Looking Beyond the IR Discipline

It’s well understood that it takes a combination of skills – including finance, communication and marketing – to be an effective IR practitioner. But can IR directly benefit from the use of business practices and ideas employed by other parts of an organization?

The answer, it would appear, is ‘yes’, and many companies are borrowing concepts – including those more commonly associated with manufacturing – as a way to improve their IR and related practices.

One of these concepts is Six Sigma, a quality improvement process pioneered at Motorola in the 1980s (and trademarked by that company in 1991) to identify and eradicate the causes of production defects. In simple terms, a Sigma rating indicates the yield or percentage of defect-free products a process creates: the higher the rating, the better (and more cost-efficient) the process.

While the first target of Six Sigma was the shop floor, in recent years many large public companies have brought it into the finance department as a means of improving the quality, cost and most especially timeliness of financial reporting (see Strategic Finance link below). This has a direct impact on IROs who are actively engaged in the reporting process and are often a primary ‘customer’ of financial information and therefore actively engaged in Six Sigma projects.

To put financial reporting through a sigma process demands the use of what’s known as DMAIC: Define the problem; Measure or quantify the problem; Assess the process or analyze it to get a baseline for current performance and identify root problems; Improve the process; and Control the process so that what’s fixed stays fixed.

Finance teams using DMAIC often define their number one problem as time; it takes too much to gather financial information. This is a particular problem for large companies that must consolidate information from many divisions and assure its accuracy within days of quarter end.

Using a Six Sigma approach, finance teams do exactly the same as production teams on the shop floor. They map the process steps they currently follow and measure the time it takes for each step of the journey (often isolating this to hours per financial schedule). Then they analyze and identify areas that are taking excessive effort and ask ‘why’, which may yield opportunities for automation in generating data. This sometimes leads to the creation of a Failure Mode and Effect Analysis that determines ways a process can fail (the delivery of incorrect data) and how to prevent failures. Next, the team strives to improve processes in a disciplined manner using specific goals and, finally, it moves to the control stage. Among other things, this means operationalizing the approach, documenting it so that it can be repeated every quarter and training new members of finance and the IR team to adhere to the process steps.

Finance departments using Six Sigma have found measureable time (and therefore cost) savings from its adoption and this benefits IROs and those in the C-suite relying on timely and accurate financial data to do their jobs.

Supply chain management is another discipline that IROs employ. Supply chains in this context could include consultants (IR, legal, info metrics, transfer agent, proxy solicitor), design firms (annual report and website) and financial printers. One popular method is to internalize core functions to reduce the supply chain; another is to consolidate work with fewer suppliers to gain more leverage (i.e. lower costs) and to ensure continuity of work/advice.

The issue with the former method is that some corporate IR budgets do not allow for more internalization. In fact, many IR budgets in the natural resources sector have been shrinking and this is leading to more, not less, outsourcing as a means of reducing overhead costs. The issue with the latter is two-fold: certain disciplines are not scalable and, accordingly, there are few economies of scale that can be leveraged in activities such as IR consulting; and sometimes only specialist firms will do, depending on the nature of the assignment.

Nonetheless, IROs do review their supply chains periodically to ensure they get the right combination of skills, experience and price. Design firm relationships, in particular, are ripe for supply chain management, as many designers can work across platforms (social/digital media and print) and serve the needs of both finance and marketing departments. Consolidating in this area ensures that, at the very least, your brand standards are maintained. Printing is another area for review.

Employing Marketing Disciplines  

IR and marketing have always shared some best practices. In recent years, and at many companies, marketing has pulled ahead in the use of social media.

However, many IROs are catching up and using social media disciplines to better promulgate their corporate messages. More of this is likely to follow. One model that is expected to be widely copied is Apple Inc.’s recent launch of the Apple Watch. During the introduction of the product, live blog posts highlighted what CEO Tim Cook was saying about the product. It was all perfectly timed and based precisely on key messages so that there were no errant disclosures. While not every corporate announcement lends itself to this type of approach, some do: in particular, investor day presentations when companies want to ensure that there is broad coverage of proceedings. While some companies may find this practice borders on hype, if done responsibly (i.e. with balanced messaging) it provides a great service to retail shareholders who are not invited to investor day events. Another way IROs can rationalize this is that management is expending tremendous time and energy on the presentations, so what better way to leverage this expense than to find new channels to market for the messaging.

Not all social marketing is virtual. Air Liquide, the world leader in gases, technologies and services for industry and health, has constructed a shareholders’ lounge at its Paris headquarters. Here, 28 special advisors are available from 9 a.m. to 6 p.m. (with or without an appointment) to help shareholders open a securities account, place orders and understand tax implications from share ownership. As part of estate planning, many shareholders take advantage of this service to understand the impact of passing on shares as gifts or as part of inheritance proceeds. This service complements other stock marketing initiatives, including a Shareholder’s Guide. The clear objective is to create greater affinity with Air Liquide’s 390,000 retail shareholders, who own about 37% of the company’s capital. In the same marketing vein, Air Liquide shareholders who own direct registered shares for more than two full calendar years benefit from a loyalty bonus – almost like a frequent flyer promotion! With the loyalty bonus, Air Liquide automatically increases the amount of dividends and the number of free shares attributed to the owner by 10%.

Marketing and design communication disciplines are also increasingly evident in IR websites. Although there are still many template-style IR websites, many more are using visuals, info graphics, videos and storytelling to improve investor understanding.

While not overly visual, the section entitled ‘Why Invest?’ in PotashCorp’s website provides a succinct and cogent investment argument as part of its story. The data tool on the same website is also helpful. Agnico Eagle Mines Limited has embraced videos of its CEO discussing quarterly results as a complement to quarterly call webcasts and transcripts. With the rise of digital video (and the concomitant decline in costs), videos are likely to become more widely used on IR sites than before when they were largely confined to online annual reports.

Overall, IR can – and is – making use of many corporate disciplines and this can only help public companies gain efficiencies, lower costs and improve shareholder understanding.