THE CANADIAN IR PRACTITIONER PERSPECTIVE - Guest Column by Dave A. Hughes

The Canadian Investor Relations Institute defines Investor Relations as follows:  “Investor Relations is the strategic management responsibility that integrates the disciplines of finance, communications, marketing, securities law compliance and sustainability to achieve an effective flow of information between a company, the investment community and other stakeholders, to support an informed valuation of the company’s securities and enable fair and efficient capital markets.”

The word ‘strategic’ shows up in the definition. Investor relations has and continues to undergo a shift in its strategic importance. Gone are the days of IR simply being a function provided off the side of the Chief Financial Officer’s or Corporate Secretary’s desk with the sole purpose of responding to shareholder questions in a reactive manner, coupled with occasional updates of the company’s key messages. The IR of today is a proactive force that not only plays an integral role in communicating a company’s key messages, vision and strategy but also in providing strategic insights gleaned from market interactions to the company’s senior management and Board. By its nature, this information, or ‘intelligence’, is strategic to the company. In other words, the IR function has become a key strategic tool for the company. Done effectively, IR most certainly has a positive impact on the success of a company and, by extension, its share price.

So, what is driving this shift? At the highest level, this evolution is the product of the need for faster and more meaningful communication, including greater transparency, as well as a need to view stakeholder management far more strategically in an increasingly complex and globalized business environment. At a high level, here are a few key drivers:

1. The volume (and type) of information available – Increased transparency and disclosure, both regulatory and voluntary, have driven more detailed and more timely reporting, both financial and non-financial (such as ESG reporting). In addition, changes in the equity markets, such as the rising expectations around ESG reporting, increasing activist investor engagement, and shifts in the types of funds, have both influenced and increased the type of information that has become important to investors.
2. The ease with which information can be accessed – In this digital age, there are a plethora of tools that can be used to disseminate information as well as analyze it. Social media, websites, webcasts and, more recently, artificial intelligence, are just a few of the tools that IROs can use to rapidly and broadly communicate with a wide range of stakeholders. 
3. The growing need for insight – Coincident with the amount and types of information available, investors have become more sophisticated. Their focus is no longer on simply getting information. There is a growing expectation that a company provide deeper insights into information, such as more detailed explanations of financial results and a deeper articulation of the company’s strategy and vision.
4. The intensified focus on strategy – Beyond managing investor communications, IR teams have increasingly taken on a strategic advisory role, from guiding senior management on capital market dynamics and investor perceptions to consulting on strategic decisions that impact shareholder value. A team of IR professionals who are immersed in the world of financial communications daily are able to offer valuable guidance.
5. The need for integrated communications – Critical to effective IR is effective communication, which plays a key role in building trust and investor confidence.  Key to this is the consistency of communications across multiple platforms and stakeholder groups (not just investors but also customers, employees and the public). To this end, there is a necessary collaboration between all communications functions within an organization, be they IR, public affairs, government affairs, or marketing.  

However, I would offer one caution here. One can see a scenario where these factors may seem to lessen the need to build and foster direct relationships with investors, as technology allows us to reach farther and attract bigger audiences with a fraction of the time and effort. I would suggest the opposite is true. More than ever, IR is a relationship business (it’s even in the name!). With all of the choices available to investors to deploy capital, and the sheer volume of information they need to assimilate in their decision-making processes, making sure your story is clearly articulated and understood is more important than ever. These messages continue to be best delivered through direct engagement.   

How does IR ensure a seat at the table? The key is being recognized for the unique value IR brings to the strategy table and executing responsibilities efficiently and effectively.   

Advancements in technology, information gathering and market sophistication have resulted in issues with information consistency, and access to information is much less of a challenge. This has driven an interest from investors and other stakeholders to push far beyond what is available in typical investor materials, such as annual reports or quarterly results announcements. It has also led to increased interest in non-financial and operational information and metrics.

IR plays a critical role in ensuring that the company’s strategy, performance and values are articulated to stakeholders and in making sure this is done not only in a clear and consistent manner but in language that resonates with the market. The expectations of market participants are increasing, as stakeholders look beyond a basic description of company strategy to attain more insight into that strategy. Given its outward-facing nature, IR is best positioned to provide this insight, whether directly or through the facilitation of management/market engagement.

On the flip side, insights and information on market sentiment regarding a company are critical pieces of information that can influence decision-making and how a company approaches and communicates with the market. What are the investor community’s concerns about the company? What changes would the investor like to see? Is there anything that is not well understood, potentially necessitating a change to messaging? The answers to these questions provide valuable insight to senior management and the Board. Equally important is providing similar insights to management on peers and the sector as a whole.

Whether in a local or global context, the world is becoming increasingly complex, more uncertain and exposed to shifting geopolitical forces. IR plays a key role in understanding non-industry specific factors, such as political and regulatory developments, and the impact they could have in the company’s sector and on the company itself.

Conclusion

There is a consistent and evolving push for companies to be more transparent and forthcoming with investors, making a strong, resilient, efficient and well-informed IR department an absolute necessity. The duties IR fulfills in its various capacities are very important in today’s highly evolved capital markets. In order to successfully execute these responsibilities to the maximum benefit of the organization, IR needs to be recognized as a strategic imperative. Simply, IR needs to be at the table.  

Dave A. Hughes is (retired) Vice President, Investor Relations, Imperial Oil Limited.