GUIDE TO IR: Investor relations: corporate - Imagine having thecompany's fortunes in your hands. Welcome to the IRO's world

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

financial media.

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

shareholder actions."

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.

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