Market meltdown puts investor relations' pros under the gun
The meltdown in North American stock markets is going to be the first major challenge for investor relations departments, a new body of professionals who are battling with marketers and PR execs for their share of control over corporate communications.
Investor relations is similar to public relations, and in many companies the functions are combined. But IR departments focus is on communicating with business journalists, analysts and investors, while PR departments target the entire public.
The problem is that these audiences increasingly overlap. According to the Toronto Stock Exchange, about half of Canadian adults now own stocks either directly, or indirectly.
And investors also buy products. So how a company is portrayed in the financial media can have a big effect on its brand value. Good investor relations is valuable because publicity in financial media, --like all publicity - costs next to nothing says Daniel Rabinowicz, president of Cossette Communication Group's Montreal office.
"Some companies get more value from free business coverage, than they do from paid-for communications," said Rabinowicz. "So getting the right message out is crucial, especially in the case of companies like IBM, McDonald's and Coke, (whose) corporate name is also their product name.
It thus comes as no surprise that IR is an exploding profession. Membership in the Canadian Investor Relations Institute has grown from 294 professionals in 1994, to more than 800 today. These include representatives from almost two-thirds of TSE 300 companies, up from 40 per cent in 1997.
People are turning to increasing business coverage in almost all media to follow their investments, including newspapers, magazines, the Internet, television business channels such as CNBC and ROBTV, and regular stock reports on many radio stations.
To get the investment community's attention, the IR pro's main tools are annual reports, press releases, quarterly financial statements, annual general meetings and conferences with the analysts who cover company stocks. These conferences are increasingly broadcast over the Internet, making the stakes even higher.
The emergence of investor relations departments presents a big headache for both marketing and PR departments, both of whom have been increasingly fighting for control of their share corporate communications.
The problem is that if you have three different departments communicating with the public, the opportunities for delivering contradictory messages skyrocket. (Picture a marketing department launching a "feel-good" or a "we're number one" campaign, the same week investor relations officials announce a quarterly earnings estimate downgrade).
This problem is exacerbated by the fact that while many CEOs are pushing advertising further down in the corporate hierarchy, almost all of them keep a direct hand in investor relations.
"The investor relations function is directly tied in with building shareholder value, which many CEOs view as their main responsibility," said Rabinowicz. "So it's not surprising that almost all CEOs get directly involved."
Investor relations pros define their role narrowly compared with marketers and PR people. (IR) is charged with "giving the public an accurate portrayal of a company's prospects, so they can make properly informed investment decisions," said Joey Brown, president of the Canadian Investor Relations Institute.
The investor relations function has existed as long a public companies have been around, however for a long time, it was a minor function, sometimes performed by a clerk whose job it was to mail out annual reports.
Conferences with analysts were often be handled by a CFO, who called the three or four people covering his company and gave the inside scoop. The public would get this information second hand in a report or newspaper story a few weeks later.
But IR's emergence as a separate management discipline has coincided not only with increased public stock ownership, but also with increasingly tough regulatory disclosure requirements, that specify material information be released to all stakeholders simultaneously.
Investor relations pros in business today have had it easy for the large part of their careers. Budgets and salaries have gone up steadily. And often, with corporate earnings rising year-after-year throughout the 1990s, and the market awash in venture capital, their function has been mostly to trumpet good news.
But now that the stock indexes have turned south, and the economy is heading into a recession, its going to be a lot harder for IR pros to get favorable press for their clients and employers, and the public is going to be much more skeptical. So the IR people are finally going to get a chance to earn some of that money.
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|© 2001 Peter Diekmeyer Communications Inc.|