Investor Relations Best Practices: Taking a Deep Dive into IR Myths
Investor relations (IR) is one of the best-kept secrets of the corporate world. Perhaps because of its relative obscurity, there are a lot of myths about IR floating around out there. Let’s dispel a few of the most prominent myths and consider investor relations best practices.
Before we dive into the misperceptions, it’s a good idea to define our area of inquiry. Although it’s not a well-known specialty (I can’t think of a single bachelor’s degree program in IR), most medium-to-large public companies have an investor relations department. IR professionals are often recruited from Finance, Communications, or Strategy (or all three).
The main purpose of IR is to ensure a company’s publicly traded stock is fairly valued by disseminating key information that investors use to make smart buying and selling decisions. IR departments communicate with investors (obviously), research analysts, government organizations, and the broader financial community.
Now that we’re clear on the basics, let’s do some mythbusting:
IR Myth #1: Investor relations is all about pumping up the share price.
Dear lord, no. Investor relations is about attaining a fair valuation of the company. Although many firms have internal IR departments, it’s important to understand that IR professionals are legally obligated not to “massage” the data in the company’s favor. Investor relations best practices strictly prohibit trying to influence the market or push a particular stock.
To be effective in their role, investor relations officials are required to work closely with the accounting department, the legal department, and the c-suite (CEO, COO, CFO). In addition, IR professionals are tasked with communicating with sell side analysts (i.e., research analysts at brokerage firms). Analysts’ individual opinions taken together become known as “consensus.” Consensus metrics can influence the public’s perception of whether a company is a worthy investment.
Investor relations best practices include effectively communicating the company’s strategy, financial performance, market position, and critical inflection points so that potential and current investors arrive at an accurate valuation.
This fair valuation should be reflected in a company’s share price. BUT share prices are affected by many things outside of IR or the company’s control: black swan events, foreign exchange rates, competitor performance, interest rates, foreign trade deals, legislation and policy changes, etc.
IR Myth #2: Investor relations is just “glorified public relations.”
First, this just makes my head hurt. There are so many dedicated public relations professionals who work incredibly hard to be strategic partners in “influencing, engaging, and building a relationship with key stakeholders to contribute to the way an organization is perceived.” To group IR with PR really demonstrates a lack of understanding of both.
Second, although investor relations does work closely with our communications counterparts, including public relations, IR professionals have a different role to play. Investor relations is responsible for working internally to establish metrics to support a fair valuation (see above).
Beyond establishing these benchmarks, the IR department comes up with an outreach strategy for effectively communicating via multiple channels, across an array of financial stakeholders: from investors to analysts to debt holders to credit agencies and many more.
In addition, IR departments keep close tabs on changing regulatory requirements and provide companies with recommendations about what can and cannot be done from a PR perspective. For example, IR departments advise companies about investor relations best practices during quiet periods, when it is illegal to discuss certain aspects of a company and its performance.
IR Myth #3: Investor relations is all about schmoozing.
If only this were true. Ask your IR professional how much they “schmooze” while preparing quarterly or annual earnings reports and coordinating shareholder meetings. Investor relations is about developing relationships and maintaining open, effective lines of communication.
To someone completely unfamiliar with how work gets done on Wall Street, this might seem like schmoozing. But in reality, investor relations best practices mirror general business best practices. Like all successful business professionals, IR professionals must develop, care, and nurture relationships. It’s not schmoozing; it’s positioning.
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.
Ultimately, investor relations best practices are all about maintaining that “ready stance.” We all know that we can’t control the market, but we can control how we develop and deliver our best investment case.
So now that I’ve put an end to some common IR misperceptions, it’s your turn. What are the best IR “myths” that you’ve heard?
Have other questions about communicating more effectively with stakeholders? Or how Audacia Strategies can help you stand out to investors? Give us a shout to schedule a consultation!
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