December 10, 2014

Ups and Downs

Suppose you were an elevator operator.

In 2013, the conservative Weekly Standard reported that the most senior member of the Senatorial coterie of button-pushers on the Hill pocketed about $210,000 in compensation, on par with investor-relations professionals.

The elevators have been automated in the Capitol since the 1960s, meaning anyone from Chuck Schumer (D-NY) to Senator-elect Bill Cassidy (R-LA) could push his own button and power a ride. When government-shutdown loomed in 2011, elevator operators were classed nonessential. But still they push and ride.

We’re not criticizing the Senate lift staff.  The people’s work has got to get done and our men and women leading the nation cannot be bothered with pushing their own buttons. But Ronald Reagan’s wry observation that the nearest thing to eternal life on earth is a government bureau comes to mind. In some office towers now, elevators are so automated that it’s impossible to disembark save at your predetermined destination. The elevator is alpha and omega.

So clearly, elevator-operation isn’t a growth industry. If that’s what you’ve been doing you’ll have to improve your skills and knowledge.  Jim Ziemer, who started as a warehouse freight elevator-operator retired as CEO of Harley-Davidson in 2009. There’s how you deal with ups and downs.

Looking at performance for active investment managers can make one wonder if IR is in the elevator-operator employment classification. The Wall Street Journal’s Jason Zweig wrote recently that 91% of active managers through September this year had underperformed the broad market (for years active managers have lagged but that’s a separate market-structure discussion).  IR spends most of its time and budget courting owners who can’t hold a candle to indexes and ETFs (in a sense, elevators that don’t need active managers as lift-operators).

One IRO observed sardonically to me that pointing this fact out to management could be both career-limiting and damaging to his home life on account of the appreciation his wife felt for his paycheck. Well, rest easy!  IR is not going the way of the dodo and the non-governmental elevator-operator. But it should expand the skill-set.

People discuss in the NIRI community forum how to target investors, for instance. It’s a necessary skill and IROs today should cultivate diverse institutional relationships (one kind will come and go uniformly, and you want the opposite of uniform).

But what if targeting more investors won’t change outcomes? IROs and executives rightly suppose boosting shares involves getting more investors to buy them. But that conclusion in a vacuum is unrealistic. Picture a hotel ballroom full of people who have gathered to see comedian Jim Gaffigan. Suppose for the sake of example that you’ve arranged (through your targeting and outreach) to meet two friends in the same ballroom. Then you call a couple more and they agree to meet you there too.

You and your friends arrive as Gaffigan wraps and the cackling audience exits. You’ll first meet big outflows, which stymies reception, and calling more friends didn’t fill up the room because others had different reasons for coming and going.

Apply that to IR. What if the CFO greenlights a bigger IR budget for consultants and tools, and so you target lots more investors – and there’s no improvement?

A better (and easier!) way to enhance IR value for management is to begin with a clear grasp of who consumes your product (your shares) and for what reasons. It’s not in your 13Fs. Those are your owners, and renters set your price far more often. Establish a view of realistic outcomes for management – because that’s job security through ups and downs, and the route to bonuses too. Be like Jim Ziemer, not the Senate elevator-operators.

Own the data. Don’t measure meetings, meter the money that’s coming and going. The key to driving value for management from the IR chair isn’t targeting more investors but setting realistic expectations (Market Structure Analytics does this!).

That’s what IROs who aspire to higher achievement will do.

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