Fidelio Table Talk – The IRO is a Strategic Advisor to the Board – True or False?
Leading IR Directors from both the FTSE100 and international companies with a combined market capitalisation of just under GBP350bn joined a Chairman and two CFOs to share their views on the value the IR function brings. They discussed what IR looks like through considering the question “The IRO is a strategic advisor to the Board – True or False?” posed at a Roundtable IR breakfast co-hosted by Fidelio Partners and Citi Depositary Receipt Services in London.
Fidelio is a leading Board Development and Executive Search company with a deep expertise in IR senior roles. As we conduct searches for senior IR Directors and also Board Directors, we are frequently addressing the question what does best practice IR look like and how is IR evolving? What should the Board look for in an IR Director and what should the Board expect from IR?
The event was well attended by leading IR executives across a diverse range of industries including retail, technology, financial services, utilities and manufacturing. Guest speakers initially leading the discussion included Dennis Millard, Chairman of Halfords Group plc and Connect Group PLC, Deputy Chairman of Pets at Home Group plc, Senior Independent Director of Debenhams plc and non-executive director of Premier Farnell plc. He was joined by Stephen Jones, currently CFO of Santander UK and formerly, prior to joining Santander, Head of Investor Relations at Barclays plc and Jean-Michel Richard, CFO of Dialog Semiconductor plc. James Bardrick, CEO of Citigroup UK, introduced the event which was moderated by Gillian Karran-Cumberlege, founder of Fidelio Partners and former Global Head of IR Volkswagen AG.
An advisor – definitely; strategic advisor – maybe
In answering the question the principal guests shared their experience with the Roundtable and concluded that whether the IRO was a strategic advisor to the board depended on both the Boardroom personalities and the companies’ stage of development. Nevertheless, they all emphasised the importance of the IRO role as a major conduit of information to and from the Board which should carry influence. The IRO should be able to articulate the strategic story with conviction – even if he or she is not directly part of the strategic decision process. Sadly the importance of the IRO role is not always recognised until a crisis has emerged and there may be little value in closing the stable door when the horse has bolted. Several attendees commented that the value of pre-emptive IR is often missed making the crisis IR all the more challenging. It was also noted, however, that the critical role of IR provides the opportunity to demonstrate what the IRO can achieve.
Fidelio has highlighted the rare set of skills required by the IRO which performs an unusual function. Guests agreed that in both capability and role description there was a broad IR Director spectrum from “C suite pooper- scooper” to truly valued member of the executive team.
The role combines heavy duty, highly technical valuation skills with compelling storytelling abilities. It is more than a straightforward communications role. If investors perceive that the IRO is not familiar with the numbers or close enough to the strategic and decision-making hub of the organisation, then they will by-pass the role and always look to engage senior management. This is unlikely to be best use of management time.
The IRO must be a good communicator and that means able to both transmit and receive. A true understanding of the market view is a powerful tool and this understanding should be communicated to the Board. There was recognition of the value of the IRO’s close relationships with key opinion makers in the market; an effective IRO will enable to the CEO to derive value from critical investor meetings. The IRO can also act as a sense checker and keep management’s feet firmly planted on the ground. The CEO can leverage the information provided by the IRO.
Likewise, the Chairman needs to have a good relationship with the IRO to be informed as to the market’s view of the management team. The relationship is important and becoming more so. Indeed many companies with best practice IR now have a dotted line with the Chairman. Wisely it was suggested the optimal IRO reporting line is to the Executive or Director who best understands IR. This could be the CFO, the CEO or the Head of Communications. This pragmatic view was strengthened by a general feeling that there was still scope to increase board interaction and that the annual IR presentation at board meetings was no longer adequate.
Managing expectations – delivering value
Increasingly private equity investors have acknowledged the need to set up an IR function well ahead of the planned flotation date. This reflects not only greater appreciation of the value of the role on the part of PE investors but also that major institutional investors want to truly understand the business with a lead time prior to impact day. Fidelio was able to confirm first hand increased appetite for hiring the IRO role. The feedback loop (between the management team and the market) is extremely important (particularly in the context of IPOs), as such establishing the IR function from the start is crucial to success. Indeed Direct Line IRO was in place a year before flotation and the IR Director at Royal Mail was also in place several months ahead of the IPO.
It is not only at IPO or pre IPO stage that the benefit of the IRO becomes apparent. A company on a growth trajectory may well expand by acquisition. The company’s aspirations can be blocked by the market unless the strategy is well understood and the deal clearly explained. The IRO will be pivotal in the process of getting the deal approved and finance raised. Indeed, one of the guests cited an USD 4.6bn transformational transaction and how the IRO is critical to execution.
Fidelio is a firm believer in the value IR as a profession can deliver. We also agree that the role is still work in progress. Most IR Directors do not have a seat at the top table, but effective IROs will ensure that they have the ear of the Board and are able to provide input into strategic decisions. This can have a material impact on valuation. If IR is to occupy this strategic position the Board, colleagues and investors must be won over. The first step for IR is to be confident and articulate about the value that the function can deliver. The second step is embedding strategic IR within the organisation. Here Board-level buy in is crucial.
Dennis Millard, Chairman
Dennis is Chairman of Halfords and Connect Group plc (formerly Smiths News plc), Non-Executive Deputy Chairman of Pets at Home Group Plc and Non-Executive Director and Senior Independent Director of both Debenhams plc and Premier Farnell plc. Previously roles have included Chief Financial Officer of Cookson Group plc, Finance Director of Medeva plc, Non-Executive Director of Exel plc and a member of the Economic Affairs Committee of the CBI. Dennis has a broad commercial and financial experience in the retail, service, distribution and manufacturing sectors in the UK and internationally. Dennis is a member of the South African Institute of Chartered Accountants and holds an MBA from the University of Cape Town.
Jean-Michel Richard, Chief Financial Officer
Jean Michel is Chief Financial Officer and Senior Vice President, Finance of Dialog Semiconductor plc. He joined the Company in 2006 to head up its finance department and was previously Finance Director for the Global Manufacturing and Technology Division of ON Semiconductor, in Phoenix, Arizona. Prior roles included senior finance and treasury positions at ON and Motorola, in Europe and the US. Jean-Michel holds a Masters in Economics from the University of Geneva, Switzerland.
Stephen Jones, Chief Financial Officer (Stepped down from Santander UK on 30th October 2015)
Stephen will step down from his role as Chief Financial Officer and Executive Director of Santander UK on 30 October 2015. In addition to his role as Chief Financial Officer, Stephen has executive responsibility for Regulatory Affairs and Pensions. He is a member of the Board of the British Bankers’ Association and the Practitioner Panel of the Financial Conduct Authority. He joined Santander UK from Barclays where he held a number of senior positions including Head of Investor Relations, Head of Corporate Debt Capital Markets and Equity Capital Markets and Co-Head of Corporate Investment Banking, Barclays Capital EMEA