Best Practices in Investor Relations

Amid a flow of rules, regulations, and scandals, companies are searching for new guidelines and measures.

As the investor relations function has grown more strategic and complex, IR professionals are seeking ways to measure how well they’re doing.

On one hand, potential yardsticks abound for measuring overall IR success: stock price, the shareholder mix, analyst ratings, and financial metrics such as price-to-earnings ratios. But on the other hand, IR professionals often lack meaningful ways to measure how the wide array of individual corporate practices and processes entrusted to them stack up against other companies’ practices.

“Best practices for IR has a lot of different dimensions,” explains Kurt Fawkes, vice president of investor relations for Sprint Corp., based in Overland Park, Kansas. When quantifying best practices, Fawkes points to two measures: the cost to operate the investor relations department, and a maximum premium for the stock. However, he maintains that “the responsibility of the investor relations officer is to make sure that the investment community is fully informed [about] the pluses and the minuses of investing in a company’s equity. That’s an intangible goal that’s tough to measure.”

Amy Goodman, a Washington, D.C.-based attorney, offers a legally oriented approach that takes into account the practicality of daily operations and realities. “Best practices to me are practices that a large majority of companies use because they are effective [in complying with the law],” says Goodman, who is of counsel to law firm Gibson Dunn & Crutcher. “IR is all about interfacing with your investors. So you want to have an effective program that’s going to do both.”

Why is it so hard to determine how well a company’s investor-relations practices stack up?

For starters, it’s difficult to aggregate even broad information about specific corporate practices. Moreover, what constitutes “best practices” for one company or group of companies may not work for another with a different market cap, industry, or shareholder base.

“There’s nothing specifically published that says ‘this is the way you should do it,’ ” says Leonard F. Griehs, senior vice president of investor relations for Camden, New Jersey-based Campbell Soup Co. “Every company defines [best practices] for themselves, based on the level of commitment of their own management.” For example, if a peer company’s CEO is present at all investor meetings, that may be a best practice, but not every CEO is willing and able to commit to such a schedule. Furthermore, notes Griehs, resources in the form of money, time, and staff can make an enormous difference in what a particular company can accomplish.

Determining a set of “best practice” prescriptions or guidelines is useful for any company, but is particularly critical for companies in flux, such as companies building an IR function for the first time, undergoing a radical change, or embroiled in crises.

“A ‘best practice’ is dictated by a company’s status at any one point in time,’ ” says Campbell’s Griehs, who also is a former chairman of the National Investor Relations Institute (NIRI). “Let’s say you have a major change in management because the company stumbled. You may change the practices you use to go to the investment community in a way that you wouldn’t do if you had a stable management and earnings growth for the past five years.”

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