The IR Book Chapter Three

Setting Up the Investor Relations Function

Editor’s Note –

This chapter is truly a time capsule from 20 years ago.  It has perhaps the most period specific content. 

It has a discussion of consultants and suppliers who provided many different services at that time.  Many are no longer in business, most having been purchased by other companies now providing these and/or more services, some of which did not even exist then.

While this history is extremely valuable, it is one place where it is most urgent to update in a new annotation.

We will be sending out forms to those consultants and vendors who supply IR services.  They will provide information in the same format for easy comparison with others.  We will provide this information at no cost to either the consultant/vendor or the reader. 

Since there are so many types of services, we will not wait until we feel we have all the forms in hand.  We will keep you informed as we publish this information, a few service areas at a time.  The information will also be available in the IR Index, which is just now getting started on  Your patience is appreciated.  These tasks are quite enormous and will develop over time.  The goal is progress and, with your help, as near perfection as possible.  JohnL ed.

First Step: Establish Objectives

A logical place to begin in setting up an investor relations capability is to establish its objectives and ways to measure progress toward accomplishing them.

Objectives combine those common to investor relations and specific to the company, based on its needs.

They also are layered: specific objectives achieve broad ones. 

Objectives may vary by company and change as needs change.  Those changes more likely are the execution objectives, not the fundamental ones.

As a way to think about the role, function and contribution of investor relations, we offer a series of broad and execution objectives for companies to consider.

Objective 1: Raise the Market Level of Quality Information on the Company

This is fundamental to any IR program.  Information is the basis of investment decision-making. The goal is to eliminate the information gap.  This objective also assumes that perfect information is never achieved.  It can’t be, by definition.  And, even if it happened, new information would need to be communicated within the next hour.

Here is a set of execution objectives to accomplish this goal.

  • Identify the most important and valuable pieces of information required by investors, analysts, brokers and traders.

The best way to accomplish this goal is to have an active, ongoing dialogue with these market participants.  This means constant contact on the phone, through emails, holding meetings, attending broker-sponsored conferences.  Include extensive discussion on the information they want.  Companies shouldn’t assume they know what investors and analysts want; it is different for each person.  Before you can be a reliable source, you need to know what they want.

The other way is to conduct formal surveys.  This is advisable, periodically, probably every other year, possibly every year.  Surveys are expensive, and if done too frequently, they risk wearing out your welcome.

  • Improve the content and value of information provided through key communications vehicles, investor presentations and meetings, and phone conversations. 

This implements the previous objective. It gets done well by evaluating current content and upgrading it.  Key vehicles are the annual report. 10K and 10Q reports, MD&A sections of those reports, fact book, investor profile, IR/governance website, conference calls and investor presentations. 

It’s worth noting that the most valuable information opportunities for investors are small group and one-on-one meetings and phone conversations.  Investors favor them because they are gaining information and growing their insights privately and not in competition with others.  They can benefit from asking good questions and not sharing the answers.

Is your company being stopped from using these sessions as valuable briefings by concerns over the SEC’s Regulation FD (Fair Disclosure)?  Don’t be.  Be smart enough to not violate the rule.  Companies can add useful background, amplification, elaboration that helps investors fill in their mosaic of information on a company without giving new material information.  Businesses are complex; there is plenty of room to fill in.

  • Increase the amount of information on the company flowing from the sell side to investors.

This, in turn, relies on three program objectives.

  1. Increase sell-side analyst following.  Of course, this has been a basic IR activity for decades.  Research serves institutions and individuals; adding research raises the odds of reaching more investors and creating a regular information flow with them. 

Maintain regular contact and serve as the company’s information resource to analysts following your company. Create a target list of analysts: those covering your sector/industry, industry peers, peers with similar investing characteristics, and those at local firms.

The sell-side universe is expanding to include more independent firms and boutiques.  Be sure to target them as well.  Lists are available from traditional sources such as Nelson’s Information and Zacks Investment Service as well as through the trade group, Investorside: www.investorsi

Objective 2: Bring Market Perceptions, Attitudes and Actions To Management

This is the second major dimension of the investor relations function.  In this role, the IRO is a strategic adviser to management — the resident expert on market and investment behavior.  The IRO advises management on a host of situations, events, realities, opportunities, and issues.

  • How the market is valuing the business and its securities. 

This role involves giving a general, but detailed explanation of what is driving the market’s methods and approaches to valuing the company at the time.  How is the market being influenced by macro, sector, or company-specific factors?  Are attitudes, expectations and stock price being driven by the company’s competitive advantage, new strategic direction, new management team, product breakthrough, successful cost-cutting, or on the negative side, by competitive threats, slow growth, mature products, entrenched management?

This analysis also covers the investment styles at work among institutional shareholders and prospects.  Those styles offer clues on how the market views the company: as a growth or value investment, the contribution of dividends, the influence on stock price of being in a certain index, the impact of short selling, etc.  

An important IRO role is to paint a broad and detailed picture of how the market is affecting the company’s securities values.  While it may frustrate CEOs at times, the fact is the market determines a company’s stock value.

  • Specific current investor perceptions, misperceptions, attitudes and levels of information/knowledge on the company. 

This is really important.  It gets down to the realities and specifics of investor knowledge.  It provides the basis to guide management on value-creation and communications.

The intent is to build and maintain a solid base of understanding of prevailing market attitudes, perceptions/misperceptions, accuracy/inaccuracy, and depth of information on the company.  It’s just as important to ferret out misperception, inaccurate beliefs and negative attitudes. 

All this data should be analyzed to determine any patterns and identify sources, especially of negative feelings/information.  The research may discover, for example, a widespread attitude that the company’s new technology is going to fail. Find any biases; the source could be an analyst.  Find inaccuracies; the source could be incorrect information in a major database, such as CompuStat.

An additional purpose of this exercise is to gain and maintain a good sense of the market’s level of information.  Is it high, medium, low, or virtually non-existent?  For small companies, information and knowledge levels may barely make the radar screen.

To gather and monitor market intelligence, talk regularly with as many investors and analysts as possible and conduct periodic formal surveys.

Investor relations officers and their bosses might want to set contact targets.  IROs and staffers should be encouraged to be talking all the time with investors, analysts and brokers. The best way to learn what’s important is by analyzing their questions and by continuously pushing discussions ever deeper into the essential information content.

As veteran IR officer Tim Cost said years ago, “if the phone isn’t ringing, pick it up.”  Interpretation: be aggressive and on the phone calling investors.

  • How the market views the company’s value creation process.

Now we’re drilling down to the next level.  Management benefits from knowing market attitudes about the company’s strategies and initiatives to grow value. 

Market attitudes can vary widely – from strong support to being highly doubtful.  Feedback should be as specific, detailed and thorough as possible –beliefs in the company’s ability to grow revenue/earnings in certain ranges, likely success of a strategy to enter a new product or geographic market, value of acquisitions, changes in dividend policy, a contemplated share buyback.

Managements can use market behavior, response, and anticipation of the company’s next moves to drive stock price.  Corporate actions are geared to market expectations and reactions.  Numerous companies over the years have followed value-creation strategies that are closely aligned with knowing how investors will anticipate and respond to actions.

Executives need to be careful, of course, not to succumb to managing the business for the investors.  Plans and actions fundamentally must constitute the right decisions to serve customers and other stakeholders and be in the best interests to sustain and grow the business.  Moves that cut into a company’s core strengths, are unethical or dishonest, or mortgage the future are mistakes.

An integral and significant piece of this research focuses on how corporate strategies and actions are likely to affect the market’s perception and decisions to buy, sell or hold shares.  This can even be viewed as another objective; it is the pay-off from the research and feedback. 

Investor relations officers are doing their job when they can help management predict investor decisions to buy, buy more, sell or hold shares. 

Valuation comes into play here, meaning does the market consider the current price to be under, at, or above the company’s fair value.  Within this context, it’s possible to gain an understanding of target prices – when investors plan to buy or sell shares.

  • The market’s current expectations covering business operations and future stock price, and whether disclosure is favorably impacting investors’ ability to evaluate the company accurately.

This gets at the heart of the investor relations process, namely the effectiveness of the disclosure.  Ideally, there is no information gap; stock price is not unfavorably affected by any lack of quality information. 

Ask, or do a survey, and investors and analysts will let you know.  They’ll identify the information they need if they believe the company is sincere in wanting to understand what it is so they can supply it.

  • Whether the stock presently is perceived to be fairly, under or over valued.

Really good relationships are needed to get investors to tell a company whether they believe the current price means the stock (company) is under, over or fairly valued.  Investors don’t necessarily want others to know their target buy/sell prices because they’re likely to be doing some buying or selling in the future.  Institutions prefer to conduct trades anonymously, so they don’t disturb the price while the transactions are taking place.

It can be readily seen how investor relations officers can affect a company’s value-creation efforts, market attitudes and actions, disclosure, and the current price of the stock.

Measuring the Value of the Feedback.

Several ways can be monitored to measure progress and results of bringing good feedback from the investment market to management.

  • Extent management uses the feedback in its critical decision making.

While qualitative, this is a real measure.  It won’t take long for the IRO or senior executive team to recognize market attitudes, perceptions and expectations are being integrated into their strategies, programs and targeted outcomes.

The CEO, head of strategic planning, CFO and top business leaders will expect good market intelligence to be an integral input into analysis of the pros and cons of an action.

  • Extent investors and analysts are willing to provide their views, opinions and a sense of their reactions.

Investors like to influence management decisions.  When they realize there is a viable opportunity to do so, they’ll be glad to offer their take.  From that conversation, IROs can gain a sense of how an analyst or investment manager probably will act as a result of the action.

  • How corporate and market actions affect stock price.

Companies input market feedback into their decisions.  Investors anticipate and react to those decisions.  Business performance improves or falls as a result.  Stock price changes.

The actions and reactions can be tracked, along with stock price. 

Other behavioral patterns also can be scrutinized:  time frames for changes, types of investors buying/selling shares, analysis of each type of action and extent of stock price reaction.  These are the kinds of studies and analysis that form the essence of most academic research.  Chapter 18 focuses on building relationships with the sell side.

  • Expand contacts with institutional and retail brokers. Retail brokers abound.  There are efficient ways to reach them: advertorials and reprints in broker magazines, buying email and mailing lists and then sending out materials regularly, an information-rich website.  Costs are a consideration. 

Institutional brokers are tougher to contact; their focus is on their institutional clients.  Some detective work to identify an institutional broker following your industry or at a local firm is advised.  Contact them selectively and try to build a relationship.

  • Expand the content of sell-sell research and its frequency of coverage.   Analysts may follow your company, but not write about it much.  The intent is to get more written.

How to do that?   Be aggressive as a source of information.  Do your homework to understand each analyst’s major interests.  Think about ways to communicate certain information (previously released if material) to make it more interesting.  Increase the detail provided.  Offer to arrange interviews.  Call regularly to offer information. Include analysts in all invitations – calls, conferences, meetings.  Warning: make sure there always is value in the material being provided.

  • Increase direct contact with the buy side — investment managers and analysts. 

This ensures that information is reaching investors.  How best to do it?  Build a good email list of buy side analysts and institutions and make sure they receive all appropriate materials coming from the company. 

Make sure they are aware of upcoming conference calls and the archiving of those calls. Maintain an active contact program, inviting investors to company meetings and broker-sponsored conferences.  Use targeting services to bring a focus to these efforts.

Start with your institutional shareholders.  Keeping them well informed is essential.  Presumably, these are investors who have already studied the company and decided it is a good investment.  It shows up well in their models. 

They have a level of information and are keenly interested in staying current on strategies and developments.  They are open to growing the relationship.  They clearly are candidates to buy more shares. At minimum, you want them to keep the shares they hold.

Institutions not holding shares constitute a vital prospective market.  They can be reached in general by maintaining a comprehensive communications program stretching across the investment marketplace.  This means making sure the institutional universe can access your IR website, press releases, conference calls and other communications from the company.

It also means making sure all the relevant information available on the company through various key data services used by institutions is current and accurate.  Money managers build their screens to identify investment prospects and their models to make investment decisions from data supplied by such providers as CompStat, Reuters, Market Guide, Bloomberg and others.  It is imperative that the information being fed by these services to fill in computer screens and models is correct.  Check the sources regularly and be willing to call the research directors to make any needed changes.

Institutional managers know how to find companies by working their investment models; the company’s job is to make sure information is accurate and timely.

Target institutions likely to have the highest interest in buying shares. Targeting is a form of efficient marketing.  It increases the odds of identifying and contacting more compatible institutions and focuses information on them.  Methods to target are presented later in this chapter.

Keep your IR website fresh and containing useful information; analysts and investors wanting more information on a company do check out its website.

  • Measures to gauge progress and results should be built into each broad and execution objective. Ways to do so combine qualitative and quantitative measures.  A note here: qualitative measures have real value.  Don’t let “quant freaks” persuade you otherwise.

Anecdotal comments from investors and observations verifying that there is a greater amount of information in the marketplace are meaningful.

Ways to Measure These Objectives

We offer ideas on measures tied to this first series of objectives.

  • Make a list of key information points sought by the market through interviews and surveys, and record the number of times this information appears in research reports, media stories, as inputs in models and in comments by buy side managers and analysts. Note the context of these published and verbal mentions.  
  • Track and note key information points in analyst reports. In your report, describe the overall improvement in the quality of research, reflecting company efforts.
  • Track number of research reports and notes from analysts. (Hopefully, an increased number.) 
  • Track and report on number of analysts covering the company (hopefully, an increased number).  Profile new analysts/research firms.  Classify firms by their functionality: investment bank, independent, boutique, fee-based research.
  • Evaluate the content of 10K, 10Q, 8K and other SEC documents, specifying new information points being reported.  This serves as a guide and reminder to management to maintain a high level of information value in these filings.  Include evaluation of content of voluntary communications vehicles in the analysis, namely the annual report, fact book and IR/governance website.
  • Document the use of/references to information provided through the SEC filings, fact book, website and other communications materials appearing in analyst reports and media articles.
  • Report on results of surveys indicating investor/analyst attitudes toward disclosure practices and the level of valuable information provided by the company. The IR practice can be well served by giving management constant feedback on investor satisfaction.  Also be sure to include the feedback from daily contact with investors; direct comments from investors can be enlightening to management.
  • Track contacts with brokers.  Maintain an ongoing list of brokers known to have an active interest in the company.  (It will be changing constantly.)  If possible, report on the numbers of their clients receiving information on the company and holding shares.  Research Magazine, for example, provides this data.

Objective 3: Change The Shareholder Mix

This might be a goal for some companies wanting to bolster institutional ownership or add to their base of individual investors.  A huge imbalance is seen as risky or undesirable: institutions may sell as a pack, crashing the stock price; individuals may trade infrequently, causing low volume and a static price.

Smaller companies tend to pursue institutions more.  This is a doable proposition.  There are numerous investment managers specializing in small and microcap companies, broadly or at times in certain industries seen as growing. Small/micro caps have periods of outperforming their bigger brethren.  Targeting services readily spotlight small cap managers.

Or, companies may desire more retail holders.  Large and mega cap companies frequently find that upwards of 90% of their shares are held by institutions.  Companies can attract individuals efficiently through participation in investment clubs (National Association of Investors’ Corp.) or by offering direct stock purchase programs to such affinity groups as customers and suppliers. 

Companies taking part in NAIC programs have seen sizable portions of their shares move to individuals.  Direct stock purchase plans (DSPPs) have attracted individuals while serving as an inexpensive way of raising capital; utilities, telecom, energy, consumer and other companies have raised their retail mix through direct purchase programs. 

Another option is to build a following among retail brokers as a way to appeal to individuals.  Certified financial planners, bank trust officers and many brokers count high net-worth individuals among their clients.

Any company deciding to change its mix can make positive progress by targeting investor segments.  Institutions are best targeted by seeking investors with portfolio strategies that match the company’s financial characteristics, individuals through clubs and brokers.

Companies also may be motivated to shift holdings around among institutions with diverse investing styles.  This can be a difficult task.  Institutions come to a stock in large measure based on their investing style and methods.  Indexers buy an appropriate portion of a company in that particular index.  Otherwise, investors are guided by their models in selecting companies – value, growth, momentum, income, sector rotation, etc. Expected corporate performance is the main trigger. Volatile performance appeals to hedge funds and short sellers. 

IROs can anticipate investor movement by knowing how the company’s strategies, business operations and financial condition are going to change, and target accordingly.  You can start to appeal to value or growth investors, pinpointing information of interest to them based on their style.

Efforts to change the shareholder mix are measured by monitoring shifts.  Movement indicates good progress; lack of change can suggest the program isn’t working or isn’t practical for your company.  With institutions, the data can be quantified; reports show institutions buying and selling and the share amounts.

Objective 4: Improve Market Ratios

An interest by management in improving market ratios indicates a desire to improve expectations.  Key ratios involved are stock price to earnings, sales, cash flow and book value.  Higher ratios reflect a higher stock price and indicate either high market confidence or too high market confidence.  In turn, lower ratios suggest a lack of market confidence in future performance.

The goal of management should be to have expectations be in line with its best projections of financial results.  Thus, a reasonable goal is to elevate low ratios.  Demonstrating better performance is the surest way to do that.  The other is through better disclosure if management is convinced the market isn’t properly rewarding performance and prospects.

Objective 4: Improve Peer Comparisons

Companies have three sets of peers – direct competitors, others in their industry or sector, and those seen as comparable from an investor’s standpoint based on similar financial (and maybe, operating) characteristics.

Peer comparisons are important to investors.  Decisions to invest often are based on these comparisons.  Investors are inclined to pick companies charting the strongest returns. Sector rotators, putting one, two or three stocks from a certain industry/sector in their portfolios, rely on comparisons.  Or, in contrast, they could be looking for underpriced and appreciated stocks that are starting to turn things around.

Peer comparisons usually combine market ratios and performance returns: stock price to earnings/sales/cash flow/book value, returns on earnings/cash flow/sales/equity/capital/investment/net assets.  Importantly, they also include comparisons of net operating profit after taxes (NOPAT), earnings before interest and taxes (EBIT), earnings before interest, taxes, depreciation and amortization (EBITDA), economic value added (EVA), market value added (MVA), cash flow return on investment (CFROI) and other measures.

Obviously, companies improve returns by their own efforts.  Improvements in ratios result from investors reacting to gains in operations and in the numbers.  Using peer comparisons as a barometer of business performance is a healthy incentive for managers.  Using comparisons to improve transparency is a healthy incentive for executives and investor relations officers to be working together to enhance information flow.

Better comparisons are the measure of progress and success.  A cause-effect relationship can be established by monitoring efforts against results.

Objective 6: Achieve Realistic Market Expectations

We believe this should be viewed as a principal investor relations objective.  It speaks directly to the role of investor relations as a quality information resource to investors.  Information provides the basis to achieve realistic market expectations.

As part of their feedback, IROs should be able to tell management at any time whether the stock is under, over or fairly valued.  The contribution of information is at its highest when the stock is priced at a level reflecting its true value.

Accurate, realistic market expectations suggest that the stock is priced fairly.  Value is defined primarily in two ways: by the market’s definition and by financially calculating the value of the company’s assets.  Investors and academics use an economic measure, namely discounted cash flow methodology, to determine that intrinsic value.

In the former, the market consensus determines a company’s value. Typically, a target price serves as that consensus.  Professional investors know when a stock is priced too high; they knew that most of the stocks were overvalued in the late 1990s. The likely reason for a stock to be truly underpriced is an inefficient market; the company’s operations and prospects are better than most investors realize at the time.

IROs should be able to advise management on where the stock stands in the under-to-overvalued spectrum.  Financial managers are totally familiar with DCF intrinsic value calculations.  Through daily contact with analysts and investors, IR people are prepared to bring feedback on the market’s fair value price consensus.

What’s a company to do when its stock is fairly valued?  Create more value.  That’s the business of the managers – reinvest in growth opportunities, strengthen the company’s cash position by paying down debt, reduce costs, improve profit margins by lowering expenses, make a solid acquisition, increase the dividend.

Expectations will change, to reflect the dynamics as investors translate new strategies and initiatives into shareholder value.

The next objective is tied inherently to those already stated and perhaps doesn’t need to be spelled out or listed separately.  However, companies might want to flag it to ensure that it is accomplished.

Assess the Value of Information.

Ultimately, the value of information is measured by the absence of an information gap that stifles the market’s ability to fairly value the company and its equity.

Objective 7: Guide Management On Disclosure Policy And Practice

Investor relations people have a critical role to play in making sure disclosure policy and practices are enlightened.  Ultra-conservative attitudes or ignorance can set a foundation and practices that prevent good information from flowing through the investment marketplace.  An obstacle impossible for the IRO to overcome can be set in place.

Resistance from the chief counsel, CFO, treasurer, or chief accountant may require the IRO to be assertive and persuasive in convincing management to build transparency into the process.  The best way to battle it is with evidence that shows the value of information.

Objective 8: Coach Management on Investment Process And Investor Behavior

Building an internal team of allies in your efforts to be forthcoming makes life a lot easier as situations and challenges arise.  First step: educate executives on how the equity market really works.  It’s more than what we’re taught in business school or by investment bankers.

A management team steeped in the knowledge of investor behavior better appreciates how corporate decisions affect shareholder value and how good disclosure improves valuation.

Manage The IR Function And Its Various Activities

It takes uncountable hours to handle all the activities comprising the investor relations function. IR department members can easily be the busiest people in the company. Entire days can be consumed answering calls from investors and analysts, filling requests for information, sitting in company or investor meetings or arranging them, writing press releases, coordinating activities with vendors; the list goes on.

That’s why it’s vital for the investor relations officer to organize and manage the function to get all the routine work done while leaving time to fill the important role of senior adviser to management on investment process and value creation.

The best way to ensure doing that is to start by writing down all the activities that must be handled as the basis to evaluate them and assign responsibility for completing them.  These range from the routine through the value-added.  Each company builds its own lists, tied to its needs and interests of management.

By way of guidance, we offer a list of routine activities.

  • Prepare and distribute press releases. 

Subjects cover a wide range: financial results, dividends, share buybacks, agreement and completion of mergers and acquisitions, joint ventures and partnerships, divestitures, spin-offs and partial public offerings, secondary equity and bond offerings, other major financings, debt reduction, significant cost reduction programs, executive promotions and appointments, board nominees and elections, 8-K filings (new material developments).

More: material contracts won and lost, significant new technology and product introductions, expansion into new product or geographic markets, new manufacturing or research or administrative facilities, plant or office expansion or real estate investments, significant contributions or changes in pension plans, material changes or additions to accounting practices.

Chapter 16 digs deeper into the value of releases as a communications vehicle and includes numerous examples as a guide for helping companies prepare releases on the same topics.

  • Prepare and distribute statements from company management in response to situations that are occurring. 

These may or may not be in the form of a press release.  Rumors, unusual trading patterns, a decision by the NYSE, AMEX or the Nasdaq Stock Market to halt trading, sudden death of the CEO, plant explosion or other crisis are examples

  • Answer requests for information. 

These come by phone, mail, email and fax. Thus, maintaining an information kit is part of this process, along with separate materials that can be sent by fax, electronically and by mail.  Assistants, secretaries, and fulfillment agencies can handle the bulk of these requests, including phone calls. 

The biggest time-taker involves the phone calls that an IR professional must take – usually from money managers, analysts, brokers and individual investors.  These can be valuable calls, opportunities to impart good information, build relationships, add or extend analyst coverage, motivate investors to become shareholders and shareholders to buy more shares. 

IR people need to be disciplined, careful in what they say, and actively engaged in time management when handling these calls.  On the phone as well may be short sellers, day traders, arbitrageurs, hedgers, students, troublemakers, well-intentioned but gabby individual shareholders, and people with nothing better to do. 

Being disciplined may mean setting limits on phone time each day.  How about one or two hours?  This can help put the focus on those calls offering the highest potential value.  Since you don’t want to miss anyone important, a limit should help impose the necessary personal discipline.

  • Arrange meetings with management for analysts and institutional investors, participate in those meetings, set up road trips, take part in broker conferences, conduct targeting programs to ensure having the right people in attendance. 

This involves being responsive to legitimate requests to interview the CEO or CFO or business head and being proactive in getting yourself and management engaged in ongoing outreach efforts.

  • Prepare presentations for meetings.  

Perhaps this activity should be on the value-added list.  Presentations run the gamut from offering little value to providing significant value to investors.  Too many of these presentations are overly basic; in these cases, investors would just as soon skip the canned talk and get into the questions.  Or, presentations can be chock full of meaty information. We suggest reading chapters 15 and 16 and looking at the examples for some thoughts on how to make presentations more substantive.

  • Arrange conference calls and prepare scripts and answers to likely questions during the calls. 

This too is an important activity, and one that is an integral part of the investor relations function.  Some companies spend days getting ready for conference calls, bringing together finance, operating, strategic planning and communications people to review financial and business results and make sure comments are well prepared.

Conference calls to cover financial results are linked to the preparation of the financial and business performance press release.  Content overlaps.  Thus, typically, the company’s disclosure committee and its board of directors’ audit committee are involved in discussing and reviewing financial results, and in preparing and reviewing the press release. 

The disclosure committee probably participates in or reviews the conference call script and answers to questions likely to be asked; some audit committees are doing likewise.

  • Establish and maintain the investor relations website. 

The majority of companies are outsourcing this activity, to such firms as, Thomson Financial and its CCBN operation.  The key is to make sure the website is comprehensive in content and always kept current. 

IROs also are more involved in maintaining the corporate governance portion of the website.  This duty frequently is shared with the corporate secretary/chief governance officer, corporate communications officer and/or general counsel. 

  • Participate in internal planning, strategy and program implementation meetings. 

These are essential in effectively executing the investor relations process.  IROs benefit tremendously from understanding corporate strategies and main initiatives to accomplish them.  Similarly, planners benefit from having a good sense of how the investment market is reacting to strategies and programs and is likely to react to new initiatives.

Thus, these sessions help create a better understanding of the IR function across management and gain necessary cooperation to implement various investor relations activities.  But they also can consume countless hours; the IRO may have to take the lead in demanding time efficiency.

  • Conduct sell-side analyst and buy side contact programs. 

Again, this is an important function, that’s integral to investor relations.  The traditional focus on the sell side has given way to more emphasis on direct contact with investors.  Still, companies benefit from a base of sell-side coverage and thus it needs to be a focus of IROs at firms with no or minimal following. 

This is another case where the IR department needs to apply discipline in time management, since analysts can chew up many hours in discussions of marginal value.  We recommend establishing a percentage of departmental professional IR time to sell/buy side contact, dividing it according to priorities. 

For example, 30% of professional time is devoted to sell/buy side contact, with 60% of that focused on the buy side.  These kinds of numbers can apply to a one or multiple-person department. You won’t be able to live by the percentages precisely, but the discipline provides incentive to behave in a more organized fashion and the basis to fine tune time allotments and measure progress.

  • Participate in the annual meeting. 

The IR role can include helping develop the script (with the lawyers and accountants), securing and preparing the facility, “hand-holding” any analysts or institutional investors who attend, arranging media coverage and perhaps a brief media session afterward, proxy material preparation, monitoring/advising on any proxy proposals or issues or governance issues. 

Typically, the corporate secretary oversees the annual meeting and the general counsel has a lot to say about how it is conducted and what is said.  The corporate communications department may handle the media. 

The investor relations officer should be involved in what the CEO/chairman says in his/her state of the business talk while the ballots are being counted.  This essentially is an “investor relations talk.” 

So should the IRO have a critical role in anticipating and preparing answers to questions that may be asked by shareholders.  This can be tricky assignment, especially when shareholder activists are in the room.  Investment managers and analysts probably will ask their questions separately, afterward; the IRO should ensure an opportunity to do this.

  • Participate in the preparation of the annual report, investment profile, fact book and other investor relations materials. 

The IRO may write these materials or be part of the planning/editing process, should they be supervised and written by the corporate communications department or outside free lancers.  Again, the quality of these materials reflects the reputation of the investor relations department as a viable, dependable information resource.  Analysts and investors will blame the IR department for a poor annual report or fact book.

  • Manage stock exchange relations. 

Working with the company’s exchange specialist or key market makers constitutes a basic IR activity.  The specialist is a valuable source of information on market intelligence – higher-than-normal trading volume, buying or selling of a large bloc of shares by an institution, unusual price movement, rumors or “street talk,” new institutions coming on board, new research report or recommendation having impact.

It’s useful to note that specialists and market makers are not insiders.  They are not privileged to receive non-public material information.  Apply Regulation FD: specialists and other traders gain material information from the company at the same time as the rest of the market.

  • Establish and maintain reporting systems to management and the board of directors.

This is an activity that can readily cross over into the value-added roles of the investor relations function.  Reports can be useful, or they can be extremely valuable to management. 

Routine reports include names of sell side analysts covering the company and their recent comments, their buy/hold/sell recommendations, and earnings/revenues estimates; largest institutional shareholders and their recent buy/sell activities; new institutional holders and those liquidating their positions; comparisons with peers on key financials, including ratios, returns, revenue/earnings results, free cash flow and other numbers pertinent to your industry.

Higher value reports add financial depth, interpretation and commentary.  They cite meaningful analyst comments, pro and con; describe industry and investing trends; report expert opinion on the direction of the economy and capital markets; interpret patterns of institutional buying and selling and the reasons; analyze the investing styles of investors moving in and out of the stock, suggest reasons and offer actions to respond and anticipate, centered on strategies and disclosure; and compare institutional movement to the industry and competitors/peers of special interest.

  • Conduct an international investor relations program. 

Your company may have a keen interest in building and maintaining an overseas shareholder base.  It can be tied to global business operations.  It can be tied to the ability to raise capital or achieve a higher valuation and stock price. 

There also is an obligation on the part of companies to maintain a valuable flow of information to investors around the globe who are shareholders currently or evaluating taking an equity or bond position. 

Plus, companies need to make sure domestic investors have a good understanding of non-domestic operations – facilities, products and markets.

We offer more detail on global IR programs in chapter 23.

  • Participate in shareholder services programs. 

Most of these are conducted by the corporate secretary and finance departments.  Investor relations can be a valuable resource and/or adviser, and help coordinate activities: proxy processing, governance, insider trading policies and practices, promoting dividend reinvestment and direct stock purchase plans, preparing a shareholder welcoming letter. 

Small companies often combine duties and responsibilities for investor relations, public relations, shareholder services and corporate secretary activities.

  • Be a leader in establishing and maintaining a proactive disclosure policy and practice.

This activity is definitely integral to IR, important and part of the most valuable services performed by the investor relations department.  A sound disclosure policy and proactive disclosure/transparency practices is the best path toward seeing the company’s securities priced and valued at their intrinsic worth.

The IRO should be, and is at most companies, a member of the disclosure controls committee that comes out of the Sarbanes-Oxley Act of 2002.  The IRO also should be a key member of any disclosure committee being run to determine policy and practices. 

A prime role of the investor relations officer is to be an advocate for transparency.

Primary Tools To Perform The Investor Relations Function

We are suggesting a set of primary tools to perform the investor relations function.

  • Dissemination of press releases, statements, and other announcements from the company. 

Traditional and largest providers in the U.S. continue to be PR Newswire and Business Wire.  Healthy competition is brought by PrimeZone and Market Wire.  In addition, there are several regional services.  U.S. services reach Canada and vice-versa.  Canada News Wire is a major provider.

Indeed, the wire services (still their popular name) have global reach though dissemination of materials via the Internet and facsimile.  They also have been busy forming worldwide networks, linking up with country-specific providers in Europe, Asia and Latin America.

Main use of the wire services is broad dissemination of press releases, especially those containing material information such as quarterly/annual financial results.  Companies specify audiences, keyed to the content of the release—financial, corporate, product, etc.  Coverage can include business/financial press, wire services, trade publications, popular magazines, daily and community newspapers, broadcast and Internet media.  Because of their wide distribution, wire services meet SEC Regulation FD (Fair Disclosure) requirements to cover the market simultaneously.

In addition to the media, wire service distribution lists include the sell and buy sides, educational institutions, trade associations, and more – coverage is far flung.

Releases are delivered online or by fax, the latter giving way to the former. Reaching investors and others literally everywhere, releases swiftly find their way onto hundreds of Internet sites accessed daily by millions of people looking for information.  These include the most popular investing and news portals – Yahoo, CBS Market Watch, Bloomberg, Reuters, Dow Jones and the others.  Business Wire and PR Newswire content is available on numerous websites as well as their own online locations, which serve huge audiences.

Competition has motivated the wire services to add features and capabilities through the years. The providers have been aggressive in bringing on services.  Companies can include photos, charts, tables, logos with their releases to encourage enhanced media coverage.  The services offer electronic filing of required documents directly into the SEC Edgar system.  Companies can put packages of information on the wire service Internet sites.  They can give shareholders access to proxy materials.

PR Newswire has teamed up with Thomson Financial to provide web access for conference calls and website management capabilities; Business Wire has a similar partnership with 

  • Filling shareholder requests for information.

This function is as basic as basic can be.  Heading the list of materials requested by shareholders, prospects, educators, and students are annual reports, SEC filings, investor kits, press releases, proxy materials, copies of executive speeches, investor profiles and fact books.  Requests come in by phone, fax, email and snail mail. 

Companies relay the requests to their fulfillment service or have them routed automatically to designated phone/fax numbers and email addresses.  Materials are sent in advance to the fulfillment firm.  Because they are geared to handle thousands of requests, the firms can perform the function at less cost than their clients.  IROs and their assistants save precious time. was launched as a fulfillment service.

  • Internet information sources. 

The Internet is rapidly becoming the chief information resource for companies, taking the lead away from such print materials as magazines, newspapers, reports, faxes. It should be noted that, while much of the information today is accessed online, people still make copies to reference the material at any time.  Magazine and newspaper clippings are giving way to printouts of electronic files.

Thus, a basic IR tool is access to key Internet information sources; budgets probably determine the scope.  Many are free or available for reasonable subscriptions.  Others are pricey, and valuable – Bloomberg, Thomson First Call, Reuters Research, CompStat, FactSet, Market Guide, Media General, among them.

The purpose is to have access to vital information that drives the market, economy, business, allows you to spot and track trends, stay current with opinion, commentary and knowledge levels about a sector/industry and company.  You should know and be able to communicate information, consensus opinion on a wide range of key topics to management. 

It’s equally important to know website content on the company – to be able to report it and correct it, if necessary.  Inaccurate data on information services used by investors such as CompStat can materially affect investment in your company.

Information, data, detail from external sources become research and content of company annual reports, presentations, and speeches that investor relations staffers are preparing for their executives, business heads and scientists to give at broker conferences, investor meetings and the like.

Investor relations officers are advised to take some time to do some research to establish an online information service base, consistent with what their budget allows.  It will combine free and paid services.  Companies that can afford it typically have Bloomberg, Thomson and Reuters terminals.  Check through your company to determine services already in place that can share, tying in the IR department.

  • Internet information sources for investors.

This is the other side of the coin – web sources of information on the company for investors, analysts and brokers.  The goal is to get as much information into the marketplace as possible, as a way to be readily accessible to anyone researching the company and to put the company name and information in front of people looking for new investments.

Professional investors build data and models on companies through their prime subscription services like CompStat, Bloomberg, Reuters, Thomson, Thomson First Call, Media General, Market Guide, FactSet and others.  They access sell-side research through First Call, Reuters, Zacks and individual brokerages.  They also turn to Edgar filings, using sources like Edgar Online, and company websites and to the hundreds of other electronic sources out there.  Each analyst and portfolio manager is inclined to have favorite sources.

Individual investors are a fundamental part of this research universe.  High net-worth individuals have budgets to access the more proprietary information.  The bulk of individuals turn to the popular sites that are free or inexpensive.

While company releases readily flow to most sites through the wire services, there are opportunities to pay fees to have materials included in a select group of databases used by institutions and/or individuals. These enable companies to extend their reach and be included in some sites that are highly valued by investors. 

  • Arranging conference calls and Internet access to the calls.

Conference calls have become a way of life for most companies, especially quarterly visits with investors following the release of financial and business results.  Some companies also use conference calls for mid-quarter updates and to cover breaking news.

An extensive number of call providers is available, managing the telephony for the calls by setting up phone lines, providing a moderator, handling invitations and identifying participants, coordinating the discussion portion by bringing on analysts and investors with questions.  Quality of the service is an essential ingredient for companies, making sure the calls come off without a hitch.  Leading call providers include ACT, Premiere, Global Crossing, ECI, Genesys, Citizens and others.

Most of the teleconference providers also give companies webcast capabilities.  Virtually all companies today webcast their calls; this serves to satisfy Regulation FD, which mandates giving the investing universe opportunity to access the information on the call.  Indeed, webcasting the call increases the audience sizably for many companies.

Webcasts serve as an inexpensive way to open calls to institutional analysts and portfolio managers as well as brokers and retail investors and the media, and to reach investors worldwide.  Companies can include slides, video, and additional audio to enhance information value.  Questions from the Internet audience are sent via emails.  Added costs are negligible, compared with adding phone lines to accommodate participants.

Surveys show that online audiences have about double coverage.  Average audiences for companies range from a few dozen to thousands of participants.  More typical is about 100 investors tuning into a call.  The numbers are higher for most mega cap companies, and can be over the top in situations where a company is in the news for some significant reason.

Companies also are archiving calls for investors and analysts too busy or listening to another call at the same time.  Most companies archive calls for 48 hours to one week, but some make the calls available until the next one takes place.  Just be sure to let audiences know the call is archived and include the date, so investors realize the information may have changed since then.

Leading providers of company call webcasting include the teleconference providers already identified as well as Thomson Financial and its CCBN subsidiary, and WI Link.

  • Conference call summaries and transcripts.

Time-constrained investors are relying more and more on conference call summaries and transcripts.  Summaries save time by highlighting the most important information.  Providers win their stripes by using people who understand the investing process and are good writers.  They also deliver quick turnaround after calls are completed.

Many investors prefer transcripts; they can be read when time permits and studied for certain content.  They become a reference as part of the analytical process.  Transcripts also start running shortly after the call begins, enabling investors to read what’s being said rather than listen to it.

Summary and transcript providers include Thomson/CCBN,, WI Link and CallStreet.

  • Events Calendars

Investors practically insist today on seeing published calendars from companies, giving dates of quarterly financial result releases, date and time of conference calls, annual meeting, key company-sponsored presentations, appearances at broker and other investment conferences, filing of SEC documents and more.

These should be published on the corporate website and also the various event calendar providers – Thomson/CCBN, WI Link, CallStreet, PR Newswire, BusinessWire and  Several popular investor portals also provide calendars.

  • Managing the company’s investor relations/governance website.

Common practice is for companies to outsource the content of their websites covering investor relations and governance.  This usually includes the construction and graphical appearance of the site plus navigation and links to other Internet locations. 

An analysis is likely to show that it is less expensive to outsource website content maintenance than it is to pay individually for the various pieces.  Major time savings also accrue from not having to contact, negotiate and manage a dozen or so supplier relationships.  And outsourcing raises the chances of keeping material on the site updated and fresh.

CCBN (now part of Thomson) was the pioneer in offering IR website design, content and maintenance. is also a major provider.  A host of firms provide pieces of the website, such as stock price charts.   These providers also have been opportunistic in adding governance content to company (client) websites. 

What information should be published on company websites covering investor relations and governance?  For the IR portion, CCBN suggests: an investment overview; stock information, including quotes, charts, historical price lookup and investment calculators; news releases; analysts covering the company; financial reports and presentations; fundamentals (numbers); event calendar; webcasts and audio archives; dividend history; answers to frequently-asked-questions (FAQs); email alerts, SEC filings; and ability to request information.

A checklist of content on the corporate governance portion of the website offered by CCBN should include: governance guidelines and policies; director bios and photos; committee composition; committee charters; the company’s definition of independence; name and bio of the audit committee financial expert; separate descriptions of relevant work experience of directors; other directorships of board members; codes of conduct and ethics; insider transaction data; share ownership breakout (insiders, directors, institutions); articles of incorporation and bylaws; CEO/CFO certifications.

Companies also might want to consider a governance FAQ section covering how directors are compensated, level of management ownership, description of management compensation and current numbers, management succession plans.  Add these possibilities: reports on director attendance at board meetings; regular program of sending out email alerts on new developments; email accessibility to directors; and a governance hotline for questions and discussions.

  • Access to analyst research, financial estimates and stock recommendations.

IR departments can’t function fully without having up-to-the-minute data on analysts’ stock recommendations and earnings/revenue quarterly/annual estimates.  Earnings data must include consensus and individual analyst forecasts.

Analyst recommendations, estimates and research should be an integral part of regular reports to management from the IR department; the CEO and CFO certainly will be demanding the information frequently.

Prime suppliers are Thomson First Call, Thomson I.B.E.S, Reuters Research, Zacks Investment Research and Nelson’s Information Service.  Increasingly, market intelligence suppliers are adding this sell-side information – Thomson, Standard & Poor’s Corp., Computershare, FactSet and others.

It’s just as important to have immediate access to analyst research.  IROs need to see new research and notes on their company plus relevant industry and investment peers immediately, since these missives probably are moving stock prices.  You want to be on top of any information that’s impacting trades, volume and price; informing management on the spot is a vital investor relations function.

The analysts will send their research on your company, and maybe on peers. Obtaining the notes is critical.  They’re typically cryptic and have impact and can come out at any time.  The best way to collect all the research and notes is through a subscription to First Call or Reuters.  Good relationships with individual sell-side firms and analysts also can yield copies of reports.

  • Numerous Shareholder services

Banks, proxy processing firms, brokerages and shareholder service specialists are the primary providers of numerous services for shareholders.  Investors register with the company or hold their shares in “street name” through a broker or bank.  Shares are transferred, usually to family members or as part of a will or estate. 

Shareholders receive annual and quarterly reports, proxy statements and materials/instructions to vote their shares, either by mail, phone or Internet.  Shareholders contact the company with a question or request, which can be handled internally but typically is outsourced.  New shareholders receive welcoming letters.  At many companies, shareholders can automatically reinvest dividends through DRIPs or buy shares directly through DSPPs.

Companies hire proxy solicitors to make sure enough votes are collected to meet necessary levels to pass resolutions such as electing directors and approving compensation plans, and to urge shareholders to approve the various proposals.  Dissident shareholders also hire solicitors to help gather support for their proposals; this always occurs when there is a proxy contest for control of the company.

Virtually all these services today are handled on behalf of companies.  They include stock registration/transfer; proxy materials preparation and processing; managing dividend reinvestment and direct stock purchase plans; managing executive compensation, option and employee stock purchase plans; proxy solicitation; filling information requests; conducting odd-lot buyout and roundup programs; coordinating internal trading activities; and helping manage the annual meeting.

Leading providers include Bank of New York, Computershare, EquiServe, Mellon, LaSalle Bank. Proxy solicitation firms include Innisfree, D.F. King, MacKenzie Partners, Morrow & Company, and Georgeson, which is now a part of Computershare.  ADP handles nearly all the proxy processing of beneficial shareholders today, representing brokerages and banks and working with proxy solicitation firms.

At most companies, the corporate secretary manages shareholder services, with support from the general counsel and investor relations officer.

  • Preparation of the annual report and other communications vehicles.

Investor relations people are intimately involved in preparing the annual report, investor profile, fact book and management presentations to investors.  The IR department may supervise the projects or actually prepare the materials, handling the writing and managing design/production. 

Frequently, the IR and PR departments work together on the annual report and other communications vehicles.  CFOs have the ultimate responsibility for the annual report at many companies.

Outside resources include designers, printers and writers.

There is increasing focus on producing investor-friendly online annual reports. While continuing to encourage companies to stay with high-styled printed annual reports, design firms have expanded their capabilities to create graphical, easily navigable Internet versions.  The trend clearly is for investors to access and peruse annual reports electronically, then print certain sections and pages to be kept as references. 

Graphic firms now are focusing their creative efforts on originating designs for the online editions.  In addition, and CCBN are among the providers converting the printed version, using HTML and PDF technologies. Together, these providers are leading the way in enabling companies to offer investors very usable online reports.

The Added Value of Market Intelligence And Investor Targeting 

Market intelligence and institutional shareholder tracking that also incorporates targeting are viewed at most companies as value-added programs.

Our definition of market intelligence in this context has two dimensions:

  • Ongoing information on broad market behavior, covering trends, analysis, key developments having impact, and expectations; and
  • Investor behavior in your company’s securities, affecting valuation, price, buying/selling patterns and expectations.

The first is satisfied through various sources, including the media and the many Internet portals covering the capital markets. The likes of Yahoo! Finance, CBS Market Watch, Dow Jones, Reuters, CNBC provide close daily market coverage.  In addition, several consulting and market intelligence firms deliver ongoing market analysis, available to companies on a fee basis.  These same firms advise institutional investors by providing market analysis.  They include Thomson Financial, William O’Neill, Bloomberg, Reuters.

Investor relations officers also have choices in obtaining intelligence on institutions building and selling equity positions in their companies and peers; content and cost span a spectrum and differ in usefulness and value. 

Basic data from these services consists of institutional share positions in companies gleaned from required filings by institutions, including mutual funds. All U.S. institutions holding $100 million or more in equity must submit a 13(f) file with the SEC each quarter, detailing those holdings among corporations.  Likewise, mutual funds must report their equity positions in companies semi-annually. 

Data crunchers have massaged these filings into a host of useful information sets.  The only issue is their timeliness, since the filings by institutions typically arrive well after the quarter and thus aren’t necessarily current.  Many buys and sells have been made since. 

Still, the data has a fairly high degree of currency in identifying which institutions hold shares, the approximate size of their positions and whether they are in a mode of buying or selling. The filings also reveal new institutions in the stock and those reducing or liquidating their positions.

Useful Data for Targeting

Most services identify the investing styles of each institution and include profiles that describe the portfolio composition; these vary in detail and value.  Institutions are identified as following a growth, momentum, GARP (growth at a reasonable price), core, value, income, index or other primary investing style.

Data is available on competitors, industry peers and companies with similar investing characteristics.  The latter group is useful because it identifies those institutions likely to be holding shares in your company or prospects to become shareholders, because companies with similar characteristics are already in their portfolios.  These characteristics include such factors as market cap range, revenue/earnings growth levels, return on equity/capital ranges, dividend yields, total shareholder return performance and numerous others.

How the provider analyzes the portfolios is an important factor in ascribing a level of usefulness to the information.  All the services dissect the portfolios based on the characteristics of companies within it – market caps, growth rates, price to earnings/sales/book value/cash flow ratios, returns on capital/equity/net assets, etc.  Thus, profiles report average P/E multiple, market cap range, revenue growth rate, etc. of the portfolio in defining the institution or particular manager as being in the growth, value, GARP or other investing style.

Among the more sophisticated analyses of portfolios are those from Thomson/Lafferty and Standard & Poor’s/Valuation Technologies.  Lafferty uses 14 financial metrics to analyze portfolios more closely.  These include revenues, earnings, economic profit, returns and market price to earnings, sales, book value and other ratios. 

Valtechs analyzes portfolios based on the primary factors driving them, using some 19 factors that constitute the bulk of models found in portfolios – market cap size, relative strength, earnings to price, discounted cash flow, EVA, CFROI, relative strength, cash plowback, neglect, growth-value (the styles range), historical alpha and others.

Additional, useful data from the providers includes the amount of equity assets managed by the institution/within the portfolio; a calculation to indicate the buying power or maximum amount of shares/dollar investment the institution can make in your company’s stock; address and general phone number; names of executive, chief investment officer, research director, analysts and portfolio managers, including phone numbers and email addresses; current top holdings in the portfolio. has carved a good reputation by staying current on buy side analyst and portfolio manager movement among institutions.

Some services drill deeper into institutions, breaking out separate portfolios or funds within the firm.  Large money managers and mutual funds, as examples, run numerous portfolios and funds, frequently spanning the investment style universe.  Fidelity, Vanguard, T. Rowe Price offer mutual funds in virtually every style: large, mid and small cap growth, value, momentum, income, balanced; index and enhanced index; by sector/industry; by country and region of the world; and more.

Companies use the data to monitor their institutional shareholder base, identify their top holders, gain a sense of which institutions are coming and going, which ones are increasing or decreasing their positions.  This data enables companies to focus communications on certain institutional shareholders and to know to be responsive when a big holder calls.

By studying the investing styles of these institutions, companies can better understand the reasons institutions are moving in or out of the stock.  A growth investor is looking for steady earnings/revenue results within a certain range.  A momentum investor demands higher earnings each quarter.  A value investor might be intrigued by what it sees as a lower price to book ratio than is deserved.  An income investor responds to a dividend increase.

Companies can direct strategies, and certainly communications, to investors based on their styles – covering shareholders and prospects.  Targeting programs seek to identify institutions with investing styles most closely tied to the company’s characteristics and financial performance, shown by the set of metrics.

Companies are advised to contact these institutions, focusing discussion on the manager’s main points of interest.  But don’t say the institution turned up on a targeting list; that’s a real turn off.  Providers deliver target lists, names of people to contact, compatibility scores, descriptions of the fund’s investing style and methods, and suggested topics for discussion. 

Thomson/Lafferty and S&P/Valtechs are among providers that give compatibility scores for every institution in their database – shareholders and non-holders. Those with the highest compatibility become prime targets.  Companies can gain a sense of the compatibility of each shareholder, identifying those likely to hold or buy more shares and thus should be the focus of communications, and those likely to sell, who you might want to try to keep or wait to wave goodbye.  The lists also suggest prospects to contact and institutions that probably have no interest in the company.

Institutional ownership of peers gives companies the same composite picture that investors have when making decisions on which stocks to buy, keep and sell.  Companies can compare all the key financial measures – revenue/earnings growth rates, returns, margins, capital investments, market ratios, market value, and more. 

IROs and CFOs also can compare investment in their company versus their competitors, industry leaders and others.  This provides a sense of the relative attractiveness of the company as an investment and shows how that is evolving – more buying or selling.

They can target certain institutions holding peers on the assumption the money managers already understand the industry or type of company.

A note of caution: the manager may already have analyzed the group and chosen other companies. Targeting institutions holding peers has limited value.  Of course, you might be able to change his or her mind.

Study the Services Carefully

Data services vary in content and cost.  Some information is available from the New York and American exchanges and The Nasdaq Stock Market.  Listed companies have the ability to identify their top owners plus those holding peers to focus disclosure and target.  Morningstar offers institutional names for targeting purposes.

Companies are advised to investigate the various providers, comparing services and features and costs. Do a cost-benefit analysis.  Be sure to receive a thorough demonstration that covers every function and feature of the system.  Ask many questions.  Have demonstrations repeated until you have command of the total capabilities.  These products are complex.  Comparing one to another requires developing a complete understanding of each.  You might want to include your company’s information technology guru in these sessions as an adviser.

Thomson Financial/Lafferty, Ilios, Vickers Stock Research, Computershare and FactSet (through its Lionshare operation) work directly with the SEC/mutual fund filings to produce institutional holdings data.  Thomson, Ilios and Vickers incorporate their data into their products used directly by companies.  Computershare also offers products directly to companies as well as to other suppliers; FactSet is primarily a wholesaler.

Other main providers of institutional ownership information, targeting and contact software use data from Computershare or FactSet.  These include, Citigate Financial, and S&P/Valuation Technologies.  It’s useful to note that Lafferty and CCBN are now part of the Thomson family.  Valtechs is the supplier to S&P.

Also available to companies is a data source to identify the smaller investment management firms – those managing less than $100 million in total equity assets.  By doing surveys of portfolio managers for decades, Rivel Research has built up an extensive list of smaller investment management firms.  Rivel now makes these names available to companies, segmented by regions and investment interests.

The Value of Market Surveillance

Surveillance is an integral part of the market intelligent quotient.  Surveillance takes investor identification a step deeper into the process, helping companies track institutional buying and selling soon after it occurs.  Surveillance is important in times of mergers, acquisitions, and hostile takeovers.  In those eras when managements worried about their companies being taken over, the ability to spot someone building a position in the stock was critical

Surveillance remains highly useful in enabling companies to quickly learn when trading is moving the stock price because an institution or group is engaged in sizable transactions – buying or selling. Stock watch firms track down the action and find out the reasons for it.  Leading firms include Thomson Financial, Georgeson, Bank of New York, EquiServe, D.F. King, Ilios, Innisfree, MacKenzie Partners, and Morrow & Co.

Market intelligence also includes sell-side behavior, which already has been described. The major providers of institutional ownership include in varying degrees packages of sell-side information – names of firms/analysts covering certain industries, analysts following specific companies, earnings forecasts, buy/sell/hold recommendations.

Investor Outreach Programs

Market intelligence is a key component in conducting investor outreach programs.  These are best done with targeted groups of investors.  They divide into two segments – institutions and individuals.

Institutional targeting centers on identifying firms with the highest likely interest in the company based on their investing approach.  Targeting through portfolio analysis as described in the previous section represents the state of the science today.

Companies also can work with directory listings of institutions.  There are several useful directories, listing firms and providing investing profiles, names and contact information. The Money Market Directory of Pension Funds lists investors by states and includes pension funds, investment managers and banks.  It is published by McGraw-Hill. 

Nelson’s Directory of Investment Managers is an alphabetical listing.  The directory of the CFA Institute (formerly the Association for Investment Management and Research) lists members by chapter.  Members are from both the buy and sell sides.  Nelson’s also has a separate sell-side directory of firms and analysts.

Companies can use these directories to build contact lists for email distribution of materials, to compose invitation lists for presentations by management in various cities, and to do some good old-fashioned cold calling.  But be sure to make an effort to qualify buy side analysts and portfolio managers first, by learning as much as you can about their investing interests.

And be sure to concentrate on current institutional shareholders in your outreach contact efforts.  There already is some loyalty among that group.

Outreach to individual investors is best accomplished by working with financial advisors and brokers, especially those with firms that have analysts following your company and better yet, with a buy recommendation on the stock. Another method: Investment profiles and articles in broker magazines that become reprints for brokers to use with clients.

Individuals also are efficiently reached through investment clubs, such as those belonging to the National Association of Investors’ Corp., where average portfolios are sizable.   Individuals are avid users of research on the Internet.  A good IR website, loaded with information that’s kept fresh, is an attraction, plus companies benefit from making sure they are putting their investment profile, annual report, and press releases on various retail-oriented websites. 

Working With the Outside Provider Network

An enormous support base of outside resources is in place to help the investor relations department.  Resources have grown to be such an important part of the IR process today that we caution IROs to make sure they don’t spend the bulk of their time managing this provider network. 

The goal is to build a resource base to get the various tasks handled and to capture the opportunities available from the services, then manage that process to optimize both cost and time efficiencies.

Part of this exercise focuses on evaluating and prioritizing activities.  We suggest placing each activity in one of three categories:

  1. Foundation and must be done: filling requests, press releases, shareholder services, proxy processing, IR website, annual meeting;
  1. High value and definitely worth doing: conference calls, sell and buy side relationships, analyst/institutional targeting, leading disclosure practices;
  1. Highest value, distinguishing the IR contribution: transparency practices to do away with the information gap, investment market feedback to management as input into corporate strategies and initiatives, managing an integrated corporate communications program.

Some activities qualify as necessary and valuable.  The best example is the press release.  While not required by the SEC, press releases covering financial results and other material news are a must (10Q and 8K filings meet the SEC requirement) and they also have become the primary news source of the investment market.  Investors participating in a more aggressive, shorter-term focused market today react immediately to material news reported in press releases.

IROs are advised to blend their thinking on using outside services and prioritizing activities — use vendors whenever possible and affordable.  We identify ways to do that in laying out a provider-support platform.  They save precious time by eliminating the need for staffers to handle the activity.  Good examples include request fulfillment, running the IR website and gathering data.  In most cases, outsourcing also improves quality and costs less.

These examples illustrate how vendors deliver services covering both routine and higher value activities.  This becomes obvious in our descriptions of key outside services.

The provider’s contribution has grown significantly over the last two decades, aided by new and improved applications of technology.  Expanding software capabilities and data delivery/crunching are leading uses.

As a result, the IR provider community has been dynamic, strengthening its role, marked by new players, becoming a bigger cottage industry, and experiencing consolidation, which is typical of fast-moving economic sectors. 

Vendor products peak the imagination, offer fresh ways to do things, bring new functionality, provide new information or new ways to assemble information, refine methodologies.  Much of it is impressive and appealing.  All this is why it’s important for companies and their investor relations people to evaluate each offering to make sure it is either necessary, saves money or time, or helps build the department’s capabilities and value to the company.

And, investor relations officers need to guard against making provider relationships the focus of their efforts.  These services are “means” to more important “ends.”  They are important ways to add efficiency, make available more time, and bring valuable tools to improving the IR work product.

Building An Investor Relations Operating Platform

With so many activities to conduct and coordinate, staffers benefit from having an investor relations operating platform.  Essentially, it brings together various functions, providing some control and efficiency in handling and managing activities.  Systems are computer-based with capabilities flowing from software.  They vary in activities that can be accomplished and cost.

Platforms provide companies with the ability to:

  • Access the Internet to conduct information searches;
  • Create email lists and send blast emails;
  • Tap into their company/peer shareholder identification/tracking database;
  • Conduct searches of institutions by their investing style, location or other criteria to identify appropriate investors to target, contact and invite to meetings;
  • Create invitations to meetings and blast email lists or letters and envelopes, and a follow-up email reminder;
  • Create a contact management system that allows making notes of contacts and conversations with individual analysts, investors, brokers and others;
  • Disseminate press releases and other material through a wire service such as PR Newswire or Business Wire;
  • Arrange their conference calls through teleconferencing and web casting service providers;
  • Establish and maintain their investor relations/governance website;
  • Access sell-side research, analyst estimates/recommendations;
  • Conduct proxy processing, providing statements and voting capabilities electronically.

Provider services range from basic software packages to complete systems capability.

Contact management providers/software include ACT, Microsoft Outlook/Outlook Express,, Goldmine and Streetfinity.  Many companies use the kinds of systems that are popular in sales, marketing and customer relations. 

At the other end of the spectrum are complete systems such as Thomson Financial’s IR Channel and platforms from Ilios’ IR Navigator, Citigate’s IRx, Standard & Poor’s Professional Investor Insight, and Reuters’ Knowledge.

Staffing The Investor Relations Function

The sheer number of activities that are part and parcel to investor relations can be overwhelming for a small (one professional/one assistant) IR staff.  That’s why outsourcing is a necessity.  It’s also the reason IROs must constantly evaluate each activity to make sure those with limited value aren’t taking up excessive time.

Managing the total investor relations function benefits from viewing it in steps or layers. 

The first is to set up the primary needs, relying on outsourcing as much as practical.  These include the website, press release dissemination, access to internal and external information such as corporate data and market news, conference call capability, fulfillment, an email system, shareholder identification/targeting, and sell-side research/estimates/recommendations.

Once these capabilities are in place, find ways to manage them routinely without heavy direct involvement.  Of course, it’s necessary to supervise them closely enough to make sure high quality implementation levels are maintained.  Train your assistant to manage many of them.  Establish specific, well-defined criteria as the basis of effective execution.  These criteria can be made into a checklist for successful implementation, clearly understood by your assistant and provider.

Gather help from internal and external sources.  Professionals in corporate communications can help with writing, media contact, producing graphics materials for presentations.  Professionals in the CFO’s office and accounting department can help with information gathering and related activities.  Coordinate governance-related activities with the corporate secretary; coordinate disclosure matters with the general counsel.

The goal is to get it all under control and done while leaving time to focus on the highest-value activities.

Focusing On The High Value Activities

Delivering the highest value results from being a key member of the value-creation team.

The role of chief adviser to senior management on the capital markets means bringing feedback to executives on how investors currently value the company, describing investor expectations and how they are reacting to key strategies and programs and how they are likely to react to new initiatives.

It means being part of the management team that participates in vital discussions and decisions involving value-creation strategies and programs.

It means advising on the information that has the most value to investors and thus stands the best chance of helping the market value the company’s securities fully.

We believe the investor relations officer should be performing the following functions/carrying out these responsibilities:

  • Suggest ways to create value, while showing them what destroys value;
  • Help analyze and evaluate current strategies and recommend new ones, based on your knowledge of investor attitudes;
  • Advise management on market expectations and how investors will react to key strategies and programs;
  • Describe for management the market’s current expectations, perceptions and evaluations of current strategies and programs;
  • Help management understand the financial, economic and operating metrics being used by investors to evaluate and value the company, including intangible assets;
  • Show management how these metrics as well as corporate strategies and programs are tied to shareholder value and stock price;
  • Build relationships with major shareholders and prospects to maintain insights into their perceptions and attitudes;
  • Maintain a strong, quality information flow throughout the investment marketplace;
  • Grow relationships internally and externally with all key constituent/stakeholder groups as a way to increase understanding of the value of the IR function and support for it;
  • Frame all discussion on the importance of information in a shareholder value, value driver, value-creating context;
  • Keep management current on issues affecting investment value;
  • Manage the disclosure and corporate governance processes;
  • Be an important part of the leadership team in integrating communications programs throughout the company; and
  • Make sure the board of directors is fully informed on market perceptions and attitudes and the status of the company’s investor communications.

Continue to Chapter 4.