What is investor relations?
How does investor relations relate to public relations?
Investor relations (or IR) is a specific sub-discipline of public relations that revolves around how a company communicates with investors, shareholders, government authorities, and the financial community.
Unlike regular public relations practices, investor relations practices must be tightly integrated with a corporation’s accounting department, legal department, and top executives such as the CEO, CFO, and COO. Investor relations also has significantly more regulatory requirements than standard public relations, owing to financial and legal requirements mandated by governments.
The purpose of investor relations is to ensure that a company’s stock is being traded fairly through disclosure of key facts that allow all investors to assess whether a company is a good investment or not.
Investor relations as a formal discipline has been around as long as publicly traded companies, but became much more important in the United States in 2002. That year, Congress passed the Sarbanes-Oxley Act (also known as the Public Company Accounting Reform and Investor Protection Act) which drastically increased the reporting requirements of any company that was publicly traded on a stock market exchange. This occurred in response to a number of serious corporate scandals with shadowy accounting, shell companies, and a variety of other practices, most notably by the Enron Corporation.
WHAT DO INVESTOR RELATIONS PROFESSIONALS DO?
Public relations teams and agencies that handle investor relations typically do tasks such as:
- coordinate shareholder meetings and press conferences
- release financial information (one of the most common uses of the press release today) to the investor community
- conduct financial analyst briefings
- publish quarterly and annual reports
- handle any crises that arise as a result of financial disclosure
Investor relations teams and firms also need to be well-versed in different regulatory requirements regarding disclosure of financially-relevant events such as:
- quiet periods, when companies may not make certain kinds of statements that may affect an IPO
- Safe Harbor compliance
- Certified financial statement disclosures
- Purchasing and selling of stock by key company figures
- Material financial events which may affect stock performance
WHEN DOES A COMPANY NEED INVESTOR RELATIONS?
The best time to engage an investor relations firm and start to build out an investor relations team is the moment a company considers going public as a corporation with an initial public offering, or IPO. Companies shouldn’t delay until the filing of an S-1 form (to register intent to go public) to start thinking about investor relations; an investor relations program should be built in lockstep with the IPO process from the start.
As companies establish and refine corporate governance around financial disclosure, investor relations teams should be codifying governance outcomes and preparing them for eventual release. When companies conduct internal financial audits, investor relations teams should be involved in the discovery process so that any unpleasant findings can be handled and disclosed in compliance with regulations. When material changes
Ultimately, investor relations is a vitally important part of a publicly-traded company’s communications program, both for compliance and relationship-building purposes with the investment community. If it’s well-run, not only does a company meet all regulatory requirements, it builds great relationships and trust with key financial and investment analysts.
Disclaimer: this article was written in the context of United States financial law, as regulated by the Securities and Exchange Commission (SEC). If you’re a friend of SHIFT in a different nation, your financial laws are almost certainly different.
Christopher S. Penn
Vice President, Marketing Technology