Keeping shareholders - and potential shareholders - abreast of
developments that may affect a corporation's stock has long been key to
a company's health and wealth, and investor relations is at the center
of that process.
But despite its importance, PR's financial sibling is still shrouded in
mystery. Since the profession is heavily regulated compared to PR,
speaking freely can be not only unwise, but sometimes illegal. In the
worlds of mergers and acquisitions (M&As) and initial public offerings
(IPOs), the least said about the inside detail of the deals the better,
meaning that little information ever appears about the role of IR
But although PRWeek's Guide to IR has been somewhat hampered by the
difficulty of sourcing accurate data, particularly on agency activities,
we have been able to put together what we consider a comprehensive
snapshot of the workings of this sector.
First, a definition: like PR, IR is a corporate marketing activity. Yet
the goal of IR is to combine the disciplines of communications and
finance to accurately portray a company's prospects from an investment
PR people may not be familiar with some of IR's audiences: bank analysts
who comment on a particular company or industry to the media, individual
and institutional investors, shareholders, and prospective
But audiences increasingly include segments of familiar PR targets:
employees who want to know what a company share price means for their
options, nest egg or 401(k), and the financial media.
IR can be handled in-house, or by an agency on a retainer or project
basis, and is often handled by both agency and in-house teams. IR agency
people are more apt to report to a divisional manager or corporate
communications VP, while IROs (IR officers) often report to a company's
chief financial or executive officer. This reporting structure can give
IROs coveted access to the highest levels of corporate management, as
well as levels of respect that are the envy of many a PR exec. But
whether a company chooses to put in-house IR under the corporate
communications umbrella or to separate out an IR department, by virtue
of their financial specialization, IROs still consistently gain greater
access to the corporate boardroom than their PR brethren.
Blurring the distinction
In fact, the IR label itself, like the PR label, is under some dispute,
further muddying the waters. Like PR folks, who increasingly style
themselves as "communications consultants," IROs may call themselves
financial communicators or shareholder or analyst relations officers.
Some firms refuse to be identified as IR shops, fearing old stereotypes
of penny-counting, quarterly-earnings-release writers will overshadow
the scope of today's IR offerings.
Like PR, which can range from media relations to corporate counsel to
crisis, IR is not one service, but a series of interrelated
At the high end of the billings spectrum is bankruptcy communications,
litigation communications, and strategy, which can cover long-term
corporate goals and M&A activity. Also hovering at the high end are
The IPO market is currently as deflated as last year's dot-com bubble.
But in the past few years, it has led to big profits for IR agencies
that set up road shows, management meets, and wound their way through
Securities and Exchange Commission (SEC) paperwork. High-end work like
this is often project-based, but can lead to lucrative retainers. Agency
experts peg profit margins as high as 50% at the high end of
At the lower end of the billing spectrum is nuts-and-bolts IR. This
includes financial announcements (yearly, quarterly, and increasingly
incremental company updates reporting on the whereabouts of company
dollars), regular outreach to analysts, and annual report writing (the
year-end glossy document that reports not only numbers, but also
corporate vision and goals). Agency experts peg profit margins at 10-15%
at the high end of offerings, and even the IR shops with the highest
prestige levels spend at least a quarter of their time on these
low-profit, but steady business services.
Specialty areas include specific targeting of institutional investors,
and offering disclosure advice and shareholder analysis. These areas are
occasionally supplied by firms, but are often the province of high-end
Bad IR sticks out
Like good PR, good IR is often invisible - and poor IR is easier to
spot. Lou Thompson, president and CEO of the National Investor Relations
Institute (NIRI), an IR professional organization, uses the stock
market's recent reaction to the Compaq-Hewlett-Packard merger
announcement as an example of when investor relations could have been
better. On September 4, the day the $20 billion stock deal was
announced, HP shares fell nearly 19% to a five-year low. Compaq fell
about 10% - the company's biggest drop in more than four months. A good
IR strategy, Thompson says, would have helped Compaq and HP to identify
and answer market skepticism over HP's ability to deliver in the service
area before that skepticism asserted itself on stock prices.
Thompson's IR complaint is similar to PR grumbles over being called into
a crisis too late: "It is the job of the consultants and the IR people
to figure out the market's likely reaction to a change in strategy, like
an acquisition. This is far more proactive than making the decision and
going to your IR firm and your IR staff and saying, 'Here's my decision;
go sell it to the market.'"
But for all they have in common, PR and IR are very different
communications animals. While SEC regulations are not a gag order, some
companies and IR agencies use them as an excuse not to speak to the
press - in good times and bad.
IR often requires stealth
Some companies are even loathe to reveal a contract with an IR firm,
fearing the access given to "outsiders" would make competitors believe
the company cannot handle its own affairs. More importantly, companies
worry about sensitive information leaking outside their walls. For this
reason, IR agencies rarely identify their clients or their work.
Some of the top agencies working in the IR field are familiar names to
the PR world: Fleishman-Hillard, Burson-Marsteller, and Hill &
But the IR specialist agencies like Kekst & Company and Abernathy
MacGregor may be unknown even to PR experts. High-end and low-end work
tends to be split between the full-service agencies and the IR shops as
clients seek either well-known IR names or a combination of services
from the companies known for both PR and IR work.
Yet, the Chinese wall between IR and PR is crumbling. "All roads of
communication lead to shareholder value," Thompson says. "Consequently,
we'll see PR and IR being managed under one umbrella. For the last
decade or more, the emphasis in IR has been more financial than
communication. As non-financial communications are more and more proven
to affect stock price, we're going to see the pendulum swing the other
Which means, for those PR people who still don't understand IR, the
clock is ticking....