GUIDE TO IR: Understanding IR - Investor relations is moving closerto PR, but to many it remains a big mystery

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....

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