Investor Relations in the Organisation
Investor Relations relates to interacting with the financial markets by providing strategic and financial information to enable investors to make a sound investment decision and to achieve a fair market value or stock price.
IR as a strategic management responsibility
Investor Relations (IR) 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. The term describes the department of a company devoted to handling inquiries from shareholders and investors, as well as others who might be interested in a company's stock or financial stability.
Embedding IR in the organisation
IR is primarily concerned with ensuring that the right company information is released in a fair and trustworthy manner to the current and prospective target audiences of the company. These are its shareholders and stakeholders, its investors (retail and institutional, domestic and foreign), as well as the analysts and media who comment on its performance. The types of information involved are strategic, financial and legal.
The IRO role
- must be aware of current and upcoming issues of his/her organisation;
- must be able to assess the impact on the stock-price;
- must act accordingly within the legal framework (corporate governance, publication laws, also see: www.afm.nl);
- must be accessible for investors and financial analysts;
- will work closely with the legal counsel on legal and regulatory matters that affect shareholders;
- will report to the CFO and have access to the Chief Executive Officer (CEO) and Chairman or President of the corporation and is therefore also able to communicate the broader strategic direction of the corporation and ensure that the image of the corporation is maintained in a cohesive fashion;
- often has a role in crisis management situations as, for example, corporate downsizing, changes in management or the internal organisation structure, and cases that can have a potential impact of legal liability claims awarded by courts, as these may consequentially impact the company's share price;
- stays visible and builds relationships;
- is factual in tone;
- focuses on the long-term story and balance sheet strength (as opposed to short-term earnings growth);
- answers concerns of investors;
- coordinates media relations and investor communications.
It is the responsibility of the Executive Board to ensure that the strategic decision-making process takes into account IR as well as to review and to approve the IR strategy itself. In addition, the Executive Board should provide regular input and feedback to improve the IR programme by sharing information on trends affecting the company and its industry, and if possible, share perspectives from other firms and the general context within which the company operates.
The IRO as linking pin
The IRO is a 'linking pin' with two roles:
- analyse the ownership structure of the company and identify how the company and its actions are perceived, making sure that the information regarding strategy, finances and any legal issues is disseminated appropriately so that the target audiences can make informed decisions on material matters;
- analyse audience feedback and update the Executive Board on how the market sees the company both in absolute and relative terms, absolute as far as decisions taken or announced are concerned and relative as far as comparing the company with its peers as a desirable investment.
IR is typically a department or person reporting to the Chief Financial Officer (CFO). Most larger publicly traded companies have dedicated IR Officers (IROs), who oversee most aspects of shareholder meetings, press conferences, private meetings with investors, (known as "one-on-one" briefings), investor relations sections of company websites, and company annual reports (also see: IR Programme). The IRO is also often involved in disclosing the company's policy on corporate governance or corporate social responsibility.