General Electric (GE) in the 20th century was known for the implementation of many successful business and management practices, including the lesser-known origination of the modern day investor relations (IR) function. It was apparently pioneered by a guy called Ralph Cordiner, who was GE's CEO and Chairman from 1958 to 1963.
The roots of IR were evolved in the early days due to the need for companies to compete for capital in a systematic and strategic way, beyond the customary one-directional promotional advertisements. Money markets back then were a lot less developed with far fewer investors, and the large part of' IR work was subsumed under public relations, which was primarily focused on getting word out into the market and letting investors decide for themselves whether they wanted to buy the stock of a company.
Over time, the tactics for investor targeting have grown increasingly sophisticated, characterised not only by demonstrating financial competency, but also the need for bi-directional communication and interaction. The fierce competition for capital also required companies to 'up' their game with the goal of optimising cost of funds to deliver higher shareholder returns while adapting to the changing tides of the capital markets.
There is obviously a lot of art and science in IR today, from analyzing changes in shareholding patterns, proactive capital markets management, to dancing the tango between the company's management team and investors brokered by securities firms and investment banks.
Because share price is often taken to be the holy grail of a company's success, IR functions are often expected to be part of corporate decision-making process, with investor engagement being an extremely core part of that consideration.
Rightfully speaking, this dialogue with investors should guide towards a true and accurate reflection of a company's fair value, but the world is more complicated than that.
As many business units within the firm including C-suite functions tend to be graded based on share price performance, there is almost always a natural incentive to curate and design the short-term narrative towards a high value, which sometimes comes at a cost.
Beyond the obvious moral hazard, this ultimately results in share price and trading volume volatility. In the textbook context, these attributes are conventionally perceived as risk, which in today's market can be capitalised and profiteered by creative investment managers seeking to take advantage of the wild swing in prices. And the swing in share price can sometimes put a lot of pressure on those in IR roles.
I recently 'counselled' a couple of colleagues on the above, hoping to help them put things in perspective, and more importantly, not to beat up themselves too much if things don't go according to plan.
There are things that you can change and there are those that you can't. The world is that complex a place.
"When something that previously didn’t work suddenly does, it doesn’t necessarily mean the people who tried it first were wrong. It usually means other parts of the system have evolved in a way that allows what was once impossible to now become practical." - Morgan Housel
Because of all these moving parts, any success or failure in an IR function becomes incredibly difficult to measure. For example, should the KPIs of IR teams be penalised by the overall decline in share price of a public listed company? Conversely, should all credit be given to that same team if there is a two or three fold increase in share price over the same period of time?
Is a company's share price performance a core competency indicator for an IR team?
These are sometimes the result of fundamental reasons ranging from revenue and profit (which are partly driven by the business and macro environment), to irrational and unpredictable events such as someone firing a missile from a certain peninsula in Asia. Both of which are not within the direct influence of the IR function.
The reality is that changes in share price are subject to multi-dimensional catalysts. And if these are mis-read, can unwittingly lead management down the wrong path of decision-making.
[Disclaimer: I’m neither a parent nor speaking on behalf of all parents]
I was walking on the pedestrian bridge to Pacific Place in Hong Kong, watching people from various walks of life - young and old - pass when this thought came to mind:
They say that those who have kids tend to look and behave older than they really are. It’s not just the result of long term fatigue and physical exertion, but also the experience and wisdom that comes with it - Knowing what to avoid, where to step, how fast to go, what not to eat.
Older people, like parents, likewise share an inherent trait of being highly averse to risks, especially overly-high risks.
Risk management is a very underrated attribute.
It is boring, dull and invisible. Its virtues are often only realised in times of ruin or in hindsight as we grow older. Contrary to conventional knowledge, a person's wealth has little correlation with his/her line of work but more about just being around at the right place and the right time. Some might even attribute this to family background.
I have seen high-flying bankers who used to hold lofty pay-checks, being being "reduced" to the common man. And it's not only bankers, celebrities share a similar fate as well. People such as Michael Jackson, Mike Tyson and Nicholas Cage went into financial debt splurging on extravagant items. Hard to imagine sometimes.
Being in a highly-desired job and earning a five-digit monthly pay-check upon graduation doesn't guarantee that you'll be well off in your 30s and 40s. Even if you find yourself in a financially advantageous position in your 40s, circumstances can change overnight if you make a misstep. I find those swaggering in this category and exuding an air of arrogance incredibly vulnerable (and borderline repulsive).
And therefore risk management isn't sometimes about portfolio growth and diversification, but more about avoiding bad decisions with drastic outcomes. Knowing when not to act when everyone else is getting excited about hopping on the bandwagon, learning how to avoid FOMO, and conversely also when to move when everyone else is cowering.
Those who are ruin-averse tend to be more humble and better at doing this, and experience is oftentimes good teacher.
Steve Schwarzman of Blackstone once said in an interview with Bloomberg.
There are no brave old people in finance. Because if you’re brave, you mostly get destroyed in your 30s and 40s. If you make it to your 50s and 60s and you’re still prospering, you have a very good sense of how to avoid problems and when to be conservative or aggressive with your investments.
Social media had only really started to take off some time in 2009.
In the 2020 TV documentary The Social Dilemma, the show talks about how creators of social media encourage and nurture the addictions of users to help companies make money. But the impact of social media went beyond commercial exploits. Over the years, it also subtly cultivated a deep and unhealthy sense of emptiness.
Luke Burgis talks about this using the story of a man with his martini in his book, Wanting:
Social media has successfully helped billions to overcome geographical boundaries, bringing people together or re-connecting friends who have lost touch with each other over decades. It has also allowed us to keep up to date with what is going on around the world such as browsing someone else's holiday pictures on Facebook or reading about a friend closing a multi-million dollar deal with several well-known investors.
We have been given the privilege of gaining access to more information, but this has also on the flip side, amplified and nurtured the feelings of envy, insecurity and greed, subtly creating a false impression of what we deem to be important or credible.
By acknowledging what drives these feelings could help us better understand why so many companies and founders choose to believe that they read, to inflate their corporate identities and "social circles", probably in hope that some investor will come along and bite the bait. This is manifested in corporate websites, social media snippets, such as trumpeting about a media interview, or showcasing participation in high profile conferences.
And so, we've been led to believe that: If something is sensational and disseminated widely enough, it often the "truth". Even better if someone prominent says something about it (see BN Group). But curating a healthy media presence is one thing. Bullshitting in order to feed your ego is another.
"It’s easy for someone to become an overnight expert on 'productivity' merely because they got published in the right place" - Excerpt from 'Wanting'
Remember the reality TV show Shark Tank? Kevin O' Leary, aka Mr Wonderful, recently revealed taking a $15 million 'deal' from FTX to be its spokesperson. Never mind whether or not Mr Wonderful was a cryptocurrency-skeptic-turned-ambassador. In today's world, it seems that at the right price, people are willing to say enough bullshit to endorse a product or a company, regardless of whether they believe in it or not.
This strategy has been effective in the business and investment world, social media just made it better.
People who consume bullshit will believe in bullshit. Feelings of envy and FOMO often drive people (and investors) to make foolish decisions.
One of the biggest fears of any VC is to be left out in a multi-bagger deal. Some compensate for this through 'diversifying' their portfolios. Those who have staked their money have a vested interest. They want to make sure they don't look bad doing the deal, and therefore will do anything to ensure that the equity story holds up, at least long enough until they exit.
This is the state of fundraising in the world today. This is the reason why we have so many asset bubbles.
In light of the many recent frauds, scandals and apparent lapses in due diligence, investors have started to increasingly become more discerning about who they deal with, what they read in the media, the kind of information they are fed with, and perhaps even more importantly, where they put their money. If they haven't, they should.
The era of bullshitting is over. Companies and people need to wake up to reality and stop the proverbial fake it till you make it, "over-packaging" their products and services, and start getting real about talking about fundamentals and their numbers.