Investor Relations – Role and Definition
Investor Relations (IR) is a strategic management responsibility that integrates strategy, finance, communication, marketing and compliance with corporate governance to enable the most effective interaction between a company, the financial community and other constituencies, to ultimately contribute to a company's securities achieving a fair valuation.
The term IR 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, as well as devoted to pro-actively positioning the company, its strategy and its investment proposition.
Responsibilities of the Investor Relations Officer (IRO)
The clearest single element of an IR programme should be keeping the market informed of developments and events that may influence the share price, in a reliable, consistent, comparable and transparent manner. Investor Relations must be strategic and proactive as opposed to tactical and reactive – giving shareholders sound reasons to buy and hold stock or not depending on their individual risk appetites and time horizons.
Consequently, the IRO:
- needs to have a detailed and thorough understanding of the business in order to be a sparring partner for the company’s investors;
- will generally have to be better informed than anyone else in the company on what information analysts and investors require of the company and on what their views are on the company;
- needs to be able to operate on a level playing field when dealing with questions/remarks from the investing community;
- needs to have full support from the Executive Board;
- needs to dare speak up to the Executive Board when needed;
- performs a balancing act;
- the IRO plays the role of the trusted internal advisor/coach, and
- the IRO is the single person echoing the critical views from the investment community (to the Executive Board).
The IRO is responsible for:
- identifying those issues that are necessary to address in presentations of the company, and to inform management about these issues;
- setting up an annual calendar of events to meet with the shareholders of the company (preferably on location, by means of road shows), potential investors and regular meetings with analysts (both sell-side as buy-side);
- organising these meetings, which are scheduled best around the annual and semi-annual results publications;
- maintaining broker contacts. It is advisable to rotate brokers, i.e. not to go to the same location with the same broker year after year;
- keeping track of the investor base (this can be done with the assistance of tools, such as databases provided by external companies) and to inform management about this
- analysing market and company data (also in comparison to its peers);
- ensuring that information about the company is disclosed transparently, comparably, consistently and reliably (also see: www.afm.nl).
The IRO needs to prepare quarterly result publications. This includes:
- drafting the press release/writing (parts of) the annual report;
- drafting the key messages;
- preparing questions and answers (the 'Q&A');
- making the PowerPoint presentation to reflect the main messages. It is advisable to keep slides succinct and visual; f.e. by using pie charts, graphs etc.;
- writing the script for the investor meeting/call in which the script refers to the IR PowerPoint presentation ('take them through the main slides containing the key messages');
- rehearsing the script/presentation with the CEO and CFO to ensure smooth delivery of the messages.
Furthermore, the IRO is responsible for (arranging):
- contacts with research analysts (both sell side and buy side);
- private meetings with investors, (known as "one-on-one" briefings);
- shareholder meetings;
- analyst meetings and press conferences;
- investor relations sections of company websites;
- company annual reports;
- corporate governance;
- corporate social responsibility;
- coordinating media relations and investor communications ('The story is the business, not the stock price').
The prime responsibility of the Investor Relations Officer (IRO) is to keep the market informed of developments and events that may influence the share price, in a reliable, consistent, comparable and transparent manner. Increasingly, the IRO also needs to be aware of the overall reputation of the company/organisation and his/her role in managing the reputation
Reputation Management can be defined as: those activities performed by an organisation aimed at creating or maintaining a certain sentiment regarding the company by the public. Reputation Management involves the process of identifying what is being said about the company by external parties and –consequently or accordingly– taking steps to ensure that the general consensus is in line with the company’s goals. Reputation Management can be considered an important element in the Corporate Social Responsibility strategy of an organisation. Although close collaboration with the Corporate Communication department is a prerequisite for good Reputation Management – effective Reputation Management needs the support and commitment of the Executive Board.