Investor relations just took over Analyst Relations at Tata Consultancy Services, an IT Services giant. Is IR about to eat AR for lunch? TCS has decided on the reorganisation after a year that included significant leadership changes in the firm’s analyst relations team.
In most tech organizations, AR sits within corporate marketing. This has been a natural home for AR though, as we know, not always appreciated but seen as a necessary function that is needed as part of a wider marketing organization. Most sensible senior executives know how important the analysts are in the overall ecosystem.
Holmes Report has announced it as part of a substantial reorganisation of TCS’ marketing communications. The investor relations leadership will manage both AR and IR functions. The teams remain separate, with AR being part of the CMO’s organization and IR remaining part of the CFO’s organization. The head of investor relations will thus report to the CFO for IR and to the CMO for AR.
AR and IR have differences and similarities. Analyst relations uses candor to build rapport with crucial influencers. Investor relations is regulated to provide fair disclosure to the whole market. There is certainly a substantial overlap: candor (while staying in the confines of fair disclosure) works just as well with investors and equity analysts. However, Fair Disclosure rules are about making all material information available equally so that no investors suffer from information asymmetry.
Many companies tell themselves a comforting lie: as long as AR does not disclose financial metrics that are not already in the public domain, then Fair Disclosure rules do not apply to AR since the information given to industry analysts has no impact on investment outcomes. If that were the case, services like Gartner Invest and the Analyst Value Survey would not be purchased by investment professionals.
In reality, the information asymmetry that industry analysts thrive on, is both qualitative (relative capabilities, customer references, case studies, strategy) and quantitative (off-the-record guidance on market shares, customer numbers, deal values and pricing). As clients of analyst firms, AR spokespeople and managers disclose revenue breakdowns, pricing data and many other operating metrics that are not a part of the company’s public disclosures. Because they are under the non-disclosure terms of contracts, they are less likely to violate the rules against selective disclosure. However, not every US court would accept the prior existence of an NDA as a defense against charges of selective disclosure: almost every organisation has an NDA with every other. When the AR team plays the game of ‘hotter’ and ‘colder’ with analysts wondering if their market estimates are too low or too high, few judges will feel that this is not selective disclosure of financial performance. That is not even the biggest danger of selective disclosure.
The only experience many AR people have of investor relations is dealing with executives who want to brief both investor analysts and industry analysts at the same Analyst Day. Generally, these two groups have completely different areas of interest. Communications professionals have often found there’s little information that they can both share with both communities and also really meet the information needs of these different analysts.
This is not necessarily a bad move as long as the two constituents are addressed by people with different skill sets who understand how they work. The AR team also needs to be aligned with the other functions in corporate marketing so they understand what the overall strategy is for the company and the key messages that are coming out of corporate marketing. The proof in the pudding will be how the analysts react to this and whether they see any change in the overall relationship.
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