Dirk Lever, AltaCorp Capital Inc.
Living in Leaner Times
A growing trend we have all noticed is that many companies are looking to do more with less. Notably, as companies cut back, the work is still getting done. Some attribute this to greater efficiency. Those left to do the work ascribe the result to longer hours and more responsibility. Of course, we all have our breaking points, and efficiency gains can reach a point where all the fat in the system has been trimmed, with only muscle and bone remaining to cut – resulting in a fall in productivity. Cutting costs can be a bit of a balancing act.
The Axe is Hitting the IR World
With budgets falling, IR departments are scrambling to determine how they can deliver the company message without a noticeable reduction in quality and reach. However, the requests and needs of the investor world do not decrease just because IR budgets are cut; in fact, sometimes investor demands are greater as perceived business risks increase.
The effectiveness of an IR department is a tough thing to measure, as one could argue that the stock’s performance is heavily determined by market fundamentals and the future prospects of the business; factors over which the IR department has little control. However, most public companies know they need a good IR program, and in times of budget constraints the IR department needs to function very efficiently.
For those going through the shrinking IR budget process, the task list must be broken down into ‘must haves’ and ‘like to haves’. It is the ‘nice to haves’ that get cut: travel is curtailed, conference attendance reduced, the annual report trimmed. The budget must be stretched to produce the best possible ‘bang for the buck’, and there will be trade-offs. I suspect that in the world of modern technology, many will find cheaper ways of delivering the corporate message. Perhaps web-based one-on-one meetings could finally become a reality.
Some ‘Must Haves’
Regulatory requirements do not ease with falling budgets. Many IR departments are looking for more efficient ways of delivering reports and presentations through the Internet. Though many are finding that overall costs have not eased with the advent of a paperless world, once the infrastructure is built, some economies of scale may finally be realized through electronic dissemination. Consider that the use of flashy pictures in quarterly and annual reports may be more an issue of corporate pride than shareholder demand. Perhaps the photos on the corporate website will be sufficient.
Perhaps one of the best approaches is to review costs and budgets for the last two years and evaluate what worked and where money could be saved. It is amazing what can be learned from a thorough review of the past.
Do Users Notice the Cost Reductions?
The reality is that most investors will not notice a reduction in service, likely because IR departments are infrequently contacted by the average investor, who lacks a frame of reference. Many are just happy to get a response with a helping hand when needed. Perhaps thoroughly understanding the business, common requests and timing will enable IR departments to mitigate any possible perception of service loss.
Investors’ Choice: Steak over Sizzle
Shareholders are unlikely to trim their positions just because of an IR budget cut. In fact, many likely appreciate a lower spending but highly focused IR department. Remember that institutional investors are typically ‘buying the steak, and not the sizzle’. Even events like an Investor Day need not be extravagant to deliver simple messages. Recently I attended an excellent Investor Day, which featured little fanfare or food, no ‘trinkets’ (in lieu of this a donation was made to a local cause) and great management presentations.
Involve More People
It is important to build reinforcements; get more people from the company involved in the process. Budget cuts normally mean less staff, so the assistance of others in the organization is required. Right from the planning of IR activities through to the execution, call on others for help. It may not be a bad thing to let others see just how much work is involved in the preparation and delivery of the company story.
Prepare Monthly Summaries
Prepare a monthly summary report for management and the Board of Directors regarding IR activities, presentations made, key investors contacted and their comments and concerns. Keep corporate leaders in the loop by providing them with analyst reports and relevant articles. Make sure that senior management and the Board see the results of the IR department’s work. This should increase the opportunity to get the IR resources needed, even in a time of budget cuts. Sometimes the IRO must sell the internal audience as well as convincingly show investors why they should invest in the company.
Dirk Lever is Managing Director, Institutional Equity Research, AltaCorp Capital Inc.