Investor relations (IR) has traditionally occupied a position at the perimeter of CFOs' responsibilities as a discrete function, staffed outside of finance, that requires the finance chief's attention from time to time. But according to a study by Greenwich Associates, that perception is rapidly changing, and IR is becoming a more integral part of CFOs' work.
The survey of 91 CFOs at large U.S. corporations suggests that the typical CFO spends between two and five days per month on IR tasks. Sixty percent of respondents placed their IR involvement in that range. More than one in 10 said that IR-related duties occupied between six and 10 days per month.
IR will take an even bigger bite from finance chiefs' work schedule this year. Forty percent of respondents expect to increase the amount of time they spend on investor relations in 2007.
What are the forces driving this trend? Institutional investors place accessibility to senior management and the credibility of the CEO and CFO at the top of their list of factors that constitute a successful corporate IR program. Information and impressions gathered in direct talks with a company's management now carry more weight with these investors than Wall Street recommendations do. "Over the past several years, institutional investors have internalized the research function and developed in-house capabilities to tackle much of the analysis once considered mainly the domain of Wall Street analysts," notes Greenwich Associates consultant Bill Bruno. "With their own research and analytic capacities in place, buy-side organizations have less need for the Street's ideas and recommendations. Rather, they are concentrating on getting in front of corporate management teams to pose their own questions and test their own theories."
Still, Greenwich recommends that CFOs think twice before reducing the amount of time or attention they pay to sell-side analysts. "The typical buy-side analyst is charged with covering more than 50 companies," says Greenwich Associates consultant Jay Bennett. "Simply collecting the information needed to do a thorough analysis of all these companies is probably a full-time job. When is the analyst supposed to fit in tracking down and setting meetings with management for each of 50 or more companies?"
That's why buy-side analysts are outsourcing the logistics of arranging meetings with company management teams to Wall Street. "In terms of having a direct impact on share price, CFOs would be correct to assume that time spent with the sell-side is far less effective than time spent meeting directly with investors," notes Bennett. "However, when company officials receive a call from a sell-side analyst, they should keep in mind that one Street analyst can often represent the interests of many institutions."
The study also illuminates the categories of constituents on the receiving end of CFOs' time. Respondents say roughly a quarter of the time they devote to IR is spent tending to the needs and requests of hedge funds -- an amount far out of proportion to hedge funds' presence in most organizations' investor bases. "On an individual level, hedge funds often can be more demanding than traditional institutions when it comes to what they expect in terms of access to management," says Bruno. "In addition, because they often operate on a relatively short investment time horizon, their interests as shareholders sometimes diverge from those of management and other, traditional investors."
