...more than just Annual Reports.10 Jan, 2019
Over the year, the role of IROs have changed substantially. Investment trends, legal scrutinies and the pursuit for capital advantage by competing companies have been impetus to this change. Historically, IROs primarily concerned with communicating with investors and analysts about matters that could affect the company’s stock worth. Today, they are involved in a variety of company initiatives, including competitive intelligence and strategic implementations. The workings of an IR team are key in cultivating shareholder base, and can ultimately shape the company’s stock value.
History of Investor Relations
The first US public company - the Boston Manufacturing - was founded in 1814. Management at BM didn’t spend much focus on investor relations considering the small pool of shareholders at the time. In fact, it took 150 years before IR actually became an important management function.
It was in 1953, that Ralph Cordiner (Chairman - GE) made a significant contribution to modern IR by establishing a department to handle shareholder communications. From then, more large companies followed an increased interest in shareholder cultivation. Companies looked to reach out to prosperous individuals for investment opportunities, so they turned to public relations to steer the outreach.
Ofcourse, PR itself was not well established in the 1950s. Further, PR professionals lacked financial prowess. They understood publicity, but fell short on understanding P&L statements, and put little importance to strategic managerial communication to those who owned the business. There was barely any research to understand shareholders.
Then came institutional investments. As companies focussed on sourcing institutional investments, IR responsibilities shifted from PR to finance professionals. Investor relations became focussed on providing financial disclosures to investor institutions. IR roles increasingly came from finance roles, rather than the traditional PR background. While IROs still needed to be highly skilled communicators, they were now required to have much deeper knowledge of a company’s financial operations.
With continued market fluctuations and tightened regulatory scrutinies, an IROs compulsory role inclined towards fulfilling obligatory requirements and legal disclosures. Along with compliance to legal regulations, IR increasingly became a matter of corporate image , and an ability to delight existing shareholders and excite potential investors.
The evolved role of modern IROs
Today, the scope of activities carried out by IR professionals may cover: 1) Minimum/obligatory range of activities, 2) self-regulated/optional range of activities.
The first- the obligatory, minimum level- concerns with compliance to legal regulations and fulfilling the duty of one-way communication with shareholders. The second- the optional level- covers the a bilateral dialogue which is of financial and strategic nature between a company and its investment community. When it comes to non-obligatory activities, IR is a critical tool in gaining capital advantage over competition.
Today, to succeed in IR, professionals must have both finance and communication skills. Investors want to understand the company’s business and value, and expect Investor Relations to convey the answers. While number crunching is a requisite, IR professionals have to increasingly focus on non-financial and strategic aspects of the business.