Investor Relations and Financial Communication. Alexander V. Laskin
the periodic reporting, investor relations programs are responsible for nonperiodic filings, current reports (Form 8-K). If a company experiences a significant event that can influence its fair value, it is a responsibility of the IROs to notify investors about this event. IROs cannot wait for the next quarterly or annual report for such disclosure; in fact, in many cases, companies have only four days to inform the market about the new developments. In some cases, it may even be less than four days. Such events that can influence the company’s fair value and that companies must notify investors about are called material corporate events. Once again, IROs would work closely with the corporate legal counsel and other departments to prepare and file those reports.
In addition to the periodic and nonperiodic disclosures initiated by the company, it is also common for IROs to spend a significant amount of time responding to investors’, prospective investors’, and financial analysts’ queries. Since investor relations is built upon two-way communications, IROs must be available to and accessible by the investment community. IROs are the point of contact for those who are looking to better understand the company and have questions about its business model. Thus, IROs respond to email, phone calls, website communications, and other queries from the investors. As a result, disclosure is a mixture of proactive and reactive communications and is perhaps the most common activity for the investor relations professionals.
Related to disclosure is the IRO’s outreach to the investment community. It is common for IROs to organize and participate in one-on-one meeting with investors, where a current or prospective investor would have the chance to sit down with the IRO, CFO, CEO, and other top managers of the company in order to develop a really good understanding of the company. Such meetings are especially valuable for investors or financial analysts new to evaluating a particular stock. IROs also organize meetings with groups of investors, participate in investor conferences, and perform roadshows – large-scale events where top managers of the company visit its largest investors to provide updates on the company’s business.
All these efforts are part of building and maintaining relationships with the members of the investment community. Shareholders invest in anticipation of future returns and if there is no trust in the management team, the promise of the future returns does not mean much. Trust and relationships serve as the foundation for all the information being disclosed.
Sharing a wealth of information about a company and helping investors and analysts better understand a company’s fair value requires investor relations professionals to be exceedingly knowledgeable about the company, and also to have good working relationships with almost every single department throughout the organization. If a company’s research and development department (R&D) is on the verge of a technological breakthrough, it is important for the IRO to understand the details of this technology, and to understand how it may affect the future of the company and the industry in general. If one of the company’s factories is investing resources in buying new equipment, it is important for the IRO to understand why these investments are needed and how they might affect the company’s business in the future. If the marketing department lowers the price of the company’s best-selling product, the IRO should know and be able to explain what is behind this decision.
For example, if Tesla’s R&D comes up with a new “tabless” battery design, Tesla’s IRO should know what it actually means, what kind of technology is behind it, and how it is likely to affect future car design, production, and user experience. Only then, can IRO appropriately educate the company’s investors on all these details to help them properly understand how this new technology can influence the fair value of Tesla. As a result, a big part of an IRO’s job is learning about the company, meeting with key people at the company, being present at important meetings, traveling to various plants, facilities, and branches, and simply being in the know.
Finally, as previously mentioned, investor relations is a two-way communication function. The management team of the company makes IROs responsible for keeping them informed about the company’s shareholders and what they think about the company. The company’s management wants to know who the company’s shareholders are, how much stock they own, who is buying and who is selling the stock, what are the trading prices and volume, and what the reasons are behind the trades. IROs conduct shareholder research and monitor changes in the stock trading and ownership patterns. IROs may prepare reports for the management team indicating this information and provide additional details on large institutional shareholders. IROs also collect financial analysts’ and business journalists’ reports about the company competitors, and the industry, and provide that information to the management of the company. IROs are also responsible for collecting and, if needed, communicating any other feedback from the investment community to the company’s management. IROs are also involved in corporate governance issues, facilitating relationships and communication between the Board of Directors and the executive team.
Other Jobs in Financial Communication
Investor relations is limited to the corporate sector of the economy – only corporations have investors. There are no investors in government or not-for-profit organizations. It is impossible to become a shareholder in the Department of Education, for example, or own stock in the Red Cross. It does not mean, however, that there is no financial communication and no financial communicators in the governmental and not-for-profit organizations. In fact, some of these government or not-for-profit organizations produce significant amounts of financial information.
For example, most countries around the world have some type of central bank authority, a governmental agency with supervisory and regulatory powers responsible for the country’s banking system and monetary policy. Many of the communications coming from the central banks focus on financial information. In the United States, since 1913, the Federal Reserve System, or simply the Fed, has served as the central bank authority. A year after Congress created the Fed, the Federal Reserve delivered its first annual report and has been providing these reports ever since. In addition to annual reports, the communicators at the Federal Reserve produce a large volume of publications, including publications of the Board of Governors of the Federal Reserve System, publications of District Federal Reserve Banks, statements and speeches of the Federal Reserve, economic data publications, and various statistical releases. The Fed is responsible for collecting, analyzing, and communicating such important data as the federal debt, gross domestic product, consumer price index, industrial production, and many more (Figure 2.1). Similar to investor relations professionals, financial communicators at the Fed must go beyond just putting the information out there into the void: they need to ensure their audiences understand the information, what the information means, and frame it in the appropriate economic, political, and social contexts. In other words, they have the function of explaining the information and educating their audiences. Former chairman of the Federal Reserve System, Ben Bernanke said, “Perhaps most important, as public servants whose decisions affect the lives of every citizen, central bankers have a responsibility to provide the public as much explanation of those decisions as possible, as long as doing so does not compromise the decision-making process itself.”
Figure 2.1 Monetary policy report. Source: Board of Governors of the Federal Reserve System. February 19, 2021.
Of course, many other departments in the federal government are also responsible for communicating financial information – the Department of Treasury, Internal Revenue Services, Securities and Exchange Commission, and many more. The same is also true at the state and local levels. For example, in the State of Florida, the Florida Department of Revenue communicates large volumes of financial information about money collected as taxes and distribution of tax money. Similarly, the Florida Department of Lottery provides information about money collection and spending from the lotteries. Since money is the lifeblood of the modern economy, even the agencies that do not necessarily focus their work on financial matters communicate financial information from time to time. For example, law enforcement agencies may talk about money laundering or counterfeit bills, while various health departments may talk about costs