A short history of investor relations (IR) tells a lot about where it is today. Alexander Laskin, PhD, also takes a shot at what it could be tomorrow as he examines the IR research base in a new section of the Institute for Public Relations' Essential Knowledge Project.
In terms of IR as an important management function, Laskin identifies three eras over the last six decades. First came the communications era, from 1945 to 1970. General Electric chairman Ralph Cordiner laid down a marker for other companies to follow by putting all shareholder communications into one specialized department.
"The economic boom of the post-WWII years created extra income in the hands of the American public," writes Laskin. Competing for funds held by more hands was new to corporations, so they turned to communications professionals.
But PR practitioners back then didn't possess much financial expertise, and sometimes not much strategic expertise either. What they did know was mass communications. They pushed information one way from the corporation to its owners, with little if any audience research. Laskin argues this tainted PR's image within the financial community for years. Then came the financial era from 1970 to 2000, when accountants and financial professionals took over IR.
"Under the supervision of CFOs, investor relations activities became focused on providing financial disclosure to investors. The focus changed from mass media to one-on-one meetings with institutional shareholders and financial analysts," writes Laskin. Professional investors readily told companies what they wanted, which led to more persuasive messages aimed at raising share price.
The Impact Of Intangibles
But are accountants and financial professionals really best suited to know what to do when the primary factor driving (or whipsawing) stock price is the CEO looking too thin? IR professionals must understand the numbers, of course, but what about the intangible aspects of the business?
The synergy era, which began around 2000, may offer the best of both worlds. Companies increasingly recognize that successful IR practitioners must have communication and finance skills. CEOs expect their IR people to get involved in corporate strategy, senior management decision-making, and telling investors the good and the bad.
"The goal is not high value of stock, but fair value of stock," writes Laskin. "Overvaluation can be as negative as undervaluation because it can lead to a sudden drop in price as well as to increased price and volume volatility when additional information becomes available."
Is There Enough PR In IR?
The respect that CEOs have for the IR function helps explain why it shows up as the highest-paid PR specialization in many surveys. But Laskin argues that there may not be enough real PR expertise in the field.
"Two-thirds of IR officers have backgrounds in finance or accounting rather than in public relations or strategic communications," says Laskin. "In other words, public relations expertise in investor relations is significantly underutilized, at least on the corporate level."
The Future Of IR
Based on available research, what might the future hold for IR? The professor covers three trends: XBRL, IR on the Internet and the continued globalization of investment markets.
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XBRL (eXtensible Business Reporting Language): Automates financial reporting through a series of "tags" which allow numbers to flow directly into a financial analyst's own models. Laskin references the ongoing debates between IR people wanting more leeway to create company-specific tags and analysts who believe that would undermine the standardization that makes XBRL valuable in the first place.
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IR on the Web: Meanwhile, regulators openly encourage more use of Internet-based communications. PR practitioners are generally more savvy about this environment, the speed it requires and the need to sometimes exercise restraint in responding to negative postings.
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Globalization: Finally, globalization of financial markets, despite the current economic situation, is here to stay. "Just 10 years ago, companies from all over the world could not envision a better outcome than listing on the NYSE," writes Laskin. "Today, we've had the first American company to conduct its IPO in Europe on London Stock Exchange. Even the companies trading domestically on NYSE or NASDAQ have increased their numbers of shareholders from all over the world." PRN
CONTACT:
This article was written by Frank Ovaitt, CEO of IPR. He can be reached at [email protected]. Dr. Alexander Laskin, assistant professor, Quinnipiac University, can be reached at [email protected].