the executive team. Often times, consultants are too adamant about speaking truth to power to develop a meaningful relationship with their client, which is the basis of trusted advisor status. Without this status, consulting advice can go unheeded and relationships can end abruptly and badly. Conversely, those consultants who are trusted often develop unshakeable bonds with management that can last years. A good reference source on this topic is The Trusted Advisor, by Charles H. Green and Andrea P. Howe.
Another important soft skill is to know when to offer advice. Many consulting newcomers shy away from speaking out, which is analogous to the hockey player who fails to score because he never shoots. Conversely, some consultants are so bold that they offer advice even when not asked for it. This is a sure-fire way to offend a senior executive. These soft skills can be learned but demand first a high degree of self-awareness and quiet confidence.
Persuasion is another key soft skill that helps the consultant in two ways: convincing clients and other advisors such as lawyers to take a recommended course of action (or shareholders and the media to buy in to the corporate point of view) and landing new accounts. In particular, persuading a client to take a chance on a new consulting relationship can often take many telephone calls and meetings and since the art of persuasion is often what a client wants in a consultant, it is an invaluable skill.
While not a skill per se but rather an ethos, discretion is also vital. Even during a pitch for new business, many clients feel it is bad form for a consultant to do more than just name names of their other accounts.
Mastering hard and soft skills will not come simply through reading books. It happens as a result of learning from others and years of practice. That said, CIRI Chapter Mentorship Programs are a good way for consultants to kick-start their knowledge by connecting as protégés to consultants and IROs who have developed these skills. Consultants also benefit from topping up their knowledge by attending CIRI educational forums, including the National Conference, and taking the CIRI/Ivey Certification Program. For those wishing to do even more, there are academic programs such as New York’s Fordham University’s Master’s Degree in Investor Relations.
Advice for IROs
Here are four tips on how to select and work with a consultant:
1. Choose the consultant, not just the firm. Know who will work on your file, and assure yourself that this person has both the capacity and the knowledge (hard and soft skills) to complete the assignment successfully. Many IROs have suffered from what is known in the industry as ‘bait and switch.’ In other words, a senior consultant pitches to get the business, but junior account reps work on the file. While there can be economic advantages to using juniors (or to having a senior consultant bill on a sliding scale), juniors should never be primary suppliers of IR advice.
2. Consider the pricing model carefully. It is difficult for even the most experienced consultant to accurately estimate consulting costs. To ensure there are no surprises, ask the consultant to quote a range of costs and to supply a rationale for the range. If a monthly retainer pricing system is used for long-term assignments, seek a periodic summary of time expenditures against the monthly fee and be prepared to entertain changes – upward and downward – if expenditures are more or less than anticipated. Consultants who must constantly absorb unbillable hours may look for ways to economize that may not be in the client’s best interest. Similarly, clients who perceive they are getting little value for monthly fees will not remain clients for long.
3. Communicate, communicate, communicate. Consultants are not mind readers and need explicit, no holds barred briefings from the IRO to be effective. Once a nondisclosure agreement is executed, share as much relevant insight as possible. Provide IR Board reports, business plans, senior executive correspondence (internally and with shareholders/analysts) and ensure the consultant is in the loop on all analyst research. Access to senior management is also a must. When providing feedback on the consultant’s plans, strategies and draft materials, also remember to be as precise as possible. This will help to contain consulting fees and ensure fast turnaround of altered materials.
4. Expect disruption. Consultants are paid to provide advice and present new ideas that can lead to creative disruption. You may not agree with some of this advice or find new ideas entirely useful or actionable but it is important to be open to different perspectives rather than jealously guarding the status quo.
Today, consultants represent 11% of CIRI’s membership base, making them an important part of the IR fraternity and of the IR teams at many public companies in Canada and around the world.
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