Ripple Effects has a dedicated team to deal with your investor relations projects. We also have additional expertise in Pre-IPO programs.
- Buy-side Targeting
- Earnings Conference Calls
- Financial Analyst Day
- Financial Analyst Tour
- Investor Presentation Review
- Investor Relations
- Counsel Networking Events
- Messaging Workshops
- Perception Study
- Retail Investor Targeting
- Sell-side Cultivation
- Strategy & Planning
- IR Web casts
What Exactly is Investor Relations Anyway?
By Michael Frank, Ripple Effect’s Director of Investor Relations
Prior to dabbling in the communications field, I spent my career working in multiple areas of the investment field. Through these experiences one thing has become abundantly clear; there is great confusion in the marketplace about what investor relations is and the vital role it plays in both the corporate and investment worlds.
The formal definition of investor relations, according to the National Institute of Investor Relations (NIRI), is “a strategic corporate activity combining finance, marketing, and communications that provides present and potential investors with an accurate portrayal of a company’s performance and prospects.”
Therefore, the ultimate goal of any investor relations program is to attain a “fair valuation” in the market. However, this is the root of the popular misconception that investor relations programs are designed to get the highest price regardless of the underlying value. In reality, companies should determine their “fair value” using models that combine their current financials and metrics that map to their future strategic goals. Every company has a “fair” price and it is the job of the investor relations officer (IRO) to create a program that effectively communicates the company’s strategy, financials and key milestones to enable current and potential investors to reach this “fair valuation”.
So what does an IRO do on a daily basis? The answer depends on the person who performs this role within the company and the size of the investor relations department. Some companies have not formalized the function and alternate between the Chief Financial Officer and Chief Executive Officer, while others have a 5+ person department. However, regardless of how the role is filled, the five primary responsibilities of the function are as follows:
- Driving and executing the investor marketing program. The general staples of any investor relations program should include quarterly conference calls, shareholder meetings, one-on-one investor meetings, road shows and general communications with the investment community. In addition, the IRO should design a targeted marketing plan that considers which types of investors, both retail and institutional, sell-side analysts, and investment bankers would be appropriate to target considering their specific industry, stage of growth, investment profile, long-term strategy, stock trading patterns, and public float.
- Acting as a Liaison between the management and the investment community. The IRO is the front-line person interfacing with the investment community. Once the company establishes a clear strategy that includes both quantitative and qualitative milestones, the IRO needs to make sure this information is clearly communicated to investors. At the same time, IROs need to make sure that the management team understands the investors’ perspective. Gathering information such as what changes investors are demanding to realize a fair valuation, what milestones they are expecting them to achieve, what they are doing right are all invaluable to management.
- Achieving proper dissemination of information. The focus on this responsibility has risen since Regulation FD (fair disclosure) became effective in October 2000. The rule is pretty basic; the company cannot selectively disclose information and must publicly disseminate any material information via a press release and/or conference call.
- Ensuring consistent messaging with all audiences. Inconsistent messaging can have a negative impact on a company’s valuation. Investors value companies differently based on its strategy, sources of revenue, and selling channels. It is the responsibility of the IROs to ensure their companies have one consistent message in all of their communications regardless of whether they are speaking to press, an industry or financial analyst, creating marketing materials or a Web site.
- Supporting an orderly market. This does not mean managing the market through stock transactions, but rather openly communicating with the investors. The biggest source of stock price volatility is misinformation and poor communication, which can be exacerbated if the company is small and few shares trade in the market. A company may have some bad news, but the better the communications before a crisis, the less volatile a stock price will be. Companies will always experience bumps in the road, but a successfully executed investor relations program can help minimize these bumps.
The operative word for investor relations is communicate, communicate, communicate. The function of IROs is not to guarantee investors certain prices. As the current market can attest, investors continually change their valuation models and focal points. Consequently, the IRO must be able to effectively communicate the company’s strategy, financials and key milestones in order to maximize its chances of realizing a fair value.