How to cope with the IR Smiley-Effect™?
When we recently did our Financial Market Survey 2011 we distinguished something that we call the IR Smiley-Effect™. It is by no means a revolutionary finding or something that you couldn’t intuitively figure out, but sometimes you need to put a label on things before you can start to think about solutions.
The IR Smiley-Effect™
As shown in the figure above the IR Smiley-Effect™ is a combination of accessibility and IR quality. It is not surprising that the management of a small company is more accessible than the equivalent of a large cap, even if they devote the exact same amount of time the small cap CEO will have to fight some attention whereas the CEO of a large cap must be more selective with accessibility. In the same way it is fairly obvious that a large IR budget, which tends to grow in conjunction with company size, will have an impact on how the IR effort of a company is perceived. The big question however is if you can do anything about the IR Smiley-Effect™?
In our opinion, the answer is definitely yes.
Small companies can rarely afford to have a dedicated IR person and feel somewhat hesitant on opening the door to ”expensive” consultants. But if you put a value on the discrepancy between accessibility and IR quality, it will become easier to reallocate resources towards guiding the IR effort in the right direction. If you put a price tag on CEO time and reduce the grade of accessibility slightly at the same time as you raise the IR-quality, shareholders will become double winners. A greater focus on operations combined with better communication is a cost effective way to build greater shareholder value in the long run.
For large caps it is more about maintaining the current level of ambition with a small focus adjustment. The quality of the IR work is considered to be good and management cannot spare any more time. Of course management’s time can be optimized, for example to participate in contexts where they not only meet large number of investors but also the right investors. Then the question is whether it is possible to do anything about accessibility without offering personal meetings, so called one-on-ones. Naturally one way is to offer extensive, relevant and easily accessible information on the IR web. Another way is to take advantage of “new” technological advances and hold web based meetings, which can be done in both large and small formats. If information is packaged in the right way accessibility will increase, without managerial time going to waste.
The mid-sized companies are in a limbo, as they are neither on top nor at the bottom. So even if the remedy should contain parts of both measures mentioned above it is wise to initially focus on raising the IR quality before addressing the accessibility issue. A first action could be to let someone with an external perspective make a review of the company’s IR status combined with a plan on how to raise the IR effort.
What actions would you suggest in order to rub the smile away from the IR Smiley-Effect™?