Boards of directors are often unpleasantly surprised when an investor becomes an activist and launches an attack on the company, pushing them to put the company up for sale or to spin off a unit. They are caught off-guard not necessarily because they were unaware of the investor's dissatisfaction with performance or pace of growth, but instead with the timing of the attack.
The most valuable function of an IR officer is to provide senior management and, where possible, the board with a steady flow of information on the state of investor sentiment. The fewer surprises, the better. Like a scout, the IR officer needs to be in regular contact not only with the equity and debt analysts that track his company, but also with investors, hearing what's on their minds. While IR officers don't want to cross the SEC's Fair Disclosure rule and seek to keep the playing field level, they can and should speak to investors regularly.
While a key part of an IR officer's role is to answer investors' questions, an equally vital role is to ask questions. Of course, not every investor will want to engage in a meaningful dialogue, but some will. What those investors tell you could help your company better understand the extent and level of satisfaction with the company's business performance and management, even raising a red flag to warn of possible trouble. Investors speak to each other, and they can tell you what they're hearing.
Companies that aim their products at consumers spend vast sums of money on focus groups and other related research, but then they hesitate to reach out to investors to gain a deeper sense of their goals and time horizons. That's shortsighted. Just like a consumer, institutional investors will sell their shares or go public if their needs go unmet. Ignoring them creates a potential hazard.
If your budget allows, engaging a third party to conduct an investor audit is the best way to go because it often allows for more candor, which usually means, more useful information. Investors will likely speak more freely when they are talking with someone they don't rely on for day-to-day company information. No one wants to turn off that faucet. Analysts' reports are also helpful, but they don't provide enough background or texture.
Undertaking an audit also shows investors the company wants to know the “truth,” rejecting Jack Nicholson's “You can't handle the truth” sneer in A Few Good Men.
Such audits lay out investors' concerns and can provide a road map for a company's messages. If you know what's on your stockholders' minds, then you can respond meaningfully in your investor presentations and meetings. Otherwise, you might appear to be speaking two different languages and out of touch.
Investor audits are meaningful tools that, if conducted once a year, create an instrument for measurement. Audits don't guarantee success, but they give you a fighting chance.
Fred Bratman is the president of Hyde Park Financial Communications. He can be reached at email@example.com.