How Investors Relations Affect A Company In the Future?

Thinking about Investor Relations’ roles

The first important role of IR is communications, specifically, with investors and intermediaries such as analysts and media. IR must ensure that the right information (which is strategic, financial and legal) is released in a fair and trustworthy fashion to targeted audiences of the company. Creating open dialogues with analysts and investors will help management and investors have a back and forth interaction from which investors can make a decision. Recently, a growing number of boards have made dialogue with shareholders and analysts a formal priority. By this way, they can build a closer bond with these stakeholders and shows that they value their opinions.

The word “relations” in IR tell us another role of IR which is building relationships. Mutually beneficial relationships with investors are of vital importance to a company. These relationships must be built on accessibility, timeliness, reliability, and most importantly, credibility. It is important to ensure the consistency of all disclosures. Any change in strategy has to be carefully explained and presented to audiences. Companies should be consistent in the management's track record in delivering on commitments and in communications efforts with the audiences.

IR also helps guide management decisions. IR helps guide management decisions based on the feedback it receives from the audiences. IR department will analyze such feedback and update the board on how the market sees the company both in absolute and relative terms. The view of audiences about the company and its strategies will be critical for the company to make future strategic decisions.

Is building trust the IR’s goal?

Admittedly, building trust is the goal of IR. Companies’ share prices will be higher with most other variables of company performance are positive when companies gain trust from its investors. Adversely, if there is no trust, even profitable companies may find their companies unfairly valued in the marketplace. In order for companies to be really trustful to their investors, companies must demonstrate a credible and enduring commitment to IR and have an effective IR program.

Corporate governance, transparency, and ethics are increasingly featured high on the agenda of corporations worldwide. Recent corporate scandals which were failures of companies such as Enron and WorldCom due to the lack of truthfulness by management about the health of the companies and their business operations have intensified the business world's focus on irresponsible practices and systems. Such kinds of downfalls as well as the newly developed business models have made corporate social responsibility (CSR) become an essential component of business decision-making process. As such, CSR needs to be fully integrated into company strategy and reach every company department of which IR is a very important one.

However, there are also a lot of good examples of companies which have effective IR programs such as Berkshire Hathaway Inc. I really like the way Warren Buffet, CEO of Berkshire Hathaway Inc., widely considered to be one of the smartest investors in the world, communicates with his company’s shareholders. Every year, in the company’s annual report he sends a message in form of “Letter to shareholders” to the company’s investors. Although it is a very simple way, not only his company’s shareholders but also many other audiences are eager to read those letters.

In spite of the fact that the company is in crisis or successful, the CEO is always optimistic about the company’s future and encourages his investors. I like the idea of all his letters which not only make Berkshire’s shareholders believe that their investments in the company are worthy but also inspire other business actors to play their roles well in the world economy as a whole.

From my perspective…

In my home country which is a developing country, companies are also more and more aware of the necessity of PR and IR programs to be financially and socially successful. However, the implementation of IR programs is still restricted to large companies. During the past 3 years, I invested in stocks of some companies and I both gained and lost my money. Normally, my criteria for choosing a stock to invest are not only the company’s size in terms of market capitalization, the development potentials of the industries to which the company belongs and its financial results; but also the transparency and availability of the company’s information.

I chose stocks of petroleum and banking industries which are considered having huge development potentials and fast growth rates in Vietnamese economy. Additionally, they also have good IR programs which effectively communicate with investors through their companies’ websites and frequent meetings with investors, both quarterly and annually. I gained much money from them. On the other hand, I also took risk and lost money when investing in some other smaller companies whose information I mostly got from the website of the Stock Transaction Center only. In fact, it is not always true but the more transparent and trustful a company’s information, the more chances investors want to invest in the company and the higher the probability of stock price increase.

Related Topics:

Sharon Merrill Associates' Blog:

http://sharonmerrillassociates.wordpress.com/2009/10/21/welcome-to-%e2%80%9cthe-podium%e2%80%9d/

WorldCom: Why It Matters?

http://news.bbc.co.uk/2/hi/business/2066959.stm

Enron's Scandal:

http://news.bbc.co.uk/2/hi/business/1780075.stm

Warren Buffet's Letter to His Shareholders (2009):

http://www.berkshirehathaway.com/letters/2009ltr.pdf

Exxon Mobile's Annual Meeting Draws Criticism:

http://www.bing.com/videos/watch/video/exxonmobil-shareholder-s-meeting/3xw10m8h

OReilly Bombshell: GE Using CNBC, MSNBC to Promote Cap-and-Trade for Financial Gain:

http://www.youtube.com/watch?v=X_BHZ169wqc&feature=related

Best Investor Relations in NASDAQ OMX Riga 2009 - SAF Tehnika:

http://www.youtube.com/watch?v=0WLFSZlnoK4