If you spoke with the CEO of a listed company today, they would tell you that their investor relations function had changed dramatically in a short space of time. Most will point to the COVID-19 pandemic as the reason for this “sudden” disruption to old and proven investor relations and communications practices that have always served them well.

The CEO would describe how roadshows across Sydney, Melbourne, Hong Kong and Singapore, investor lunches, fund manager meetings, printing pitch decks, coffee catch ups, studio interviews, conferences and exhibitions, had overnight been transformed into a world of zoom calls, google meets and digital media. 

But the truth is that the game has been changing for decades. The way that publicly-listed companies engage with the market has been disrupted and in many cases disintermediated by many macroeconomic and technology trends over the past 20 years.

The end result is that companies need to reach, engage, educate and nurture investors in a much more direct fashion than ever before. 

Let’s quickly look at what has changed and how companies are adapting:

Online trading disrupts distribution channels

Where previously CEOs would have “on speed dial” (remember that?) the names and numbers of stockbrokers who would immediately be available to disseminate company news and information to their clients, those distribution channels are largely gone. Today investors access listed companies stock directly via trading platforms offering access for as little as $5 a trade. Without the traditional broker “gatekeeper” role, companies have often struggled to find direct communication channels with investors, and often feel like the understanding of “their story” and strategy is not appreciated by the market. Where previously deeper and more intimate relationships with a few key brokers existed and could be relied upon to accurately stay on message, companies now often need to do that heavy lifting themselves.

The rise of self directed retail investing

There are 600,000 self managed super funds in Australia with about $676 billion worth of assets. That’s more money than Australia’s five largest industry super funds. AustralianSuper, the largest with $170 billion, can realistically only select a few smaller companies in which to invest, more often they are forced to stick with large cap stocks in which they have to take a substantial position or look at owning unlisted infrastructure projects as a way of putting there enormous FUM to work. But, the rise of self directed and sophisticated investors has been notable in recent years. CEOs need to open direct communication channels with these investors, but the messaging and nature of the retail relationship is meaningfully different to institutions (fund managers, super fund and family offices).

The demise of sell-side research

According to Bloomberg, the number of sell-side analysts declined 8% in 2019. Budgets for research analysts are expected to be reduced by 20% to 30% in 2020. The MIFID II framework brings new challenges to CEOs, mainly in terms of access to institutional investors, portfolio managers and buy-side analysts, which is done directly and without intermediation by brokers/investment banks. Many institutional investors have established their own internal corporate access teams to help facilitate meetings between the corporate issuers and their own portfolio managers and decision makers.

The growing importance of an investor-focused website

The importance of the investor portal along with the format and quality of the communication materials are now more important than ever. Companies must also be able to more effectively identify and track investors – that is, understand who is accessing the website and what they are searching for. Cross-referencing mailing and webcast analytics with the company’s shareholder base and targeting strategy is also fundamental.

The consolidation and shrinkage of the media 

Journalism has changed and the media landscape is unrecognisable to what it was 10 years ago. Building trusted relationships with a few key media outlets and relevant journalists remains an important aspect of a CEO growing his profile and educating potential investors, but media cannot be relied upon to tell a company’s story. The media is about distribution as much as it is about content and today, listed companies need to create their own content and can distribute channels. Doing the basics well is a prerequisite, but companies that educate, inform, entertain and nurture relationships with investors through their content (text, video and audio) will be a stronger position to grow loyal and long term shareholders over time.

It takes two to tango

CEOs need to be realistic about their one-on-one engagement of individual investors, but collectively feedback from individual investors is as important as feedback from one superfund. This investor feedback should be collated, reviewed and if relevant taken on board and used to help shape the company’s strategy, messaging and engagement with investors. 

It’s a brave new world and CEOs have an opportunity to massively improve their access to capital, reduce their cost of capital and grow long term loyal shareholders if they are prepared to roll their sleeves up and adopt a more modern, transparent and retail-friendly approach to investor relations.

Sources:

• SMSF statistics: 1.1 million members with $676bn in super
• Which are the largest super funds?
• 2019 Bulge Research Analyst Headcount Shrinks 8%