The question of how to attract and retain a quality shareholder base is the holy grail of communications for all public companies. But because many of the people involved in the investment process come from a finance background, discussion often revolves around quantitative metrics. However, those metrics only go so far in explaining investor behavior.
In the spring 2008 issue of McKinsey Quarterly, three analysts suggest a good way to segment investors and guide IR efforts ("Communicating with the right investors," by Robert N. Palter, Werner Rehm, and Jonathan Shih).
They propose a three-way segmentation between what they term "traders" (focuses on immediate return), "mechanical investors" (relies solely on quantitative screening), and "intrinsic investors" (has an interest in understanding a company's corporate strategy and focuses on long-term value creation). They argue that this last group has a determining influence on the valuation of stocks they hold because of the nature of their trading, and as a result of a "psychological effect" - in other words, through media and third-party interest.
In looking at the types of information intrinsic investors access while building their investment thesis, the McKinsey authors find that qualitative information is key. For intrinsic investors, the company's Web site, management information, and media profile; industry analyst reports; and industry outlook, are all as important as the last quarter's numbers. In fact, if any one piece stands out, it is management-focused information. Intrinsic investors want to know a management team's background, view of their industry, and future strategy for the business.
The attention the authors focus on gives investor relations and corporate communications practitioners some ammunition.
From our perspective, a few preliminary recommendations are:
Get your information out there: Intrinsic investors rely heavily on company-supplied information in the initial review and due diligence phases. The more information that your company can provide, the more influence [it will] exert on perception in those key phases.
Talk about the industry and the market environment, not just about your company: Results-based information isn't necessarily company-focused, but if investors don't understand your industry or your position within it, they are less likely to support the company and hold a stock through volatile periods. This is particularly important in technology and other complex industries, where surface similarities can hide deeper differentiation.
Realize that a public profile for management and the corporation can be essential: McKinsey's article shows that an effective presence for management is not self-serving, but impacts investment decisions.
In our opinion, the key is a holistic approach. A company that aggressively protects and enhances the understanding and visibility of all parts of its business will be afforded a superior corporate reputation, investor base, and valuation.
Bryan Armstrong is a partner and Patrick Van de Wille is an AVP at advisory firm FD Ashton Partners.