What is meant by investor relations (IR) activities ?
|@@IR Frequently Asked Questions (FAQ)
Up to now IR meant financial public relations. In other words, disseminating financial information to investors. But times have changed. The methods up to now no longer hold, due to the globalization of financial markets, stricter regulations, a jump in the number of lawsuits, and so on. So there has been a shift away from a one-way street, to a two-way information exchange with the investor universe (= accounting standards boards, investors, securities exchanges, etc.).
So you say there has been a change in what IR should be ?
Yes, that is right. Put simply, IR now plays a role of a capital markets advisory function. As a result, IR focuses not just on the past, but also on the current situation, and future trends. Specifically, it means the activities of disseminating information on financial management, compliance, marketing, public relations, etc., and strategic management.
So why bother with IR ?
To maximize a companyfs share price. There is some misunderstanding about IR. Even now, many practitioners, unfortunately, think that it is just about disclosing the financial condition. While past achievements will be a reference yardstick, investors always want to know about future earnings. Also, a lot of IR is done by people lower down the organization. Rather, to realize the strategic function IR should be, the top management must become involved.
So what do investors want to know ?
Corporate value creation from now on. So that means: how can the corporate strategies and top management achieve the earnings targets, and how can the good earnings continue to be achieved ?
Are you pinpointing a long-term vision ?
Yes. An organization must have a visionary leader who can draw a map of where the organization aims to be 5, 10, 20, 50 and even 100 years from now, and is capable of navigating through all types of environmental changes (=macro factors).
What specializations are needed for IR ?
Many are needed now. Specifically, these include an understanding of: how securities markets, accounting standards, investment yardsticks, business strategies and management, rules and regulations, marketing, information dissemination, public relations, and proper documentation. Global organizations must at least have information in English.
Should organizations analyze themselves ?
Yes, basically they should. Securities analysts, for example, practice this. As an IR team, you should do so as well in an objective way. This will facilitate proactive and optimal information disclosure with the investor universe. Amid the globalization, investors always want to know whether or not your organization is putting strategic management into practice. Referring to Darwinfs evolution theory, gIt is not the strongest that survive, but those most responsive to changes in the environment.h I think you can understand the significance of IR in relation to the changes in the world by learning from Darwin.
What are the benefits of an effective IR program ?
The benefits are very broad. First, your organizationfs cost of raising funds through the stock markets will go down. And in turn, increased liquidity and traded volume in your stock. Other major benefits include: promoting a better understanding about your organization, an enhanced corporate image, expansion in growth opportunities and earnings potential, and greater ability to raise money for mergers and acquisitions.
How do you rate organizations that operate globally in their reach for foreign investors ?
Some have a foreign shareholding of 60% to 70%. So clearly, they must be doing a great job in their overseas IR. But there are many others that have only a small fraction of foreign ownership. So their overseas IR efforts are clearly insufficient.
What are the advantages of having foreign shareholders ?
Ultimately, an organization will be exposed to different ways of thinking that may lead to more effective methods for business management, maximizing technologies, improving business models, and so on. As a result, the countries where your organization operates, including the home country, can all benefit and prosper.
What is your message to any organization about foreign shareholders ?
Welcome them with a red carpet ! These include not just sovereign wealth funds, but also private sector funds. Foreign money could expand your home countryfs investments and lead to further prosperity.
What is the best way to attract foreign investors ?
An effective overseas IR program. Put simply, timely and regular information disclosure in English at least is the most effective way. Organizations must consider the global competition to attract money. Some analysts call this a beauty contest. I prefer to call it a ggem contest.h An organization must always polish itself, and shine. While beauty lasts as long as onefs youth does, a 100-year old organization can shine beautifully like a diamond.
What are the problems with overseas IR ?
Quality and quantity of information (in English). There is a big difference in the information given in onefs home language and English. If foreign investors can access the same quality information in English, then I think the number of foreign investors would increase significantly. An organization must enlighten foreign investors about why it is an attractive investment.