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Closing IR Gaps: Where do we find the right people?

Here are two scenarios. Which one is most alarming?

The aircraft is heading to the runway. Seat belt signs have been switched off. Passengers settle into a movie or listen to music. Then, something unusual happens: the captain appears at your seat, and offers you a cup of coffee. A passenger asks: “Aren’t you the captain?” “Yes, but I wanted to take a turn serving tea and coffee instead of flying the plane.” 

The second scenario involves the same flight, only minutes later. As the last passenger fastens the seat belt, an announcement comes over the PA system: “Welcome to the flight. My name is Luke and I am your Purser. Today, I’m going to be flying your aircraft.” 

Of course, the second scenario is far more alarming. The first is unusual, but it doesn’t raise any safety issues (assuming there is another pilot). The second is likely to be followed by a stampede for the emergency exits.

Now think about your company and its IR function. What are the qualifications of the person you have running this strategic and regulated function? What is their experience? How did they get their role?

Is your plane being flown by a pilot, or cabin crew?

Perhaps the biggest problem facing companies that want to do the right thing in IR in the Gulf is the chronic shortage of experienced IR professionals. There are three ways to respond to the shortage:

  1. Find your Head of Investor Relations from outside the region
  2. Appoint someone from within your organisation who is not an IR professional, and build their IR capabilities over time
  3. Hire an external non-IR professional (e.g. an analyst or investment banker), and build their knowledge of both the function and your business

Historically, many regional firms felt that all three were either not possible or too costly, so did none of them. In recent years, the situation has improved: pressure from regulators and international investors means that firms have stepped up and addressed the absence of IR, but they face the same resource challenge: how do you find the people to staff the function and carry out excellent IR strategies?

 The conundrum for companies is not “Why bother with IR”? For many it is: “Where and how do we find the right people”?

Until the late 90s, the most common entry route into IR was via corporate communications or accounting. Then, following the financial crisis in the West, a large army of unemployed analysts, investment bankers, and other finance professionals found themselves out of work and looking for a way back into the labour market.

Suddenly, the IR profession could call on a wider range of qualified professionals, and the result was transformational. In a survey of IR Heads at Fortune 500 companies, Korn Ferry, the HR and recruitment consultant, found that 27% of IR professionals had corporate finance experience and more than 25% were Chartered Financial Analysts (CFA).

Here in the GCC, we do not have that luxury. As a relatively new profession, IR is not yet as attractive to CFA holders and investment bankers. But the pressure on firms to create an effective IR capability staffed with qualified professionals is growing.

There is another issue in the region that requires consideration: the growing number of PR advisors masquerading as IR professionals. In principle, there is nothing wrong with communications professionals making the move into IR. Indeed, the best communications professionals can make outstanding IROs. But it is in the execution that the mistakes are made, when PR is mistaken for IR, and this is where the risks become most severe. In some areas we have a heritage in the region of company disclosures being PR puffery, where numbers are massaged to show an “ever-bullish” picture of the company, and where inconvenient truths are buried.

Eventually, companies that behave like this are found out. Investors stop believing the remorselessly happy story, and start to question everything that the company presents.

This is far from unique to the region – our article from April 2018 focused on the “Success Theatre” of General Electric’s IR. (Link) 

But it remains far too common. And at its core is the vacuum of IR professionals to steer a company towards best-practice. So how should firms go about addressing the IR resource crisis? We’ve drawn up ten questions to ask IR candidates in interviews that should reveal their understanding and experience of the role. 

  1. How many investor meetings have you attended?
  2. How would you structure an earnings call?
  3. How would you set up an institutionalized IR department?
  4. How would you communicate with passive investors?
  5. What is more important: knowledge of our sector, or knowledge of IR?
  6. How do you think big data is going to change the IR profession?
  7. What is the difference between IR and PR?
  8. What are your golden rules for a great IR website?
  9. What should the role of the Board be in IR activities?
  10. How would you report a bad quarter to the market?

There are no right or wrong answers to these questions, but they will reveal the candidate’s depth of understanding of the IR function. And that is a good place to start when trying to weed out PR people wearing IR clothing.

After all, you might not mind being served your in-flight meal by the captain, but you most certainly would not want the purser to be flying your plane.