15 July 2018 | Oliver Schutzmann, CEO
Dear Chief Executive,
You run one of 744 publicly listed companies in the Arabian Gulf region. As you know, summer brings a certain lethargy to capital markets around the world, but it is particularly pronounced in our neighbourhood. Trading volume dwindles, share prices stagnate or gently decline, and most of management adopts a low profile as the temperatures rise.
You probably run a company that has been listed on one of the regional exchanges for some years. Your profits are higher, debt is tightly controlled, dividends are paid regularly. Senior management is respected, and the strategy is working. Having survived the economic slowdown, you are starting to see an uplift in the order book, and a growing confidence in the customer base.
Your share price should be rising, but after all it is summer, market volumes are low, and the geopolitics of the region remain more challenging than benign. But you are confident that your shares are a sound investment.
And that is the message that you want to send to shareholders, and especially to the international money managers who are about to join the regional shareholder registers as a result of Saudi Arabia’s upgrade to Emerging Market status from MSCI and FTSE Russell.
But, at your last Board meeting before the summer break, the Chairman asked some pointed questions: How do we deliver that message? How do we educate an investor base in London and Hong Kong, Boston and New York? Who should be in charge of this activity? These new shareholders are not only scattered around the world, they don’t know our region, they don’t know our culture, and they don’t really know our company. And we certainly don’t know them. The learning curve both sides must travel is steep.
Let’s leave the Board pondering that question, and think about the task at hand.
The investment world is – literally – watching our region’s progress in this regard. The cost of failure to invest and build top class Investor Relations in our firms could be existential. But the potential rewards of succeeding on this journey seriously outweigh these risks.
The role of the Investor Relations Officer within listed companies across the world has grown significantly in importance and sophistication in recent years, driven by the globalisation of financial markets and the increasingly complex legal and regulatory obligations that companies, markets and investors face.
The goal of successful IROs is to achieve a fair valuation for a company’s shares, suitable liquidity in trading and efficient and cost effective access to debt and equity capital markets. An effective investor relations programme is a critical part of your listed company’s relationship with its existing and potential investors and many other stakeholders.
Companies that take control of their investment case and professionally manage their relationships with the investment community can compete more effectively for capital in the marketplace. They will likely emerge as winners from the rapidly-changing GCC capital markets.
But, again that question: How to achieve all this?
The fact is that the IRO talent pool in the region is desperately shallow. Finding a seasoned IRO practitioner at home is unlikely, let alone an entire team. Your options therefore are limited.
But building an IR function is not just about finding the right person. It is a long-term strategic project, one that needs to sit at the heart of the management decision-making process, that needs the full commitment and input of the Board, and that will take some years to truly establish within the DNA of your firm.
Hiring IR talent in the international market is something that only a few firms have done successfully. And it is not the right answer for every company. Some government-related entities may have legal and cultural barriers to this option, for instance, while others may have a localisation requirement.
For this reason, your firm must invest in this process for the long term. You must budget not only for the cost of the headcount, but also plan for the organisational transformation that an IROpen organisation requires. Strategy, Finance, M&A, Communications, Legal and Compliance are just a few of the major stakeholders in the IR function.
While hiring the right people to run the IR function is crucial, a profound transformation needs to take place in Boardroom and C-Suite culture that will allow IR to take its proper place at the heart of the firm, which will then allow the benefits of valuation, liquidity and reputation to flow through.
It makes no sense that companies are quite happy to pay million-dollar fees to raise a few hundred million dollars in the international debt markets, but are reluctant to invest sufficiently in the right people, systems, processes and procedures that might double a firm’s valuation, and potentially reduce the cost of capital.
What is required is bold and visionary leadership combined with the operational discipline to identify a clear set of IR goals and the strategic path to achieving them.
Our region has some of the finest, most accomplished business minds in the world leading its businesses. They now need to advance into the future, fully aware of the potential rewards and the potential cost of failure.
It is in all our interest that the GCC’s capital markets evolve into first class platforms for the companies that will drive its economies and societies of the future. Investor Relations is central to this process.
Please push to become IROpen.