It would be unimaginable in most firms, and perhaps Tata Consultancy Services (TCS) is one of the few firms that can do that well. Tata Sons’ philanthropic majority ownership and social mission give it a rare brand focus, and it understands that industry analysts influence investors
. Unlike many other firms, the investor relations team includes people with a strong sales and marketing background. To a large degree, TCS is making a choice out of convenience: while AR has to be rooted outside India, closer to the most influential analysts, it needs a strong champion in the firm’s Mumbai headquarters.
However, having run an investor relations business myself, I’m cautious about other firms following this example or underestimating the challenges. Because Analyst Relations involves more candid and selective disclosure than IR, putting AR under the control of investor relations would lose recommendations and sales pipeline in most firms.
I’m convinced that many teams struggle to convince senior executives that AR makes a difference, and would struggle if put under the control of IR.
Stock prices can be sensitive to both qualitative and quantitative information, and Fair Disclosure
regulations apply to any information that could be material to investors. Neither AR nor IR managers are investors or investment professionals, and their instinct into what information is, or is not, material is imperfect. Right now, with AR in a separate reporting line at most firms, IR professionals have a great deal of plausible deniability about information shared to industry analysts. When they start to understand how and why analysts directly impact stock prices (as Kensington Group
have proven through time series analysis
in the 1990s), the temptation to clamp down on candor will, surely, grow.
There are two deep fault lines.
- First, the assumption that only operational metrics can move stock prices is a very weak foundation for a Fair Disclosure policy. There are big and little hints given in AR, and even smaller suggestions are the grist of insider trading court cases all over the world. From personal experience (I used to run Lighthouse Investor Relations) I’ve seen how controlling the flow of other information to intermediaries can manage the volatility of share prices. So, there can be situations where the common assumptions of IR really contradict the realities of AR.
Second, TCS is making the right choice is keeping AR in the CMO’s organisation and IR in the CFO’s domain. However, the functions are not fully separate if they both report to the head of IR. An IR professional will manage, direct, hold accountable, and have operational control. In most firms, the head of IR would naturally end up using comparable notions across the two teams. As this article argues, that can lead in many directions.
Even so, this isn’t a move we think companies should emulate. Analyst relations produces asymmetries that investor relations should see as a risk. The opportunities for uneven disclosures are too high for investor relations professionals to ignore permanently if they manage AR.