Module JP070

Investor Relations Communication
 

Module author

Tomasz Gackowski

University of Warsaw
Poland

Learning objectives

After you have completed this module, you will be able to:

  • Identify the aims of investor relations as well as differentiate between its obligatory and optional aspects.
  • Specify what sort of information is conveyed by companies to the financial community.
  • Tell what the differences are between various definitions of IR.
  • Describe in what way the concept of investor relations originated and how it has evolved over time.
  • Indicate what factors led to the changes in the significance of IR.
  • Identify the aims of investor relations and describe major tasks of IR departments and the recipients of investor relations and describe them in more details.
  • Specify what rights shareholders have.
  • Identify basic tasks of an IR department.
  • Tell the difference between IR and PR and determine what is more powerful when it comes to shaping the opinions of the financial community: non-financial factors or financial factors.
  • Identify the most common tools used by public companies in communication with the financial community.
  • Specify what the advantages of direct and indirect communication are.
  • Compare website-based IR levels in developed economies and developing economies and to identify what influence the mass media exert on the market sentiment.
  • Identify the ways to measure the effectiveness of IR as well as the risks and costs related to IR.
  • Specify competences and skills required from people responsible for IR and say how PR practitioners perceive IR.
  • Specify how the position of IRO has evolved over the course of time and the main trends in Investor Relations all over the world.
Contents

Chapter 1: Investor Relations—Basic Information

Chapter 2: Origin and Evolution

Chapter 3: Aims—Legal, Economic, and Communication

Chapter 4: Recipients—Investors, Shareholders, and Multipliers

Chapter 5: Basic Tasks

Chapter 6: Tools of Communication
6.1 Website-Based IR: Comparison Between Developed and Developing Economies (Case Study)
6.2 The Role of the Mass Media in IR—London Stock Exchange (Case Study)

Chapter 7: Assessment of Effectiveness

Chapter 8: Risk and Costs

Chapter 9: Employees Responsible for Investor Relations—Competences and Skills
9.1 How PR Practitioners Perceive IR? (Case Study)
9.2 The Investor Relations Officer—A 2012 Survey of Fortune 500 Companies

Chapter 10: Global Trends in Investor Relations

Study points 2
Reading extract IR Communication

 

Why Open School of Journalism believes that IR is important

Investor Relations continues to be an important component in developing strategic business management. It is the mechanism by which a company communicates with all company stakeholders to establish a company's fair market value and the company's position in world commerce and industry. It embraces components of finance, communications, marketing, law, etc. and utilizes them in a company proactive communication process.

An evolving entity within the business world

First recognized as a specialty area in the last century, Investor Relations continues to adjust to changing times by crafting new and re-crafting old techniques for communication needs within its core company and with those in the broader community. With dynamic forces at work in the corporate world, it becomes expedient for those in business to recognize what has changed both in the more recent past and in the longer term. Today's media environment (printed, broadcast, internet, etc.) continues to evolve and require constant updating and adjustment for best practices in Investor Relations Communications.

A multi-faceted entity

The role of Investor Relations will vary across the broad business marketplace. What is obligatory in one setting may be optional in another. Actual information prepared for the financial community may require "fine-tuning" for individual components of that community but major revision for other components. The actual definition for Investor Relations within a company may vary from department to department also. Divergent definitions within the same company may necessitate development of a common view within that company, so that all employees are "on the same page" with the sharing of information. Unfortunately, institutional standards sometimes may not be clearly delineated, even legally, so as to establish a line of responsibility for generation of Investor Relations Communications from that company. Unfortunately, the problem of communications focus may not be clearly established because different stakeholders need to hear different things. The Investor Relations group becomes crucial to resolving differences to benefit the given company and its various stakeholders.

Toward an operational definition

Efficient operation of an Investor Relations department requires clear delineation of aims and tasks of the company department. Confused public and confused employees result when the role of Investor Relations is confused. The confusion may result because a company department responsible for Investor Relations has a "disconnected" name that does not allow stakeholders to recognize where information is generated and where a specific record resides. Delineation of the Investor Relations role within a corporate entity becomes even more important in such cases.

Individualizing a corporate role

A company must decide some basic questions for an Investor Relations department to function: Who is a stakeholder and where does the stakeholder go for information? What company information is proper to give out and what information is privileged or proprietary? What are the distinctive roles of Public Relations versus Investor Relations? If these two departments co-exist within a company, which one has the final decision-making responsibility? The Investor Relations practitioner must work within a company hierarchy to resolve disagreements and develop that line of responsibility for communications within the company and to those outside that company.

Conveying information

The mechanisms for communication with stakeholders are varied. Letters to stakeholders, news releases, advertisements, position statements, company endorsements of professional organizations, websites with reporting formats in digital format, etc.—all these are potential tools for use by both Investor Relations and Public Relations departments. Control of content must be resolved before the broadcast component of Investor Relations is invoked. But, once content is out there, there is a need to determine how to evaluate the amount of communication ultimately internalized by the stakeholder-receivers. The Investor Relations department will need a methodology at hand for evaluation of communication success.

Evaluating investor relations communications

The communication is integral to the medium. The medium is dependent on the users and on the number of stakeholders impacted by that medium. Investor Relations will be concerned with measuring that impact and determining company success in conveying its message. If stakeholders are excluded from the media choice, there is a problem. It becomes expedient to have a measurement tool to determine success in broadcast of message, hopefully medium-specific in focus.

Defining success

Communication does cost. Investor Relations needs to evaluate the effect of communication success and the effect of communication failure. When a message fails to connect with stakeholders, the cost of alternatives must be assessed. Failure to communicate altogether has its costs as well. A company's community value decreases when its value is not conveyed to the public, and this in turn affects the monetary value of company stock and bonds along with its intangible social values.

Competency in investor relations

Definitions are "slippery," particularly in a world where one country may understand Investor Relations differently than another country on the other side of the world. We may identify a few basic competencies for those who practice Investor Relations. These competencies are not singular, but rather multifaceted. Knowledge of capital markets, country-specific corporate structure and operational procedures, multi-national securities law, financial constraints, and communications comprise a multidisciplinary portfolio which is the working knowledge-base of the Investor Relations professional. To develop competence and assure a basic level of professional quality, business and professional schools have established certification to assure the broader business community of a basic competence level of individuals serving in the Investor Relations field. Certification aims include developing leadership in this field, but it also seeks to develop a proactive profession capable of assisting corporate entities to succeed in this constantly changing world.

 

Overview of the module

This module will present an overview of Investor Relations and its evolution from origin to the present from legal, economic, and communication needs perspectives. Target recipients of information (e.g., stakeholders like investors, shareholders, multipliers, etc.) will be evaluated for specific communication needs. Tools needed for image-building via marketing in this internet age with specific focus on media impact on stock exchanges will be delineated. Discussion related to an Investor Relations program's effectiveness will link a program's competencies and skills to risk-cost analysis. Attendees new to the field of Investor Relations and those already well established in the field may benefit from this thoughtful treatment of current issues impacting Investor Relations and related Communications.