Chapter 8Investor Relations
8-1
Definition of Investor Relations
The National Investor Relations Institute defines Investor Relations as: “A strategic management responsibility that integrates
finance, communication, marketing and securities law compliance to enable the most effective two-way communication between a company, the financial community, and other constituencies, which ultimately contributes to a company’s securities achieving fair valuation.”
Source: National Investor Relations Institute, NIRI Corporate Website – www.niri.org, accessed August, 2007.8-2
15-3
Investor Relations (IR)
Provides information to investors according to regulations governed by the United States Securities and Exchange Commission (SEC).
Began in l933 with the passage of the Securities Act and the Securities Exchange Act of 1934—aimed at protection of the public from abuses in the issuance and sale of securities.
15-4
Investor Relations is aimed at:
Helping the firm’s securities reach their market price. IR professionals encourage stockholders to buy and hold company shares and persuade Wall Street financial analysts and institutions to take an interest.
Shareholders are necessary to support management’s objectives.
Objectives of Investor Relations
The main goal of IR is to position the company to compete effectively for investors’ capital To achieve this, IR focuses on the following objectives:
Explain the company’s vision, strategy, and potential to investors and “intermediary constituencies” such as analysts and the media
Ensure that the expectations of the company’s stock price are appropriate for its earnings prospects, industry outlook, and the economy
Reduce stock price volatility
8-5
15-6
The Investor Relations Professional seeks to: Win shareholder support through timely
and valuable communications. Serve as their link to the organization. Provide information according to SEC
regulations. Uphold ethical and professional
guidelines.
IR Directly Impacts Stock Price
Corporate Investor Relations activity could account for as much as a 25% variance in a company’s stock price, according to a recent study Study surveyed 243 buy-side investment professionals
from leading mutual funds, pension funds and insurance firms 82% believe good investor relations affects a company’s
valuation “Superb” IR is associated with creating a median stock
price premium of 10% “Poor” IR is associated with a median stock price
discount of 15%
Source: Holmes Report, “Investment Professionals Believe Communications Adds -or Subtracts- Value,” July, 2007.8-7
Investor Relations Framework
• Stock Price• Cost of Capital• Volatility• Reputation
8-8
IR Has Many Responsibilities
IR is responsible for a wide variety of investor activities, some regularly scheduled and others that arise on an as-needed basis Regularly scheduled activities
include: Marketing the Brand to Investors Annual Report Investor Meetings/Conferences Internal Valuation Models Quarterly Reports & Conference Calls Maintenance of Website
Event-driven activities include: Investor Targeting Crisis Communications Merger & Acquisition Issues Cross Border IR
8-9
15-10
Materiality
Materiality refers to corporate decisions that cause an investor to buy, sell, or hold company stock.
Companies must disclose information that is considered to be material.
15-11
Examples of Material
Proposed mergers or acquisitions Change in dividend policy, capital
investments Determination of earnings Acquisition or loss of significant business
contract Major management changes Purchase or sale of significant assets Major discoveries or inventions Marketing new products
15-12
To be in compliance with the Securities and Exchange Commission (SEC)
Organizations must engage in timely and
full disclosure
15-13
Full Disclosure
Full disclosure refers to all investors being informed quickly, fully, and fairly about material corporate information.
An issue that has come up recently has been selective disclosure—that is, providing information to some investors but not all investors.
15-14
The SEC tries to limit:
Insider trading
While at the same time it tries to facilitate Disclosure
This way, information reaches all, not just a few who would have unfair advantage.
15-15
The New York Stock Exchange(NYSE) Governs large companies that are
members.
15-16
15-17
15-18
Question……
Do you remember who resigned as Tyco’s CEO under the allegations of tax evasion?
First name Hint: Mr. Wilson’s young neighbor— always carried a slingshot, hung around with Joey.
Answer: Dennis Kozlowski
15-19
Investor Relations Professionals
Deal with the stock market analyst Analysts are responsible for determining
the value of stock based on its current value in the market and their expectations of the company’s future earnings per share.
There are two types of analysts: sell side and buy side analysts
15-20
Analysts Breakdown
Sell-side analysts research stocks and attempt to predict future earnings and place recommendations on each stock to buy, sell, or hold.
Buy-side analysts work for large institutional firms, such as mutual funds, investment advisers, family trusts, and pension funds. They find stocks and their institutions can purchase them and make a profit.
15-21
Internet Investor Relations
Organizations today use the Internet to reach investors. They must provide information to the investors that is honest and trustworthy.
15-22
Internet Communications:
Homepage providing information Web site serves as a service to new, as
well as seasoned, investors and attracts potential investors
Information can be controlled through an integrated site rather than distributed randomly
Investments can be done online and investors can research investments on the Internet
15-23
Nike’s Investor Relations Website
Recent updates are clearly highlighted
Use of videos allows investors to get a better sense of
senior management
Real-time stock quote
Ability for investors to customize their
own page based on the info they want to
seeStrong use of
Nike’s branding
reinforces the brand image
with investors
Links to company and
investor information are accessible and
simple
Investor press releases are easy to access and up-to-
dateSource: Nike Corporate Website, www.nike.com, accessed August, 2007.
8-24