By Joseph Teklits, Managing Partner, ICR
Who better to help management teams communicate to analysts and investors than former analysts? According to three academics in an October, 2017 report entitled: Economic Consequences of Hiring Wall Street Analysts as Investor Relations Officers, experience as an analyst is a “competitive advantage in communicating with investors.” See report here: new academic research.
“An analyst has expertise in processing corporate disclosure and understands good-versus-bad disclosure practices from the perspective of investors. “The investment community would likely incur lower costs to process corporate disclosure. Thus, we expect firms to attract more interest from analysts and institutional investors after hiring a former financial analyst as IRO.”
‘What we think is at play here is not just pure communications skills or presentation skills, but really being able to put complex finance and accounting information into the same words and vocabulary the capital markets understand,’ co-author Rucsandra Moldovan, assistant professor in the department of accountancy at John Molson School of Business, Concordia University, tells IR Magazine.
ICR was founded in 1998 on the principal that equity research analysts who had themselves been critiquing companies and management teams would have the best training to be investor relations professionals. These former analysts, it was conceived, would know the subtle language of the research community, would be proficient in modeling in a specific industry, and would have the insight to separate information that would be considered important and impactful from that which was just noise. This would vastly improves an IR professional’s ability to build trusted relationships with analysts and investors, and this has now been supported by the study’s conclusion that points to higher interest in companies when a former analysts is in the IR role. And finally, former analysts should know the best way to clearly communicate any information in order for it to be interpreted fairly and as positively as possible, but also with future expectations in mind.
This report also highlights some potential risks of bringing an equity analyst in house. Culture is important to any company, as is teamwork. Tenured analysts will have become accustomed to working independently and with a support structure that removes some tedious tasks from their workday. So the transition to a service-oriented role and a collaborative environment could be challenging. There are also “tricks of the trade” that are learned over time and with experience, so an immediate dependency on an analyst in the IR role will likely have some drawbacks.
In summary, the new study highlights the benefit of using former equity analysts in the investor relations role. It also highlights the importance of having the ability to work in a team environment. ICR employs more than 50 former analysts across most industries, and we have 20 years of experience working with hundreds of companies.