by Victoria Duff

 This article was originally published in The Productivity Institute (PI) Newsletter

Whether your company is private or public, you need to establish an investor relations plan.  If your company is private, if you have any investors you need to have a strategy for keeping them informed.  Furthermore, a good investor relations plan will form a framework for attracting new investors or new money from your existing investors.  If your company is trading on a public exchange, you need formal investor relations activities to protect and grow the market capitalization of your company.

There are two kinds of investor relations campaigns:

• Those that cheapen the image and perceived value of the company.
• Those that establish an image of transparency and trust, enlisting shareholder support through a carefully managed sense of community, and thereby enhancing the perception of the company’s value.

The best way to cheapen the image of a company is to conduct the typical ‘pump-and-dump’ campaign of email blasts and rapid fire press releases that hype unimportant developments.  Just as it is inadvisable to lie down with dogs lest you arise with fleas, it is also important to carefully select the providers and styles of investor relations. 

Above all, good investor relations is not marketing – it is education.  Even if your company is private, good investor communications prevent problems.  There should never be an instance of hype.  There should never be a promise of great market gains in the near future.  There should never be hints given or secrets leaked to a few because that causes short-term speculative buying and selling, and it also gives rise to an aura of insider manipulation.  Success follows sticking to a well-crafted set of talking points.

Shareholder distrust is the first cause of problems.  The best way to limit problems is to involve the shareholders, analysts and institutional buy-side in a dialog about the company.  This does not mean indulging in selective disclosure because it is a practice that, no matter how well-intentioned, usually results in serious problems with rampant rumors that eventually lead to shareholder distrust.  A dialog means that the company treats investors as allies not enemies.  The easiest way to turn an ally into an enemy is through secrecy and dissembling, so the best way to keep the trust of an ally is through openness and candor.  Applying this knowledge to investor relations, the lesson is for the company to travel the middle road, announcing bad news as well as good news and making the top management available in a public forum, at least Quarterly, to answer questions from shareholders and the institutional buy-side.

Poor earnings, lawsuits and other bad news about a company can often be overcome by a strong investor community that firmly believes in the intrinsic value of a company and the eventual financial payoff. 

In planning an investor relations campaign, it is important to consider historically proven factors:

• Investors want more information that allows them to build a ‘total image’ of the company.  This includes:
  o Greater detail in financials.
  o Direct dialog with company management.
• Analysis of what the broad range of institutional buyers are seeking in their investments and a campaign to identify specific institutional buyers, understand their needs and expectations, and influence their perceptions of the company is valuable.
• Analyze the company’s most appropriate industry identification (R&D? Pharmaceuticals?  Healthcare?) with respect to its investment marketplace valuation.
• Direct communications from top management to investors adds to the perceived image of truthfulness and quality.  The best way to do this is through conference calls and Webinars.  It is never a good idea to have the Chairman or CEO available to talk with shareholders that call in to the company with questions. 
• The best way to deal with a crisis is to not let a crisis happen.  That means company communications should include bad news as well as good news.
• Any appearance of selective disclosure, concealment of negative news, or any perceived lack of ethics are the surest ways to leap from a potential problem to an actual one
• Organized message – talking points and party line.  No conflicting information points.

Victoria Duff, founder of Southern California-based aBusinessPlan.com, is a widely acclaimed start-up facilitator, enterprise analyst, strategic advisor, venture finance catalyst, investor liaison, author, and speaker.  Her depth of experience lends itself well to efficiently providing solutions to over a decade of happy repeat clients.  Her advisory practice can be found at:  www.aBusinessPlan.com  Ms. Duff is available on a retainer or project basis vduff@abusinessplan.com .