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TRENDS IN INVESTOR RELATIONS
- Introduction and Relevance to the Company
Institutional investors get information from various sources viz.
- Information provided directly by the company
- Sell-side research and sales
- Investor’s in-house research
Conventionally, the share of sell-side has been very large in this information pie. However, with time the companies have realized the importance of providing direct information to the investors. Recently a distinct trend has emerged wherein companies adopt various measures to strengthen their investor relations processes and streamlined the information flow to investors.
During the last decade, companies around the globe have gone through various challenges viz.:
- Managing high growth phase during 2000-2008
- A sharp downturn post the sub-prime crisis
- A huge infusion of liquidity on the back of stimulus in various parts of the globe, i.e. USA, EU, Japan, China
- Prolong phase of low growth (or deflation) in an extended phase of benign interest rate scenario
- Stock markets reaching historic low and historic high in very short span of time and
In such challenging times, the investors require real time information and sometimes even hand-holding in their efforts to protect clients’ capital. During the last decade, sell-side across the world got down-sized. Now the companies have realized the importance of being a direct source of information to the investors.
The key IR trends that have emerged in the last few years can be summarized as below:
- Companies understood the need of providing direct, updated and easily accessible information to the investors.
- Companies go ahead from the printing era and entered the digital era where all the investor related information is being provided on the IR website.
- Companies have started using the social media platforms such as Twitter, StockTwits, LinkedIn, YouTube, Facebook, etc. These social media platforms are readily accepted by the investors.
- After the global crisis, companies focused on diversifying their investor base by targeting new (international) investors. At the same time, companies now look for a stable shareholder base.
- Companies have started using all possible tools such as videos, transcripts, PowerPoint presentations, etc. to disseminate information and provide disclosures to the investors.
- The role of IROs has changed in the last few years. Their role has changed from an information provider to a key person in the company. IROs now work with C-suite in line with the corporate strategy.
- Companies now regularly perform perception study to understand the investors’ perception and present status of the company. Many companies hire special agencies that are specialized in conducting perception study.
- Professional investor news services such as Bloomberg and Reuters are in demand by the investors.
- Pain points
- In the competitive corporate world, IR department needs to innovate regularly to communicate with the investors. Therefore, IR department needs to be aware and updated with the latest technology
- Technology comes at an initial setup and operating cost that accounts for a significant portion of the IR budget
- Challenge to keep secret information from leaking
- Challenge to keep the IR website and investor related information update and best in the class
- Search for new ways to provide information to the investors such as broadcasting investor events live on the IR website
- Investment community watch the IR website. Any irregularity, misinformation on the IR website is keenly noticed by the investors and ultimately costs to the company in the long-run
- Best Standards and Practices
The IR department of the company should be creative and keen to learn and adapt new technology. The IR team should use latest technology to provide information to investors. The different areas where IR team needs to focus for constant improvement includes:
- Designing, hosting and maintaining IR website
- Audio and video webcasts
- Conference call setup
- News dissemination via. E-mail, fax, website, etc.
- Using the social media platforms
- If the IR department is not able to perform a certain task, hire a third party to perform the task
- Execution and Action Plan / Check List
The IR department should access the in-house capabilities and prepare for the activities they need to perform. Hire a third party to carry out assignments where the work cannot be performed in-house. Along with the main focus of the IR department of increasing investor communication, they try to achieve the following:
Diversifying the shareholder base: The most important trend that emerged in the last few years is that the companies try to achieve a diversified investor base. For this they need to target new investors and make them aware of their presence.
Effective disclosure: IR website fulfills the requirements for effective disclosure of information to existing and prospected investors. Information on the IR website may include:
Corporate strategy based on internal and external drivers
Debt information such as credit rating
Historical stock price
Analyst coverage information
Presentations and transcripts of all the meetings
Investor day meeting
RSS (Really Simple Syndication) feed
The company needs to update the IR team with the latest technology and use all the social media platforms – as permitted by the regulatory authorities – to deliver the updated information and have a wide presence on the web. The social media platforms may include Twitter, StockTwits, Facebook, LinkedIn and YouTube. Initially management did not support the use of social media for delivering company related information. But, the trend is changing and social medial platforms are gaining acceptance among investors.
Maintaining the shareholder base: After increasing the shareholder base companies prefer to maintain it for a long time. At the same time, companies prefer to increase active vs. passive investors in the shareholder base.
Involvement in strategic decision making: The role of IR has changed from the simple information provider to a key person involved in strategic decision making. During the last few years the communication between IRO and the senior management has significantly increased. Now IRO perform functions with the C-suite and in line with the overall corporate strategy.
Coordinating the IR message: The primary influencing factor for investors is corporate governance and the IR department must take care that the message should reach to the target investors. This can be achieved by performing conferences and non-deal road shows. A meeting of the BOG with investors will also be useful in approaching the investors and sending the corporate message.
- Measuring Success
Companies operate in a dynamic ever evolving business environment. They need to regularly upgrade themselves in all the possible arenas to remain competitive. With the advent in technology, it has become easier for the firms to disseminate as well as collect information. IR department generally does perception study to gauge the perception of investors about the company and benchmark their best practices with the peers.
Based on the results of the perception study, IRO should formulate an IR strategy - in line with corporate strategy - to ensure that the company performs best in the peer group. Generally the perception study is conducted once in a year or in two years. With time, if the score of the company is improved in comparison to peers, the IR strategy seems to be working, otherwise company has to look for further changes in the IR strategy.
- Do’s and Don’ts
- Strategically align the IR plan with the company’s strategy in consultation with senior management
- Benchmarking study to know how market perceive the company and where it stands when compared to the peer companies
- Perform benchmarking study every year or once in two years to know the changing landscape of the business environment where the company works, and gauge the perception of the investors about the company
- Stick to the predetermined goals and objectives of the organization when they need to change in the evolving business environment
- Underestimate the changing trends in the investor relations. An investor relations department of the organization must be active, equipped with the latest technology, and acclimatize to the changing business environment. IR department is responsible for providing a two way communication between investors and the company. If the IR department did not adapt to the changing environment and lacks somewhere when compared to its peers, the company may face negative consequences.
Specific trends have emerged in the business environment. The most significant trend is that the companies have realized the importance of providing direct information to investors and started their efforts to ramp up IR activities. After the global crisis, companies’ main focus has shifted towards having a stable shareholder base with international investors and they are using every possible measure to provide disclosures with the latest information to the investors. To bridge the gap, demand for professional investor news services has increased significantly in the last few years. Companies are also engaging themselves in perception studies to gauge the perception of investors about the company and benchmarking themselves with peers.
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Prepared for Pradip Seth 1