Communicating Confidence: NYSE Vet Says IR is The Voice of Capitalism, Reveals Top Challenges Facing IR Today
June 8, 2009
Communicating Confidence: NYSE Vet Says IR Is the Voice of Capitalism, Reveals Top Challenges Facing IR Today
This week's spotlight: Richard Torrenzano, Chairman and Chief Executive, The Torrenzano Group
"I think it's fair to say that IR is the voice of capitalism," says Richard Torrenzano, chairman of strategic communications and investor relations firm The Torrenzano Group. "Clearly, the IR profession is there to serve as spokespersons for management to a clear set of constituents—namely, investors (institutional or individual) and analysts (on the buy side or sell side). So if you're communicating management's view, then you are essentially talking about capitalism."
However, "I wonder if we're still talking about true ‘capitalism' if banks or car companies are taken over by government—as is happening now," elaborates Torrenzano, who has counseled chief executives and boards of international corporations, as well as several heads of state—and who for nearly a decade at the New York Stock Exchange (NYSE), was a member of the Big Board's management (policy) and executive (operations) committees and senior vice president.
Many in finance, IR and the broader markets, Torrenzano points out, are wondering the same thing this week as details of the GM bankruptcy and government ownership come to light. No stranger to such periods of tumult and even government market intervention, Torrenzano has managed the public strategies for significant global financial crisis, including the market crash in October 1987 and the1998 Federal Reserve Bank-directed billion re-cap of Long-Term Capital Management (LTCM), financed by 14 of the world's largest financial institutions. His counsel and work helped restore confidence in the NYSE and U.S. capital markets.
In addition, during the September 11, 2001 terrorist attacks, he provided counsel to client executives at Merrill Lynch, Lloyd's of London, Nasdaq Stock Market, National Association of Securities Dealers, American Stock Exchange and Security Traders Association. More recently, he has been visible in the national and international arenas advising corporations on crisis related to the recession and global economic downturn. Here he turns his counsel to providing insight on where the market and IR practice stand now amid current market transitions—and how IR professionals can (and should) plan for the future:
What are the top three issues and challenges facing IR practitioners right now?
I think that's a good question. Let's step back and look at market today. We agree that markets are not showing true valuations of companies. What they're showing are risk valuations of companies. Look at Citibank right now and it was 97 cents a few weeks ago, and at a few dollars today (four). That's not reflective of true value of its management, products, reach and so on. It's reflective of risk. IR has to represent management in that new reality.
So one of the biggest problems CFOs and CEOs face now is explaining their valuation and their risk levels because the market isn't reflective of their true valuations—it's all about the valuation of risk. That's a difficult position for management, IR people, media people—anybody who is talking about a company.
The second big issue—or issues—now are: priorities and budgets. Where is management putting scarcer dollars today and how does the IR person report and discuss that? That's the question IR people have to deal with. And, any given IR person's budget at any given company has been cut, like all other budgets. It hasn't hidden from the knife. Frankly, everybody in the corporate world today wonders whether the shoe will drop on them. So they're asking if they can do this by outsourcing. They are asking if they can do it cheaper by moving it into another department. Can we, can we? That's the mindset now. Every single expenditure is being looked at.
I know IR people who have been involved in these cuts and there is a personal level of discontent and frustration on all this in IR. But really, IR people look at what management is worried about—and these concerns certainly reflect that.
Another issue is that all this stuff takes a lot of time from management to deal with the economic crisis we're in. Whenever you have a crisis, there's a great amount of time not being dedicated to the business. When you do that, the business suffers. There is pressure where the time of management is being dedicated to managing the crisis versus growing the business—so the development of new products, growth of existing products, attracting of and retention of talent, and using resources well....it all suffers. The crisis has bearing on taking away financial resources and also taking away the time of management. When you have a crisis, then, that becomes the business for the time being.
Look at the auto industry, for example. One hundred percent of their time is now spent dealing with the crisis and not with the future of the company. How will they restructure financially and economically to deal with Congress, the administration, shareholders, stakeholders, bond holders and union reps versus dealing with the issues of the business like product development, increasing market share and so on. That's all second level now—a very distant B, and not even a high B+, when it should be priority A.
Can you share a tip to help IR readers manage these changes in today's market?
I'm not sure there is one tip. But for starters, management has to keep their eyes open and realize they need to spend more time on the business and less time on the crisis. That is "telling the story," which is part of what IR helps management do. Right now in many cases, it may seem like your story is being told to deaf ears. But you must still talk about your advantages, realistic pricing, why your products are better and how those products will advance the company. You have to move the company forward, regardless of these other challenges.
What we've seen in the last months has been a lot of people sitting there like deer in the headlights—they're stalled. That's not unreasonable, considering. But as the weather gets better market-wise, we have to thaw out and move it forward.
Can you be more specific beyond the metaphor—how can IR people "move it forward"?
First, realize how your company fits into the new economic environment. Then zero in on your competitive advantages—and tell the markets about them. And finally, look at what's coming up in the next year that you can talk about and highlight how that will grow the company. That's the game plan moving forward in three essential, yet basic, steps.
What's your take on where are we now in terms of recession versus rebound?
Right now, we're over the hump of just focusing on survival. Now, everybody has to get back to understanding the new business environment and how you're going to deal with it. IR must now start talking about how management sees the company moving forward, and how they're going to deal with the new economic environment. Plans and messaging should now be focused on the next two to three years—not just the current environment. Even though all the current questions seem focused still on survival, it's now time to shift and look ahead of the turn. What answers do investors want now from IR—and what's their prevalent mindset?
First, there is a lot of money institutionally and individually on the sidelines because of volatility. People are trading, but as we get further from the fall of last year, markets will calm down. When they do, you want to be talking to potential new investors who invest in your industry and sector. They want to know the answers to five key IR questions:
That's what they want to hear from management, and IR is the conduit for communicating that. They want to see leadership answer those questions precisely—and they want to see passion behind those answers. The IR person's job these days boils down to simply getting management's view on those exact questions. Go in there and ask those questions. If you don't, you're not doing the work of IR.
How has the recession impacted corporate IR budgets?
I know they're being cut across board and they were not terribly big to begin with. Everyone is feeling this. Nobody is in an isolated environment. When will those cuts finally slow?
I think we're in this process for a while. I think each industry and company will have to look and see what's necessary for them. Example, the Apple iPod is doing well. So is the Blackberry. So if you have this environment and see those two companies doing well, it tells you that information has become paramount.
If that's the case, it gives the IR person the opportunity to provide information. People want emails, news alerts and more. So, provide information in new ways to shareholders—that's the call to action here. IR must provide information in new, interesting, creative and timely ways. Translation: Each company has to determine which of these opportunities and [communication channels] are good for you, your shareholders and audiences. Take a look at all the channels out there now and determine which suits your industry, company and management style.
Beyond these macro changes, how has recession changed the typical IRO's job on a day-to-day, tactical basis? Travel has significantly been curtailed in financial and IR circles. You have to better use your travel time and budget. Instead of going to the same place three times over three months, you have to consolidate what you need to communicate into a few days or encourage people to come to you. You do more group meetings and analyst meetings over the course of a year where you can meet with more people at once. Similarly, more companies are using teleconferences, particularly when working with countries in Asia and Europe. That's a hot sector in the market right now. You're also seeing more webcasts of analyst meetings, and so on. That's not new, but you're seeing more of it.
IR interaction with the C-suite hasn't changed. But more and more investors do want to hear directly from the CFO and CEO. Beyond that, there is more interaction with the boards at annual meetings. You're seeing that as we get deeper into annual meeting season, which runs up through June. IR people need to facilitate that interaction with boards. Investors also want to see more of the lead director involved in the company—and what he or she has to say. They want to see how salaries and contracts are being approved by the compensation committee of the board. They also want to hear from the risk chairman, and clearly want more oversight in terms of the accounting view of what they're doing and the issues they're facing.
You'll see much more of that shareholder involvement as we go forward over the next two to five years. What you have now more than ever is not just one or two people at an annual meeting making comments—but more very informed people raising substantive questions. That will become more substantive as proxy issues are changed or may be changed by the SEC over the next six to 12 months.
How has the down market impacted IR firms' and counselors' business?
First, IR is part of what we do. It's not all we do. If you focus purely on IR as a firm, you are nowhere today. You have to look at the whole company's presence through all stakeholders: employees, media, regulators, shareholders, vendors and so on. That is looking at it strategically—and that's what we do. My point here is that IR people need to integrate versus seeing themselves in the silo of "I'm just an IR firm" or whatever the case may be.
That said, ours is a mid-sized firm and firms of our size are flourishing. Most of the large firms focus on marketing and not counseling—and they're having problems. There's a notable difference. Their revenue comes from marketing, not strategic communications. How to sell soap is their focus—very much like advertising agencies. They are big conglomerates and don't have the high level talent to deal with these kinds of strategic communications issues. Again, you can't look at shareholder communications through a funnel or silo—not anymore. That's becoming more the case as companies continue to face and deal with recessionary issues.
What's your advice to IROs when it comes to dealing with social media?
I think as companies become more fishbowls, they will have to have policies—just like they do on the use of facilities—in place about what employees are allowed to say about the company externally. It's becoming a big issue across the board—social media can be destructive. You have to look at that now before it becomes a problem.
Many companies have policies about the use of email, cell phones and so on. IR people can help take this to the next level. You must have guidelines for employees about how they talk about company online or use company instruments when online.
This goes beyond IR practitioners, actually—but IR can be instrumental in driving that conversation. The IR practitioner won't make the policies. Management will. But the IR practitioner may have to explain those policies to investors. So the tip here is this: Look at best practices of what companies in your space are using in terms of guidelines. Get there very quickly. This puts a framework in place before a crisis develops.
Staying with crisis for a moment, can you recap the "Top Ten Tips for Crisis Management" that you shared with The Foreign Press Association recently?
They are to:
Are companies increasing their development and usage of crisis communications plans in the downturn, or has this frozen?
Why is it important to invest in crisis communications plans from an IR perspective now?
Most companies today, except where regulatory requirements dictate, don't have crisis plans in place. That's a shame. When I talk about crisis to groups of execs, I ask how many truly have a crisis communications plan. Only a third of hands go up. Then I ask how many have practiced or tested their plan in the last three months and most of the hands go down.
So, having a plan is the first step. Then rehearse and practice that plan on a quarterly or semi-annual basis. Otherwise, it's useless because too much changes.
IR has to be a part of that plan. Shareholders want to know what's going on, what's happening and what you're doing about it— especially if something happens that will have a profound impact on the value and stock of the company. IR must be a part of that plan because you will be dealing with that group. Shareholders aren't actively asking for that now, that much is true. But they will ask after an incident happens. So you need to pre-emptive on this now.
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