Investors and other financial stakeholders are a key constituency for nearly every company, whether publicly listed or private. When investors feel respected and lines of communication are open, transparent, and authentic, companies thrive—even during challenging periods. Investor relations (IR) myths can prevent these benefits.
In fact, institutional investors believe that investor relations (IR) accounts for a total variance of 30% in a company’s valuation—from a premium of 10% for “superb” IR to a discount of 20% for “poor” IR.
And yet, as crucial as the IR role is within companies, many undervalue the insights of these professionals. Part of the reason for this lack of appreciation is due to the many investor relations (IR) myths. In a previous article, we covered these three big myths:
- Myth #1: IR is all about pumping up the share price
- Myth #2: IR is just “glorified public relations”
- Myth #3: IR is all about schmoozing
A lot has changed in the investor relations world in the three years since I published that article. To name a few of the biggest changes:
- Shareholder activism continues to increase, with mergers and acquisitions becoming a key focus for activists.
- Investors around the globe are becoming more and more aware of corporate governance issues. Along with the “E” and the “S” in ESG (Environment, Social, and Governance), the “G” has received increased attention from investors in recent years.
- Not only are ESG criteria gaining more attention, they are also becoming more integrated into and seen as important for making investment decisions.
With these changes, the role of the investor relations officer (IRO) is more important than ever. Unfortunately, investor relations (IR) myths are still pervasive. In this article, let’s bust through three additional IR myths.
Myth #4: Investor relations is only important for large corporations
IR professionals are the main channel of communication between investors, management, and other stakeholders. They are charged with building mutually beneficial connections as well as providing transparent and accurate information about investments. The IR team is accountable to the chief financial officer (CFO), leadership, and the public relations team.
While small and medium-sized companies may not see the need for a department dedicated to investor relations, they will benefit from having a professional who is responsible for communicating with financial stakeholders—investors, debt holders, bankers, etc. Another option is hiring an external team, like Audacia, to guide you through developing an IR strategy and processes.
Additionally, small and medium-sized companies can learn a lot from watching the investor relations of larger companies and take cues about how to send the right messages. For example, IR-award winning companies like Honeywell, T-Mobile, Intel, Sherwin-Williams, and NextEra Energy can serve as inspiration, regardless of your industry.
Myth #5: Investor relations can be handled by your customer service team
This myth gets my blood boiling! Responsiveness is the single most important trait that determines investors’ perception of IR quality. Yet, if you have the wrong people in this role, you risk being perceived as non-responsive.
There are meaningful differences between customer relations and investor relations:
- There are significant legal and regulatory requirements for communicating with financial stakeholders. Your investor relations team should be well-versed in these regulations and empowered to enforce your investor relations policies within your organization.
- While it’s possible to have some overlap, customers and investors have wildly different interests. Customers want to know your product or service will improve their lives in some way. Investors want to know their investment will be returned (and ideally increased).
- Investor relations professionals are trained professionals who track, integrate and communicate financial information. They build rapport with analysts, portfolio managers, and other financial stakeholders. They also build internal relationships across the organization in order to present the most appropriate, well-rounded perspective of the corporation. The right individual to fill the IR role has a unique skill set.
- The type of transparency that will ease the minds of investors is different from what you might want to reveal to customers. The appeal to investors will depend upon IR professionals communicating the company’s value proposition, market position, competitive set, and investment strategy—to name just a few.
Your customer relations team is not your investor relations specialist. Full stop.
Myth #6: Investor relations replaces the need for the CEO or CFO to meet with investors
There is no substitute for the c-suite interacting with investors. This is especially true if you’re preparing to take your company public, working on a merger or acquisition, considering an exit or other strategic transaction.
Yes, the Investor Relations Officer (IRO) will communicate on behalf of management at certain times and the IRO is the primary spokesperson for financial stakeholders. But when it comes down to making (or maintaining) a significant investment, most investors will insist on meeting with the c-suite to get a sense for who they are, how they think about the business, their priorities, and their confidence.
So, if you are looking to hire an IRO, make sure you are clear about the role she will play. Hiring an investor relations professional in the hope that she will eliminate the need for the c-suite to meet with the Street is a surefire way to send the wrong message to would-be investors.
With all of this in mind, here are some tips for communicating with investors:
- Encourage engagement with investors by extending an invitation to have an open dialogue about how your company is living its mission, vision, and values.
- Have an investor relations plan that provides consistent communications including a variety of channels—online, one-on-one meetings, conference presentations, and regular email updates, just for starters.
- Keep investors up-to-date on company milestones, how their investment is being used, and market dynamics. The investment community is looking for qualitative insights as well as operational metrics.
- Consider sending an annual report, even if your business isn’t large enough to be required to do so (SEC rules dictate that all public companies submit an annual report). The annual report should include budget, expenses, big achievements, and other news. It can be a one-sheeter.
- Have a crisis communications plan too. There are times to communicate with investors urgently: if an immediate, unexpected challenge arises or you’re going through a big change. More communication in these cases is preferable to radio silence.
One thing I said in our previous article especially bears repeating:
“Smart IR officials know that maintaining relationships with the right people can be the difference between being stonewalled by receptionists and getting the portfolio manager’s direct line. The right relationship can open the door to your next large shareholder or help you gain insight into why an investor is selling their position in your stock.”
How would you rate your company’s investor relations? Curious about how improved investor relations could benefit your business? Let’s chat! Schedule your consultation today.
Photo credit: bernardbodo