Interview with Ian Matheson, inaugural full-time CEO of the Australasian Investor Relations Association (from August 2004)

VEM: What are your views on the issue of whether or not to give earnings guidance?

IM: Companies need to be aware that there is this issue of market consensus, eg estimates by First Call, I/B/E/S or Multex. That is what is publicly available and that is what the regulator (ASIC) and ASX will look at. If the market consensus is materially different from the companies own internal forecasts, the company has an obligation to correct the market consensus. In other words, even if a company doesn’t give earnings guidance, it has to be aware that the market will make estimates, there will be a consensus, and it is something that the company has to monitor and correct if it materially diverges from the company’s own forecasts. In our recent AIRA newsletter we indicated that we are planning a seminar on earnings guidance for practices in late October. Members and non-members will be able to participate by conference call, or in person in Sydney and Melbourne. The seminar will be structured by way of a hypothetical. There will a representative from a company that does give guidance, and one from a company that doesn’t give guidance, plus the views from the buy and sell sides. The objective is to explore the issues, pros and cons, of earnings guidance. What are some of the things you do if you provide guidance? And if you don’t provide guidance, what are some of the things you need to address?

VEM: The IR sector has changed a lot during the past few years. Where do you think Australia sits on the development timeline relative to the US, the UK etc?

IM: We are probably a couple of years behind but catching up rapidly. Investor relations is something that grows over time as institutional ownership grows and the regulatory and reporting environment changes as well. AIRA was established only in 2001 with a full-time secretariat only in the past year. The IRS in the UK was founded in 1980 and NIRI in the US in the late 1960’s. The roadmap for AIRA is very much one of professional development and ultimately accreditation – similar to the US and UK. The International IR Federation (IIRF), of which AIRA is one of 25 constituent members, is looking at that whole issue at the moment – whether there is an opportunity to develop some international accreditation or course that could be applied cross-border. Fundamentally, the practice of IR is common cross-border although the practical application will differ according to the different disclosure and legal requirements in each jurisdiction. One of the differences between Australia and the US is that the US is much more advanced in the use of technology as well as the use of data and analytics for targeting shareholders and use of market intelligence.

VEM: What are your (AIRA’s) challenges for next few years?

IM: The most important include:

1. Increased focus on standards and professional development, leading to accreditation.
2. Truly creating a class of professional IR executives by encouraging more companies to appoint a professional IR executive. The current trend in many large companies is to rotate in-house people through the role for a short period of time. This allows the accumulated wisdom to dissipate as the person moves onto a different role within the company.
3. Raising the level of awareness around the board table. There is a need for a greater level of understanding and awareness among directors and of the important role that the IRO can play in bringing feedback into the company so that the board can be tapped into the market intelligence. In some companies the board may be oblivious to the market perceptions and the company can hit a pothole and can be taken completely by surprise by the market’s reaction. There have been many examples where the board was snowed by management (eg Enron, WorldCom and, perhaps, HIH) whereas the market place knew that all was not well. A number of people have asked: How was it that the non-executive directors in these companies did not know? It reinforces the need for the board to have interaction with the investment community indirectly through the IRO and directly as well.

VEM: What can boards do to obtain more direct feedback and develop a relationship with the investment community?

IM: More companies are having board lunches/dinners with a cross-section of shareholders, or sitting in on company briefings. In a recent AIRA survey of members, some 15% of respondents said the chairmen sat in on some one-on-one meetings with investors. Some chairmen are accompanying the IRO on investor meetings ahead of their AGMs to see what the issues are, including any contentious issues.

VEM: Perception studies are being increasingly used offshore and in Australia to provide independent feedback to IROs and companies. What is your take on this?

IM: The IRO is one of the voices of the company to the investment community, subjugated to the CFO and CEO, with the task of relieving them of some of the growing IR demands. Surveys indicate that up to 20% of the CEO’s time can be spent on IR issues. IR is also partly a marketing role, to large shareholders and brokers, who are customers.
It makes a lot of sense to apply marketing techniques of feedback and measurement and to improve the IRO’s effectiveness as a channel of communication by using survey techniques such as perception studies.