Investor Relations, as the name suggests, is all about the relationship between a company and its investors, especially shareholders who are, in truth, the co-owners of the company. According to the regulatory framework, all participants of the stock market should have equal access to the information regarding the general condition of stock-listed companies.
Therefore, IR incorporates, not only corporate image management, marketing and investor outreach, but it also considers compliance with legal regulations and the underlying business principles. Nevertheless, through providing the financial community with regular input into their sense-making efforts, IR firms are able to engage in an image-building process.
1 The Idea of Investor Relations
As defined by the National Investor Relations Institute:
Investor relations is a strategic management responsibility that integrates finance, communication, marketing and securities law compliance to enable the most effective two-way communication between a company, the financial community, and other constituencies, which ultimately contributes to a company’s securities achieving fair valuation.
While this definition does a good job at embracing the key aspects of the activities, it is important to differentiate between the conditions in which IR can function – compulsory and optionally. Therefore, the scope of activities carried out by IR firms may vary and involve:
1 basic/obligatory activities (legal compliance)
2 non-obligatory activities (optional strategic marketing efforts)
The obligatory scope of IR activities can be defined by the rules laid down in various regulations. In this case, the range of flexibility and freedom is limited when it comes to communicating with shareholders.
The non-obligatory activities can help stocks gain a competitive advantage over their competitors. This may involve a plethora of marketing antics such as digital campaigns and website development.
2 IR as a Reputational Approach
The decision-making process on how well a stock does on the market lies in the hands of the investor, which, in turn, is influenced by how successfully that company is portrayed in the public eye. Have a strong brand image is a great tool to winning over investors and intrigue those who do not know about you yet. This is a task best left to an experienced IR team.
The effective management of a company that is considered credible has a greater freedom of action and lower level of social control. By saying this, investors may have high confidence in the board of a company and may be more willing to justify decisions that may seem unfavourable in the short term. All of these decisions affect the reputation of a company.
Reputation management is possibly the most important task ahead of IR firms. While reputation management seems to be a job already fulfilled by Public Relation firms, the difference lies in that IR communication serves only financial and economic purposes. While some PR firms may claim they offer IR, be skeptical about their expertise to deliver.
IR activities have, historically, been handled by staff from financial departments. However, while it may seem convenient having this service inhouse, the role is a complex one that should be the responsibility of a seasoned professional. Considering IR is a blend of public statements, strategic communication and marketing, it requires the services of someone who holds these traits.
Equity Alliance helps tell your story to the investor community through honest dialogue and proven financial marketing efforts.With offices in San Diego, California and Cape Town, South Africa, Equity Alliances’ reach is substantial. We pride ourselves with being on the cutting edge on all business interests and always searching for a new challenge.