I recently made the change from in-house Investor Relations Officer (IRO) to external Investor Relations (IR) consultant. As head of IR for a company that fluctuated between small-cap, micro-cap and nano-cap, I was a one-woman team. And, like many IROs, investor relations was not my only gig. I split my time among several other disciplines within the company, including finance, corporate communications and, for a short time, human resources.
In my role of IRO, I was frequently pitched by outside consultants on the idea of doing an investor perception study. Frankly, my response was skeptical.
For one thing, I had a limited budget that only stretched so far. For another, I felt reasonably confident that I already understood my investor base. As IROs, we understand the importance of regular communication with top holders. We speak with our top holders at least quarterly, provide them with access to management and visit them when we are on the road. We work hard to build these relationships. Why would I need a third party to survey my investors when I can do that work myself?
My present perspective is somewhat different. After working on the consultant side and conducting perception studies on behalf of my clients, I can candidly say – I am a proud convert to the value of a perception study!
I consider perception studies to be at the root of our work as IR practitioners. And if you don’t, you should consider reevaluating perception work.
Perception Studies Are Smart Investments
After conducting perception studies for my clients and seeing firsthand the wealth of information that can be derived from a third-party perception study, I’ve changed my attitude about the nature of such studies. I believe they should be viewed not as expenditures, but as investments in the business.
Sales teams routinely allocate resources toward understanding why contracts are won or lost. Was the issue price, location, quality or some other factor? Guessing the right answer won’t cut it. If quality is the most important factor to your customers and the company is losing sales because of poor product quality, lowering the price isn’t going to help.
A company’s stock is its other major “product.” Understanding how it is perceived warrants every bit as much research as for product sales.
A well-done perception study can deliver valuable insights into what catalysts would spark increased investment, and what risks investors see on the horizon that might cause them to pare back. These insights can be useful not just for investor relations, but even for company strategy.
Further, a perception study can highlight the shortcomings in your IR program that you probably wouldn’t otherwise see. It provides a much more solid basis for understanding the Street sentiment, the holes in your story and what to do about them. Its solid factual basis can better empower management to make necessary changes to the IR strategy and program, and even to improve their own effectiveness as executives.
Without a perception study, management can only assume they understand the Street sentiment. By contrast, validation from an independent third party, with the perception study transcripts to back it up, provides solid proof. And it can be a powerful tool in the growth and development of your management team, if they are willing to listen and consider the feedback.
Can an IRO Devote the Time?
Of course, even acknowledging their value, perception studies do come with a price tag. If the budget is tight, you can only stretch your funds so far. When I was an IRO, competing priorities always seemed to take precedence. Besides, this was a project I could do myself, during my downtime. Come up with the questions, call shareholders and report my findings. Simple, right?
The only problem was that I could never find the downtime. A perception study is a six- to eight-week commitment. It requires thoughtful planning, coordination, analysis and presentation to management.
I couldn’t fathom adding such an extensive project into my already overloaded schedule. I seemingly couldn’t afford to outsource it, but I definitely didn’t have the capacity to take it on myself. And I doubt I’m alone on this.
Even an IRO who doesn’t wear two or more hats is unlikely to have the time to devote to a proper perception study, given the constant demands on their time. And with all due respect to IROs, a third party is also likely to get a more accurate picture of investor perceptions than the company can obtain directly.
Delivering a Fresh Perspective
All perception studies are not created equal, nor are they carried out equally well. Third-party consultants often specialize in this type of study and have a strong grasp of the methodologies needed to get the most out of it. Assigning a junior-level associate to call investors and ask them canned questions is not going to provide the insight that I need as an IRO.
A seasoned third party is likely to think of questions that the company itself may not. As insiders, sometimes IROs are too close to the story, and self-censor their own questions. Plus, as an IRO, you don’t know what you don’t know – or what investors aren’t telling you.
The more perceptions studies I conduct, the more this point intensifies. A perception study should be so much more than a check in with investors. Done right, a perception study becomes the foundation of the IR program, driving messaging and strategy.
A third-party perspective is inherently complementary to the IRO’s. Why? Because when an investor is being surveyed by a third party, the context isn’t the relationship with the company, but the universe of possible investments.
Given this broader context, an independent third party on a fact-finding mission, who is adept at asking investors the right types of questions, can stimulate a frank and freewheeling discussion about the company’s story, team, strategy and execution.
Expanding Your Universe of Holders
A third-party study is also more likely to expand a company’s universe of potential holders, because a third party is better positioned to spend time with non-holders and recent sellers.
If as an IRO I am short on time and bandwidth, I will likely prioritize talking with current holders, whose relationships I have cultivated and whose perspective is obviously pertinent. However, the viewpoints of non-holders and recent sellers can also be invaluable.
Why a firm chose not to invest in your company offers a treasure trove of insight. Are macro issues an impediment to investment? Is there a fundamental bias or a misunderstood strategy?
Recent sellers also afford a unique perspective. Something made them get into your stock, and something caused them to get out. Understanding the motives and catalysts behind their actions provides great color for the Street sentiment.
Was the decision to sell based on industry dynamics or cyclicality? Has there been a breakdown in trust between investors and management? Does the company’s capital allocation strategy no longer align with investors’ views? Are its ESG ratings scores too low to meet a firm’s thresholds?
I have yet to conduct a perception study where the client was not surprised by at least one of the themes mentioned by investors. A third party is much better positioned to elicit such surprises.
Delivering Challenging Findings
A third party is also more likely to secure detailed answers to tough questions. Having a third party do the asking gives some investors more comfort to speak freely, sometimes brutally so. Investors can even choose to remain anonymous, if it makes them more comfortable. They are more likely to share their perceptions about execution of strategy, company missteps, and management itself.
A third party is not only better positioned to obtain challenging findings, but also to deliver them. Sharing home truths with the management team can be tough and awkward, and needs to be done thoughtfully.
How do you tell your CEO that her presentation skills stink, or that investors don’t trust him? Third-party experts can be more direct, and can provide more leverage for needed changes.
Increasing the Impact of Your IR Program
To summarize, investor perception studies are worth conducting on a somewhat regular basis, and definitely prior to and immediately following a major shift in the business. Third parties, unlike IROs, have the time to do them right. Doing this for a living, they are more experienced in the needed methodologies. They also bring a fresh perspective and a wider investor framework. They are more likely to elicit detailed and candid responses. And they are better able to deliver this candid perspective to management, even when it’s tough.
It all adds up to your best opportunity to re-calibrate your IR program for enhanced impact. And if you need help, feel free to call on this convert.