Some common ways to measure success
Ask any two companies what their goals are for the investor relations department and you’re likely to get separate answers. No two businesses are the same, which means every IR team will have its own objectives and ways of measuring success.
‘I wish there was an out-of-the-box approach to IR because that would make my job a lot easier,’ says Andrew Berger, managing partner at SM Berger & Company, a boutique IR consulting firm.
Research offers a high-level view of common IR success metrics. The most popular way to measure IR performance is investor feedback, cited by 25 percent of respondents to a survey of 373 IR professionals by IR Magazine. That's followed by shareholder composition (15 percent), investor meetings (12 percent), analyst coverage (10 percent) and share price (10 percent). Other methods mentioned include call/interaction frequency (7 percent), peer benchmarking (5 percent) and reporting quality (5 percent).
Is that email distribution list expanding, contracting or staying stagnant? That’s a very quantifiable metric
There is no ‘absolute science’ or ‘definitive formula’ for measuring IR success, says Felise Kissell, IR and corporate affairs officer at Aramark, the NYSE-listed Fortune 200 provider of food, facilities and uniform services.
IR professionals should focus on a range of factors to gauge whether they are effectively adding value to the organization and shareholders, she suggests, like finding new buy-side and sell-side evangelists for the stock, ensuring the investment story is well understood, acting as an enabler for internal and external stakeholders and anticipating investors’ fundamental interests in advance.
At Aramark, IR is also expected to help develop high-performing talent.
‘At a larger organization, the needs are a bit different from those of a small-cap company,’ Kissell says. ‘It’s not predominantly about building awareness, although you are always crusading to build top-of-mind recognition and evangelists for your story, but one measure for us is developing company athletes.
‘IR is a wonderful place to get the periphery of the entire organization. You’re helping to unlock that strong talent to drive value in other aspects of the business.’
In terms of quantifiable metrics for investor relations success, Berger likes to use ‘investor following’.
‘We look at it in a couple of ways,’ he says. ‘We manage email distribution lists for our clients – so is that email distribution list expanding, contracting or staying stagnant? That’s a very quantifiable metric to present to my management teams. And when we do corporate access activities, is it the same people we’re meeting with? Or is that following growing?’
Street valueOf all the possible areas to focus on, IR teams should make sure their story is being heard and understood by Wall Street, says Alex Jorgensen, who leads the IR advisory practice at marketing and communications firm Prosek Partners. ‘First and foremost, the value of IR is solidifying, refining and refreshing your narrative, so that the Street has no question about what your business is, what you’re pursuing and how it should value you,’ he explains.
The best way to measure this is simply by communicating with the market to understand what current and prospective holders think, Jorgensen adds. Self-reflection is also part of the process. ‘If I was not a holder of this company, and I was left to my own devices, what information could I glean?’ he asks. ‘If I’m an industry expert, does it hit me? If I’m a generalist, does it hit me? Those are really standard ways for companies to understand whether their narrative is resonating.’
While an IRO may have ruled out a certain performance metric, that doesn’t mean management and the board are of the same opinion. When it comes to investor relations success, there can be a disconnect between what senior executives would like to see and what is actually possible. As a result, IROs need to educate their management on the state of the market and the likelihood of achieving specific goals, say consultants.
‘A lot of CEOs built the business themselves and see a great future for it,’ says Berger. ‘They may say, I believe the value of this company should be X but it’s Y – why is that? That’s where someone who knows the capital markets can help CEOs understand the nuances and what it’s going to take to reach their expectations.’
