Alexander V. Laskin - Investor Relations and Financial Communication

The history of investor relations shows that this is an integrated function. It is most successful when it is not limited to just one expertise. A successful IRO is more than a financial analyst in residence or a publicist in residence – either way, lots of value is being left at the table. Investor relations is a profession in its own right that requires its own set of skills and expertise. At the very least, it combines both communication and financial skill sets. And this is the foundation of the current, third, synergy era of investor relations development.

In conclusion, the shift to the synergy era of investor relations was caused by many changes in the economy, technology, regulations, increased shareholders’ attention to the role of corporations in the society, and many other factors. These changes placed new demands on the investor relations professionals and required investor relations function to adapt. CBS MarketWatch suggests, “Markets do not run on money; they run on trust” (Minow, 2002). To respond to these challenges, investor relations has to move away from being a technical reactive function, and become recognized as its own profession that combines the expertise of communication, finance, and law to proactively devise sophisticated research-based two-way symmetrical programs to facilitate dialogue between the company and the financial community with the purpose of enhancing mutual understanding, managing expectations, and building and maintaining relationships.

Amsterdam bourse

The Code of Hammurabi

Blue chipsBlue sky laws

Blue sky securities

CEO

CFO

Chief executive officer

Chief financial officer

Communication era

C-suite

Debt

Disclosure

Dominant coalition

Dutch East India Company

Efficient market hypothesis

Equilibrium

Equity

Eras of investor relations

Fair value

Falun mine

Fiduciary duty

Financial era

Financial communication

Hot air securities, see Blue sky securities

Investor relations

Investor relations officer

Investor Relations Association

Investor Relations Department

IRA

IRO

IR Society

Management

Mutual fund

National Investor Relations Institute

NIRI

One-way communication

Overcorrection

Overvaluation

Professional period

PRSA

Public company

Publicly traded company

Public Relations Society of America

Securities

Share

Shareholder Relations Department

Shareholding company

Stock

Stora Kopparberg

strategic

sucker list

Synergy era

Two-way communication

Vanguard 500

1 Define the concept of the fair market value. Why do you think it is considered an ultimate goal of investor relations?

2 Analyze the definition of investor relations. What would you add to or delete from the definition?

3 Explain what the efficient market hypothesis is. Why do you think investor relations is an integral part of the efficient markets?

4 Describe key periods in the investor relations history. What connections can you identify between this history and the modern practice of investor relations?

5 Research investor relations history in another country. Prepare a report comparing the investor relations history in the country you analyzed with the investor relations history in the United States.

First of all, it is important to note that investor relations is a relatively small profession. The leading professional association for the industry, the National Investor Relations Institute (NIRI) has only 3,300 members. Furthermore, some of the members are academics and service providers rather than investor relations officers (IROs). As a result, the number of actual IROs in NIRI is under 3,000 members. However, these 3,000 members represent 1,600 publicly traded companies with more than US$9 trillion in stock market capitalization. Not every investor relations professional is a member of NIRI – some are members of other professional organizations such as the Public Relations Society of America (PRSA), which has a dedicated financial communications section, and some are members of the International Association of Business Communicators (IABC). In addition to investor relations, there are professional organizations for financial communicators working in other industries; for example, the Association of Fundraising Professionals (AFP) unites about 30,000 members working in the field of philanthropy and fundraising.

Even taking all this into account, investor relations and financial communication is a relatively small professional area. One of the key reasons is that not every company needs investor relations. Investor relations is required for the publicly traded companies – in other words, the companies in which shares of stock are available for people to buy and sell. These companies are called public companies because their stock is available to the public as opposed to private companies where the ownership is private. Public companies are also called publicly traded companies , publicly held companies , or publicly listed companies . Although the estimates vary slightly, the World Bank calculated that there are only about 4,100 public companies in the United States. This actually correlates well with 3,000 investor relations members of NIRI. The World Bank also estimates that globally there are about 43,000 public companies.

The shares of public companies are traded on stock exchanges or on the over-the-counter (OTC) markets. The New York Stock Exchange (NYSE) trades shares of 2,800 companies and Nasdaq lists about 3,300 companies. These numbers include US companies as well as foreign corporations that want to be listed in the United States. It is also possible to have dual listings – where a company can be listed at NYSE and Nasdaq, or at an exchange in its home country and at an exchange abroad. For example, BHP, one of the largest Australian corporations, is listed domestically at the Australian Securities Exchange, and at the London Stock Exchange in the UK. Carnival, a cruise line operator, is listed at both the London Stock Exchange and at NYSE.

All these public corporations are governed by a specific set of laws and regulations focused on helping investors make an informed decision about buying and selling the company stock. In order to satisfy these requirements, these companies employ investor relations professionals. Many large corporations would have a standalone dedicated investor relations department. These departments may have from just one IRO to 20 or more. The reporting structures vary widely – the investor relations department may report directly to the chief executive officer (CEO), or the department may report to the chief financial officer (CFO), chief communications officer (CCO), chief operations officer (COO), or even the head of Human Resources (HR).

At smaller companies, there may be no dedicated investor relations department. In this case, the investor relations function is commonly performed by the office of the CFO or the treasury department. In other cases, investor relations may reside in the corporate communication/public relations department. Since investor relations relies on both financial and communication expertise, if assigned to the CFO or to the CCO, the investor relations function must work closely across the corporate silos with departments that can supplement their missing knowledge and skills. It is also not uncommon for such investor relations programs to rely on investor relations agencies and consultants to, once again, make up for the missing skill set.