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 Almost 50 years ago, a function called "investor relations" was created within the public relations division at General Electric for the purpose of communicating with investors. In those days, individuals rather than institutions dominated the investor community. The concept of investor relations (IR) evolved slowly over the next 30 years, largely within corporate communication divisions of major publicly held companies and as a consulting function in public relations firms.
The creation of the National Investor Relations Institute (NIRI) in 1970 was evidence of the need for a professional association to establish a code of ethics and means for professional development for those charged with the job of communicating with the investment community.
IR had its roots in the Securities and Exchange Act of 1934 that contained the periodic filing requirements for annual and quarterly reports and the Securities Act of 1933 that requires that information communicated to investors must be truthful and not misleading. Some would contend that the regulatory aspects of IR are what differentiate the function from PR. A look at the NIRI Standards of Practice for Investor Relations would support that contention.As mutual funds began to grow and dominate the market in the late 1980s, the focus on individual investors as a function of corporate communication began to shift to the corporate finance division since analysts and portfolio managers preferred to get their information directly from the chief financial officer or someone reporting directly to him or her. Today, two-thirds of NIRI's 3,900 corporate members report to a CFO. Twenty-six percent report to the CEO where most are responsible for the combined functions of IR and corporate communication.
Coming Together
So, what is going on that would suggest that IR and corporate communication should converge? Put simply, all roads of corporate communication - IR, PR, employee communication, strategic communication, corporate branding, etc. - support the enhancement of corporate value. Today, Professor Baruch Lev of the Stern School of Business in New York says about 80 percent of the average S&P 500 company's market value is due to non-financial factors or intangible assets - factors that cannot be found in companies' financial statements. The most important of these is "quality of management" followed by such factors as innovation in new product development, intellectual capital, research and development activities, use of technology, corporate brand and corporate governance.The function of IR - generally considered a hybrid of finance and communication - is to accurately communicate relevant financial and non-financial information so the market can determine the company's value relative to its peers.Yet, there seems to be little consistency in how companies communicate non-financial information to the institutional analysts and investors. This calls for new valuation models incorporating both financial and non-financial factors along with means for communicating that information to the investment community.It also suggests, from the standpoint of message development, that the company speak with one voice - that there be consistency in corporate messaging. Today, in many of the larger corporations, IR and PR operate in separate silos. For example, in some companies, the IR officer is not allowed to talk with the financial media, so a media relations person in corporate communication takes a query, refers it to the IR person who provides a response back through the same channel. In this situation, there's no opportunity for a dialog. Investor relations officers talk willingly with analysts and there's little difference between the role of analysts and reporters. Some IR pros are afraid of the media and prefer not to deal with reporters, but this does not work in today's disclosure environment.
The concept of "convergence" of IR and the other corporate communication functions should be driven by the need for functional coordination, as opposed to being driven by the organization chart. While the ideal situation may be to have all corporate communication functions managed by one person who reports to the CEO, the reality is that many CFOs may be reluctant to give up the IR function. In either case, the days of operating in silos are over. Companies have too much at stake to allow this practice to continue.
(Source: PR News)
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