At the height of the years of dot-com excesses, executives at
poster-child company Yahoo! had real-time icons on their computer
screens showing how much their stock was worth. Given that so many of
the employees were also stockholders, their enthusiasm for the share
price of their company was understandable. But few employees these days
are ignorant of the importance of the value of stock, and very few
companies don't devote at least some time to making sure current and
potential stockholders can make accurate buying and selling
Jack Bergen, president of the Council of PR Firms, says that in some
ways, corporate IR is a discipline closer to his heart. During his
three-year stint as head of corporate relations at Westinghouse/CBS in
the mid-1990s, PR and IR both reported to Bergen.
"When I hopped over to the corporate side, I realized that in the agency
world, I had had no idea how important IR is," says Bergen.
The principal interest of everyone in a company, Bergen explains, is
stock price. It's the first thing discussed in executive meetings, and
is even posted at reception in some companies so employees can check
their options or 401(k) plans every morning, lunchtime, and evening. The
IR team not only kept Bergen up to date on stock price, but was also his
ticket to respect in the corporate boardroom. Executives appreciated the
charts and graphs supplied by the IR team more than they did the
instinctive decisions of PR folks, says Bergen.
"The most important function for me internally, to have within my own
influence at the executive level, was the IR function," says Bergen. "As
a PR person, I knew if I wanted to deal internally within the
corporation and make a case with the CFO, the CEO, the division internal
managers - all of whom are used to dealing in the left-brain, more
quantitative world - I would reach into my IR group and use their
Despite their outsize importance to Bergen and others, though, in-house
IR teams are often small, even at the largest companies. According to
National Investor Relations Institute (NIRI) membership numbers, the
average size of a corporate IR department is between one and two people.
Two-thirds of corporate NIRI members report to the CFO. But at smaller
companies, the CFO alone may handle the IR job and hire an agency to
perform anonymous, time-consuming tasks such as writing analyst
At some companies, PR and IR are handled under one umbrella. At others,
the functions are kept apart, and may have limited interaction.
The Investor Relations Association (IRA) is a by-invitation group of 35
people, mainly from Fortune 500 companies. Of those companies, just
under 43% (15 of 35) have combined PR and IR operations, thanks to the
convergence of the two disciplines. But Lou Thompson, president and CEO
of the NIRI, says that percentage is too high. He says the number is
likely between the IRA's 43% and the NIRI's calculation of 10% of 5,000
members who have dual PR and IR titles.
Everybody's in IR
"All roads of communication lead to shareholder value," says Thompson.
"Today, there's a recognition that non-financial performance plays a
dominant role in shareholder value, but, that's a more difficult thing
to communicate than the numbers."
At General Electric, PR and the four-person IR team are housed
separately, but work closely together. The company's manager of
financial communications, Dave Frail, is part of the public affairs
department of GE corporate communications, but handles earnings releases
and media questions regarding corporate finance. He also has some
corporate responsibility for mergers and acquisitions.
Frail says that corporations have found it in their best interests to
have a PR team member communicate IR goals.
"I should be a virtual member of IR," says Frail. "I don't speak to
analysts or to institutional buyers, but the media - particularly the
financial media - has grown substantially over the past seven years. I
have experience in talking to reporters, and there are enough reporters
out there asking questions about financial matters that I can have a
full-time job doing that."
While GE maintains various PR agencies for corporate, international, and
product divisions, the company does not employ a regular IR agency, nor
did Frail's previous employer, Verizon. Industry experts say the
sensitivity of financial information makes companies reluctant to share
it with outsiders.
Gauging the quality of IR work
The secrecy of the profession makes it difficult to gauge quality, as a
high stock price doesn't necessarily indicate IR prowess. For example, a
tech company may have a great IR department, but if stock prices for an
entire sector are down, they are not necessarily a reflection on any one
company. Instead, IR experts agree that tricky-to-track opinion on the
Street is the most important contributor to a good IR reputation.
Judging the best IR departments by the 2001 Investor Relations Magazine
Awards winners, the best overall award went to GE for a mega-cap
company, Dynegy for a large-cap company, Tiffany & Co. for a mid-cap
company, and Plantronics for a small-cap company. Honorable mentions
included Cisco Systems, AFLAC, eBay, and Akamai Technologies. The awards
for most-improved investor relations went to Corning and the Walt Disney
Company in the mega-cap category, Compaq in the large-cap, and Archer
Daniels Midland for mid- and small-caps. To judge the awards contest,
Investor Relations magazine commissioned an independent survey of
portfolio managers and buy-side and sell-side analysts. Retail investors
were surveyed via the web.
The awards have no category for IR agency or agency-related activities,
but industry insiders say this is not surprising, considering a recent
NIRI report in which 56% of IROs surveyed said they were not involved
with consulting firms. Just under 25% of respondents said they were
"very" involved with outside firms, and 20% said they were "somewhat"
Who does what
Even when a corporation uses an IR agency, there seem to be no real
trends in which tasks go to an agency and which are handled in house.
Common tasks handled by an agency include setting up analyst and
investor meetings, annual report writing and production, and news
release writing - especially for small companies. Tasks kept in-house
typically include face-to-face meetings and management positioning in
Special activities such as M&As are nearly always handled both in-house
and by an agency. M&As, for example, are often high-pressure, with not
enough time for an RFP or pitches. Bankers, lawyers, or members of the
board recommend a firm, and work begins as soon thereafter as
Industry insiders say, for example, Abernathy MacGregor has a tie with
corporate law firm Sullivan and Cromwell, and Citigate Sard Verbinnen
has a close relationship with banking house Morgan Stanley. Kekst and
Company is rumored to have a special relationship with corporate,
industrial, and financial law firm Skadden Arps.
Ruth Pachman, Kekst partner, says urgent project work can forge a
lasting IR relationship between a company and an agency, even when the
company had never before used an agency.
"Many companies that come to us with a specific high-profile challenge
often stay with us many, many years, as we become a partner in their
day-to-day communications work," says Pachman. "We're often involved in
a critical stage in a company's life cycle, and people often come to us
having heard of our experience in M&A or proxy contests, but the bulk of
our work is still traditional IR and corporate communications work."
Yet, agency trends in corporate IR are split. Some agencies and
corporations report that budget cuts have led companies that employ
agencies to handle more and more IR in-house. Others report an
increasing reliance on agencies, saying companies have been spurred by
confusion over SEC Regulation Fair Disclosure to hire an agency.
Agencies have invested resources into understanding Reg FD, and many
promote their expertise to companies concerned about following the new
rule. Another major change - the rah-rah '90s economy turning to the
millennial money meltdown - has some corporations eager for advice on
how to report negative earnings, which is a first for many of them.
"It's been a tough market for many companies," says Judy Wilkinson,
partner at Joele Frank Wilkinson Brimmer Katcher. "They have wanted our
advice on a variety of serious business issues, including management
changes, earnings surprises, write downs, asset sales, and dissident
Regardless of the economy, corporate IR will continue to be an important
part of the communications mix. Current downsizing has made employees
all too aware that market cap affects their job and earnings status.
Financial-media copy moves word on the Street, and vice-versa. And
companies without strong IR teams will be left without the people,
tools, and knowledge needed to move markets.