For Effective IR Ask, Listen, Learn: Charles Holley, CFO-in-Residence
Charles Holley, retired CFO of Walmart, shares his views on what makes a strong investor relations (IR) function and what CFOs can do to use IR effectively.
Over my career, I’ve seen a dramatic change in the way public companies engage with, and communicate to, shareholders and Wall Street, and with that an increased role for the CFO in telling the company story and building relationships with the investor community.
When I took my first CFO position, I came into it with experience overseeing investor relations, or IR. One of the most important lessons I learned is the power of asking questions and listening hard to what others had to say. I’d go to the board, the credit analysts, the portfolio managers and analysts on both the buy-side and sell-side, and I’d ask, “What are your thoughts on the company? What are the strengths, challenges and most important issues for you?” I also met with investors who didn’t own the company stock because I learned so much fr om their perspectives. Those conversations sometimes helped me see the company and investors’ issues in a different light. For example, in the wake of 2008 and the ensuing low interest rate environment, an organization’s dividend policy became more significant to many investors.
Gathering and really listening to others’ opinions, whether I agreed with them or not, went a long way in engaging with investors, analysts and others, and gaining their trust and attention when it came time for me, as the company’s second-most senior spokesperson, to tell the company story. And when I had to get in front of a room full of investors and analysts─who can be expected to ask some tough questions─the effort helped me be better prepared.
Whether meeting with investors, analysts or the board, I was mindful that these are people who follow or work with many companies, not just the one I was representing. I couldn’t assume that they would remember everything I had said two or three quarters ago. So when it came time to tell my narrative, I would make a point of reminding them what the strategy was all about and why the company embarked on it. Only at that point would I say, “And now let’s talk about wh ere we are on that strategy, what the company has been doing to execute on it, and what we are going to do to move forward.” Just as asking questions is a powerful communication tool, so is reminding stakeholders of your strategy and what you’ve done to advance it.
The “ask, listen, learn” approach also can be applied when confronted with shareholder activists. By engaging with them, management and IR can figure out which ones seem truly interested in improving the company and which ones might have other motives. That doesn’t mean a company should take action on what even well-intentioned activists want. However, taking time to listen to activists’ points of view, learning from those and then deciding how to respond is often more productive than no engagement at all.
Of course, effective IR depends in part on having a strong IR team, which is why I stayed very close to IR when I became CFO. It was important to me that IR have the communications, relationship-building and analytical capabilities to first make sure that the company story was clear, consistent and accurate, and second, to help the CEO and CFO effectively communicate the story to investors and analysts. To do that well, I believe the head of IR should have open access to the CFO and CEO. It also means the IR team should be right there with them in meetings with investors and analysts. That gives them the chance to pick up on things that management may not see or hear. Equally important to me was IR’s understanding of the business. I wanted my heads of IR deeply networked and connected inside the company, so they understood what was going on across the organization. Having a deep understanding of the business enables IR to talk substantively about the company, which gives them credibility when speaking with analysts and portfolio managers. And when the stock takes an unexpected turn, the IR team should be able to pick up the phone and talk to the specialist on the trading floor to find out what’s going on.
So, as a CFO, how can you assess whether your IR team is effective? For me, it goes back to making sure that IR paints a clear picture of the company and the current results for Wall Street and to make sure that story connects back to the strategy, always reminding people of the long-term goals and what the company has done to achieve those. And if results aren’t meeting expectations, IR has to be adept at explaining why and what is being done about it. Coming in at quarter-end with a different story or flexing the strategy according to short-term results generally loses the investor community’s trust.
I also assessed my IR team’s effectiveness by its ability to establish a two-way dialogue with the investor community based on trust and on their listening and information-gathering skills. How well the IR team connected with PR was another point of evaluation. PR sometimes doesn’t understand financial compliance issues and other reporting matters, so IR should ensure it’s aligned with PR not only on the messaging, but on the cadence of it.
One criteria I did not use to evaluate IR was the stock price. I’ve seen some IR professionals think it’s their job is to get the stock price up, but to me, that’s not IR’s job. I believe that the job of IR is to get the company story out clearly and accurately, and then let Wall Street and the market take it from there. It’s also IR’s job to establish the kind of relationships and engagement to enable them to ask why an investor is selling or why an analyst has a “hold” on the stock. Asking those questions produces important information and creates more opportunities to explain what the company is doing.
Finally, although it’s important that CFOs be engaged in IR, it’s also critical they strike a balance between doing what’s important to get the message out and build relationships with the investor community against leaving time to run the business. You can do that by laying out the IR program a year ahead, figuring out which conferences and events are important, and deciding who’s doing what, so you don’t overburden the people who have to execute the strategy. After all, executing the strategy well is what builds shareholder value.
Charles Holley, retired CFO of Walmart, serves as an independent senior advisor to Deloitte LLP and as CFO-in-Residence of the CFO Program, providing guidance and counsel to staff, clients and senior leadership. He also serves on the Dean’s Advisory Board for the McCombs School of Business at the University of Texas at Austin and the University of Texas Presidents’ Development Board, as well as the University of Texas system Chancellor’s Council.