In the age of financial transparency, the need for a consistent message is pushing investor relations closer to top management
By Dave Lindroff
Lynn Tyson can tell you firsthand: IR isn't the job it used to be. Back when she was handling investor relations at PepsiCo Inc., and even in 2000, when she joined the IR department at Dell Inc., the job was basically to be a conduit for communications between
management and the investor community. Then, all in rapid succession, came the Y2K scare, the dot.com bust and the accounting scandals. "The years 2000 and 2001 were a time when we suffered the worst operating setback in Dell's history," says Tyson. "Our department responded by conducting a perception survey to find out what some big institutional investors were thinking and discovered that there were fundamental concerns about Dell's ability to grow and thrive."
To address investor anxiety, Tyson's department developed a set of metrics and proof points to make the company's strategies and performance highly visible and accessible to investors. But probably the most crucial decision involved the status of Tyson and the department: To demonstrate the importance to Dell of both the messenger and the message, Tyson was put on the company's executive management committee.
TIED TO THE CEO
Today, at Dell, Tyson leads a 10-person department that has been tagged one of the best in the country by experts like Connecticut-based strategic consultancy Greenwich Associates, which recently ranked Dell's IR No. 1 among technology companies. As head of both IR and corporate relations (a role she assumed in 2004), Tyson reports directly to Dell's CEO. "The typical view had always been that investor relations was really just PR for investors, and even today a lot of companies still don't realize how important IR can be for them," Tyson contends. "A lot of senior executives don't get the role of IR in their own company."
"Credibility is key," she adds. "Can people take the investor relations officer's word as much as the word of the CEO of the company? I'd say that's true right now of fewer than 50% of companies—maybe only 30%."
So what should investors, Wall Street and, for that matter, companies want from investor relations these days? Well, it's not the pabulum many IR departments could get away with only five years ago. Now, after the financial collapses at erstwhile giants like Enron Corp. and WorldCom Inc. and thanks to the regulatory demands for corporate transparency that followed, IR managers have been thrown into the center of corporate efforts to repair tattered relations with cynical investors and regulators. They are increasingly being asked to step up as essentially surrogate CEOs when it comes to presenting the public face of the company, an integral player in top management who can talk the company's talk as knowledgeably as the chief exec. "At a company like Dell, for example, you don't get a better answer out of the CEO than you get from talking to someone in the IR department," says Steven Fortuna, a senior vice president and sell-side analyst for the computer sector at Prudential Equity Group. "That's the way it ought to be. The IR people need to really be able to dive into the competitive dynamics of their business. They need to be reliable, too, so you aren't blindsided."
That's certainly how Blair Christie, 32, sees her job as IR director for Cisco Systems Inc., another award-winning IR operation. Amid the meltdown of tech and telecom market capitalizations in 2000 and 2001, the Cisco IR team began to take a hard look at what it could do to rebuild trust in the company, particularly among technology investors. "We talked about how we could make our data more trustworthy and transparent," recalls Christie, "and we came up with the idea of adding a cash flow statement to our press release. We were one of the first companies to do this, with most companies waiting until 45 days later when they'd file their 10-Q."
While she doesn't report to the CEO like Dell's Tyson, Christie sits on Cisco's disclosure committee, where she has to sign off on the company's numbers. She also reports directly to Cisco's CFO. "These days, you can't just be a liaison," says Christie. "You're also becoming more of an advocate for the investor within the company, as well as bringing the concerns and interests of investors to senior management to help align them with corporate goals."
The 41-year-old Tyson agrees that if run properly, an IR department should really be a "two-way street": Beyond just providing accurate information to investors and analysts, IR also must inform senior management about the thinking of investors, and about how their management decisions may affect the company's stock price. "In the new environment, with Sarbanes-Oxley and all the corporate scandals, the IR department has become increasingly important," says John Webster, managing director at Greenwich Associates, which recently re-introduced an annual rating of IR operations, based on a survey of several hundred sell-side industry analysts.