Ten years ago, many major companies didn’t even have an investor relations function. If there was an individual responsible for financial communications, he or she was typically a mid-level manager within the public relations department.
Today, almost every major company has not only an IR director but an IR department, and in many cases the IR department reports not to the senior public relations executive but to the chief financial officer. In many companies, the senior IR person is better compensated than his counterpart in PR, and has better access to the CEO and other members of the management team.
Most public relations executives make the case that IR should be one of their responsibilities. Certainly, if they view their role as managing the relationship between the company and all of its publics, the shareholder relationship should fall under their control.
“I have always been a big believer that the public relations and investor relations functions should be one,” says Michael Sitrick, president of Los Angeles crisis communications specialist Sitrick & Company and author of the new book Spin! “You can’t separate the impact of an article in The Wall Street Journal from the impact of an analyst’s report. And you have to be consistent. You can’t tell The Wall Street Journal one thing and the analyst community another. That means there has to be coordination.”
But an increasing number of IR people—many of whom have little or no background in communications—reject that notion.
The latest figures from the National Investor Relations Institute, which has 3,800 members who represent 2,200 companies, indicate that about 41 percent of its members have corporate communications or public relations backgrounds, compared to 45 percent who come out of a financial background.
The reasons for their hostility towards or disregard for public relations people are simple. First, they don’t believe that PR people understand the business of business, in particular the financial aspects of management. And second, they don’t believe that PR people have sufficient stature and would rather report to someone who has the ear of the CEO.
“If you’re going to have the IR function report to public relations, which is the way I think it should be, you need to have a PR person who is senior enough to manage both,” says Sitrick. “In most companies that’s not the case. In most companies, the PR person comes out of a product marketing background, and is not qualified to do IR.”
At Wickes, where Sitrick worked before launching his own agency, he handled both PR and IR and was a senior member of the company’s management team, on the same level as the chief financial officer. No one at Wickes described his role in this way, but Sitrick was essentially the company’s chief reputation officer, responsible for handling its relationships with all its key publics. Few PR executives have that role, and one reason is that few PR executives demonstrate a grasp of the way business works.
“In my mind, it’s impossible to separate the business of business from the business of communication,” says Mike Benard, vice president of corporate communications and public affairs at Eastman Kodak. “Public relations people have to understand the business, and the numbers behind the business, at least as well as any other member of the senior management team.”
Larry Bishop, who began his career in PR, moved into IR, and is now responsible for both at The Boeing Company, puts it succinctly, “Most PR people think a balance sheet is an accessory for a water bed.”
The failure of PR people to sufficiently involve themselves in the business is a factor in the second issue, the fact that they do not have the stature within the company to demand oversight for IR. Says Larry Bishop, “I believe investor relations is a communications function, but many times the communications person does not occupy a particularly high position in the company.”
When Bishop launched an IR department at Lockheed Martin a decade ago, he felt that in order to establish it as a legitimate function, it had to report to the CFO. “I thought it was necessary to raise the stature of the function,” he says.
Bishop’s ascent from the senior investor relations position at Boeing to his new role, may be illustrative of a new trend. When CEOs are looking for someone to whom they can trust a centralized communications function, they are increasingly choosing IR people over their PR counterparts.
“Investor relations people are, because of what they do, increasingly involved in those issues that are uppermost in the minds of the CEO,” says Jack Bergen, who until recently handled PR for Westinghouse, where the IR department reported to him. “The CEO’s focus is the bottom line. Other communications issue may surface when a crisis strikes, but on a quarter by quarter basis he is interested in what his shareholders are thinking, so he may have more contact with his IR guy than he does with the head of PR.”
Bergen says the biggest advantage of having the IR department under his authority was the access to “better research than I got through PR. My IR people could produce quarterly reports on the company’s performance and on competitive trends in the industry that my PR people could not. IR tends to be much more research driven. That helped inform and enrich our PR work.”
At the same time, Sitrick says, “you have some IR people who have absolutely no knowledge of the way the media work. They are very uncomfortable dealing with the media, and their CFOs are media shy, and that can create problems because the media will be telling your financial story and you need to be sure they tell it accurately.”
Others feel that reporting relationships and organizational charts are not the issue. When Mike Benard joined Kodak, the IR department reported in to corporate communications. When George Fisher took over as CEO, he separated the two. Benard says he doesn’t see much difference between the two systems in terms of efficacy.
“If people are collaborative, it works either way,” he says. “I meet regularly with our senior IR guy and with the CFO and we work very closely together so we are always on the same page. That’s the most important thing. If you lose coordination, you can send out conflicting messages and that leads to confusion in the marketplace.”
One thing is clear: public relations and investor relations people need to put more effort into developing mutual respect and understanding, and they need to work together more closely than they currently do in many organizations.