Investor Relations: Great Expectations

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By Joanna Longo

Senior executives of public companies have more options than ever to get their stories across to the investment community. Does that make the task easier? Unfortunately, with an increasing number of companies competing for capital, it is probably more difficult than ever to build your company’s profile within the investment community. To be successful, companies must adopt a game plan or, more specifically, a strategic investor relations (IR) program with clearly defined messages, guiding principles and goals. They must then be patient, and deliver results that are consistent with their stated objectives and strategy.

As companies deliver positive results and establish a consistent track record of credibility, key investment decision-makers will take notice. It is only then that a company’s investment merits are fully considered. However, the question of how to communicate effectively remains both a challenge and a mystery to most. With investors and regulators demanding greater transparency, the role of IR is, more than ever before, an essential discipline for navigating through today’s communications challenges.

Sadly, the truth is that many people have no idea what investor relations is, or what an IR professional does. If an explanation is required, the following definition can be useful: An IR professional helps publicly traded companies craft and deliver their stories and key messages to the investment community, so that investors can properly assess a company’s investment merits.

Elaborating on that by providing examples of IR “deliverables” — such as annual reports, press releases, conference call scripts, presentations, executive speeches, and Web sites — is often greeted with bemused looks: more evidence that this IR stuff remains a source of confusion to most.

There is another piece in this definition of investor relations that needs explaining. IR is a two-way street — a dialogue. Part of the relationship is exactly that stated above: crafting and delivering a company’s story to the investment community to demonstrate your investment merits. The other part is listening to the investment community, or “the street,” and absorbing and analysing feedback, and reacting, if necessary, to these market perceptions. There is almost always a difference between what a company thinks its story is and what the street perceives it to be. It is this “perception gap” that the IR professional seeks to narrow as much as possible. The closer a company comes to having investors truly understand its story, the smaller the perception gap between what you think your story is and what the investment community perceives your story to be.

IR can also be defined by what it is not. It is not promotion — all communications should be done fully, fairly and frankly without puffery. It is not short-term, and not oriented to quick stock appreciation as a measurement of success. IR activities are not substitutes for company fundamentals. An investor relations program amplifies a company’s own success in executing its business strategy by bringing greater recognition and acceptance. Capital markets value information and encourage companies to tell their story. Performances measured against strategies speak for themselves.

The Objectives of Investor Relations
As a general rule, companies should focus on the most basic objectives of an IR program with some preliminary goals being to:

• define the company’s corporate message
• establish consistent communications practices

The job of investor relations begins with making the complex corporate story more understandable by boiling it down to bare essentials. This process includes defining the three or four key messages that each piece of IR material should contain. When speaking with the investment community or the media, an IR professional often has to be prepared to describe a company in a single sentence — 20 words or less. This is good discipline and a useful starting point for an investor relations story. If you cannot articulate the essence of a company in 20 words, maybe you don’t really understand the story well enough.

Once the story and messaging have been determined, they must be communicated to shareholders and potential investors. Establishing consistent communications strategies and practices should be done early in the development of a company — it can build confidence and a track record. When developing an IR strategy, the practitioner or consultant must keep in mind that it must be closely aligned with the company’s business plan. This process should begin with building an “IR tool kit.” The kit includes press releases, Web sites, fact sheets, teleconferences, Webcasting, and annual reports, each populated with consistent messages and content. Each of these tools allows the financial communicator to reach different segments of the investment community.

Once a basic IR program is established, companies can continue to support their communications strategy by working to:

1. Maximize your sell-side analyst following. The object is to get on investment dealers’ radar screens.
Management must be proactive and meet with analysts as often as possible between financing windows. Companies should maintain contact throughout the year to explain how their business plan is working — or not working — and outline their strategies going forward. Maintaining open and proactive lines of communication in good times and bad is a crucial part of building trust in the investment community.


2. Increase the number of new shareholders —both retail and institutional shareholders. A common misconception of CEOs and CFOs is the belief that if they run their company well, making good profits, the financial community will beat a path to their door. In practice, this amounts to only a portion of what needs to be done. Management has to understand the fundamental fact that, from the street’s point of view, information is valuable: it reduces risk. A company must describe in detail its technology, products, strategies, goals and future plans to attract interest from investors. Getting out on the road and telling your story to the broadest possible audience of investors is always a good idea.


3. Establish a broker network. Good broker relations increases your visibility and recognition in the capital markets, enhances stock liquidity and promotes fair market valuation. Webcasting and investor luncheons are both effective tools for reaching the retail community.


4. Build media coverage. Media coverage is another effective tool to reach the investment community. Media relations can support the overall objectives of your investor relations program by creating wider awareness of your business plan and results.

Relating to the Media
Media coverage in trade magazines or local newspapers is a great way to boost your company profile. Retail investors are especially motivated by positive, credible media stories. While media relations activities can be an effective way to gain visibility, you need to know your media, their needs and their expectations.

Like any other communications strategy, understanding the audience is key to success. When covering a story, a journalist’s primary objectives are to maintain the highest degree of truthfulness, exclusivity, originality and independence. Journalists want to report accurate news about a company, be the first to do so, and yet avoid the appearance of being an extension of the company’s marketing program. Most importantly, their deadlines are often pending in a matter of hours.

Getting attention is probably the most challenging part of media relations. But the principle is very simple: make your story appeal to the medium (magazine, television show or radio station) you are pitching. Too often, spokespeople focus on the intricacies of their businesses and forget that ultimately, the value is in the “So what does this mean to me?” You must demonstrate why your company is so compelling to potential shareholders.

When working with journalists, companies should be prepared to supply accurate information quickly and in quotable statements. This is when a backgrounder or fact sheet that summarizes corporate developments, products and markets comes in handy. A spokesperson must be schooled in handling the many probing questions journalists tend to ask in order to search out what they feel is the “real story.” Speaking off the record, corporate spokespeople do well to observe the following rule: there is no such thing as “off the record.” If you do not want to see it in print, don’t say it. Finally, make it a principle never to bad-mouth any competitor or anyone in your organization.

In the end, a sound investor relations program combined with effective communications practices will provide essential support in achieving your capital markets objectives. While an unprecedented opportunity exists for executives to reach out and communicate with the investment community and the media, the need for expertise and for understanding investor perceptions and expectations has never been greater. Gaining investors’ confidence takes patience as well as hard work. There is no better way for a company to compete successfully in all aspects of the capital markets other than through a well-crafted and skilfully executed investor relations program. Building a consistent communications strategy translates into increased awareness and greater profile, and it drives valuation. Isn’t that what we all want?

Joanna Longo, vice-president with the Equicom Group Inc. (Toronto, ON), is a communications and media specialist with extensive experience in the financial sector.