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.
"You either die a hero or you live long enough to see yourself become the villain." - Harvey Dent, The Dark Knight
Nearly everyone I know who started out in banking or PE had the image of a five figure monthly salary in mind, being able to buy a home at an early age, take leisurely trips around the world, shopping at whim. It was the idea of a certain kind of financial freedom that caught us. No need for a billion dollars, just enough to live life on our terms.
If you extrapolate that income over a period of say 7 to 10 years, it is easy to see how that could be possible. When you are a twenty-something year-old looking at someone else in their late thirties or forties working in the same career as you, it can be extremely easy to be disillusioned into thinking you can do this forever.
But life is often never that straight.
Pulling the hours and all nighters for that long a time can be both mentally and physically exhausting. It comes with the sacrifice of personal time, family and friends. Most people are oblivious to how much you have to give up (and put up with) when you work almost 7-days a week, go home past midnight and never see your family and friends for extended periods of time - all for that juicy bonus at the end of every year.
Then there is also that temptation of starting a business, or a side gig, open a shop or something like that. After all what is the use of earning the big bucks when you can’t get to be your own boss one day?
Some of us would go on to invest a part of that income into either public equities or the private markets. Both pathways requires staking a significant portion of capital. The lucky ones got out alive and sometimes with a decent profit. But there are also those who unfortunately come out with losses on the other end.
Either way, statistically, it always seem to play out to the same result: We continue struggling to keep the lights on and do the jobs we do in order to justify our aspirations and lifestyles, whatever that may be.
If you are a smart guy, you’ll figure the right time to get out before the hamster wheel consumes you. After all, the whole point of why we got into the high paying jobs was because it was always more than just about amassing money, correct?
David Rubenstein, one of the co-founders of private equity firm, Carlyle, has his own talk show where it would seem that he is having a ball interviewing leaders and celebrities globally and from all walks of life. Both Steve Schwarzman (Blackstone) and Ray Dalio (Bridgewater) have turned to writing memoirs to share their collective experience and wisdom from doing business over the years. Andrew Ross Sorkin, no doubt a much younger chap and has a somewhat parallel career to Wall Street, has made his name both as a successful finance journalist and producer of TV show, Billions. Recently, one of my younger friends also highlighted to me that even the chief of Goldman Sachs, David Solomon, has apparently also started his own gig as a DJ.
While they are not the best examples (primarily because they are either in the celebrity realm or billionaires), it demonstrates that there is possibly an alternative life beyond Wall Street. And everyone who has made it in some way or another, finds self-fulfilment in doing something either unrelated or tangential to finance, publicly or in the private domain.
When you are in your twenties, you spend most years in the accumulation of cash. If you are the ambitious type, you might even set your sights on climbing the corporate or industry ladder. You work all-nighters and pump nitro just to get there.
By the time you reach the thirties and touching forty, and if you are lucky enough to have some credentials, you find yourself in a nice position whereby you can capitalise on the knowledge, experience and the resources. It is relatively easy to earn well from here on, but also just as easy to get caught up in workplace politics and corporate re-orgs. You are a high-cost resource treading on a thin line and might find yourself working twice as hard just to justify your existence.
It’s a never-ending cycle of work and more work.
Many years back, a friend sent me this article titled “Your Professional Decline is Coming Sooner Than You Think”. It talks about how high performance individuals often struggle personally for many years past their prime. And it is important that we start to think about what comes next when the music starts to slow down.
I have kept re-reading this article from time to time over the years, not because I’m not getting any younger, but more as a reminder of the fact that we are not invincible forever.
We have been taught to plan our careers upon graduation but no one ever mentions about how we should plan the second good half of our professional lives, and that, I think, is important.
[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.