Their mission: to put their company’s best face on display; to make sense and make forward looking news out of occasionally unpalatable facts without coming close to the suspicion of the shadow of a lie; to meet and greet, to wine and dine; to be the main source of information on their company for a vital constituency.
Sounds familiar? No, it’s not a job description for the idealized investor relations professional – but a description of the much maligned and often poorly understood public relations executive.
Public relations may be forever associated in the public’s mind, or at least the British and American public’s mind, with the hysterical harridans of the TV show Absolutely Fabulous. At the other extreme, it may be viewed by journalists as the mere ‘press office’ at their beck and call.
In reality, public relations – or external relations – practitioners are today concerned with the public in all its manifestations. That mainly means customers, of course, as a tool of marketing, but also government, regulators, industry associations and so on. PR can embrace everything from sponsoring school trips to setting up trade exhibitions, from managing the aftermath of a disaster to getting the managing director invited to the right parties.
So public relations and investor relations professionals are dealing with different audiences – and necessarily sending somewhat different messages, if only because what interests the local newspaper is not necessarily of much interest to institutional analysts. And the ways in which the two disciplines interact is usually defined by and reflected in the corporate structure.
‘There is a real mixture in terms of where investor relations fits into corporate structures,’ says one London-based specialist. Increasingly, she explains, at least in bigger UK companies, corporate communications and public relations will report to the chief executive officer or equivalent, sometimes via a corporate communications director. Whereas investor relations typically reports to the finance director or CFO. ‘We’ve seen that change over the last five to ten years, before which investor relations was very much part of the corporate communications discipline.’
In middle range organizations, however, ‘there is more of a trend toward combining the two roles. It very much depends on the level of investor activity.’
Less investor activity and more modest corporate programs mean that separate departments can amount to overkill. The finance director in such a company likely has more time on his or her hands to supervise corporate communications, obviating the need for a dedicated director.
But regardless of the circumstances of particular companies, Andrew Best of Shandwick Consultants in London insists that, although investor relations and PR are different, they must at least be bedfellows. ‘The message that is being sent out into the market has to be the same. I don’t see there’s any particular division and you can’t divorce the two.’
Gone are the days when PR meant the press and IR meant the analysts,’ remarks Philip Mann of Bamber Forsyth in London. ‘Now it’s all blending and those who are managing their communication effectively are the ones who co-ordinate and guide perceptions of all audiences.’
Bite of the Apple
However, bringing pr and IR together is not always straightforward. What happens when they overlap? Or worse, when they compete? For example, August’s purchase by Microsoft Corporation of shares in Apple Computer presented a situation where both investor relations and public relations had important messages to bring to their publics, but they were by no means identical. Investor relations was keen to emphasize the boost Microsoft’s $150 mn brought to Apple’s already impressive cash pile, as well as the reassurance of having a giant on board. Public relations, at least as far as customers and the press were concerned, needed to be reassured that Microsoft – long a hated enemy of many in the Apple-loving community – would not behave too much like a giant and force Apple users into unwanted ways.
Collaboration is obviously necessary, for practical as well as philosophical reasons. For example, there is sometimes a belief among communicators that institutional investors are above being swayed by the humble press, and that it’s therefore possible to control the message they receive tightly through the investor relations department. But in practice information flows back and forth between the media, the investors, the investor relations professionals, and the public relations department.
‘Certainly the media does have an impact on institutions – picking up conversations that reporters are having with analysts and people in the market, for instance. The quality financial media reflect the views of analysts and institutions,’ according to Shandwick’s Best.
Anyway, investors and analysts are, in the final analysis, individuals – just like the rest of us. They don’t only read the Wall Street Journal and the Financial Times; and they are subject to influences other than just those they are exposed to through their working lives.
That’s even more true of retail investors, of course; consumer public relations efforts are more likely to reach them than investor relations pushes, except perhaps at crucial times like flotations. Many retail investors don’t even read the popular investment magazines, never mind the heavyweight financial publications, so their knowledge of a company is more likely to be based on what they glean from mainstream newspapers and television.
The upshot of this is that even public relations that is not purely financial needs to be driven by, or at least take account of, financial imperatives; and it suggests that it’s neither easy nor necessarily desirable to separate the two disciplines absolutely.
One public relations professional consulting for advanced technology organizations in Europe says: ‘I can see all sorts of nightmares that would be so easy to happen. I predict this: any company which disjoints its investor relations and public relations functions – and doesn’t have cast iron checks to ensure a common message – will get itself into a public relations/investor relations tangle with contradictory positions sooner or later.’
Nevertheless, the trend since the early 1980s has been for public relations, like all marketing and communications disciplines, to become more and more specialist. Hence the growth of the crisis management expert, the pan-European public relations consultant, the focus group facilitator and so on. Even investor relations may be counted in this list as an example of a specialist external relations field, although it is now established as a separate department in 80 per cent of US firms, according to a 1996 Niri survey.
Winning Ways
The secret of success must be to keep the two departments coordinated while distinct: delivering a consistent message but in terms appropriate to the different audiences, via the different relevant intermediaries; and delivered by the relevant spokespeople from the company.
It may be no coincidence that some of the best companies at investor relations are also among the best in public relations. For example, Coke, Intel and McDonald’s were among the top five winners of this magazine’s 1996 Investor Relations Awards in the US, cited for their combination of marketing skills, knowledge of financials and market positions. All three companies are also noted for their public relations effort: Intel in calming criticism of the Pentium chip bug, for instance; and McDonald’s in its triumphantly successful branding among young consumers and its skill at working with local authorities to solve problems concerning restaurant sites.
The Niri survey cited above also found that 41 per cent of investor relations officers come from a corporate communications or public relations background, marginally fewer than the 45 per cent coming from finance. A further 17 per cent come from sales and marketing, suggesting that in America at least, investor relations professionals are more likely to be from a communications background than a strictly financial one. (The balance come from operations and other management fields.) People in the industry say that these numbers are probably about right for Europe, too.
Teaching New Tricks
So is there any truth in the old saw that you can teach a communicator to understand the numbers but you can’t train a financier to communicate? (Very likely the aphorism was made up by a public relations executive anxious for their job.) Or in a comment once made by Fruit of the Loom’s Mark Steinkrauss, taking the opposite tack: ‘If you can’t do the numbers you can’t do the dance.’ The answer is probably not. To be any good at the IR function, you must be able both to communicate and be at absolute ease with the numbers. Schmoozing may count, but not for a lot if you can’t inspire confidence in your audience that you’re a reliable source of hard financial information as well.
It may be a time of change for investor relations and public relations, but the change could be for the better. Throughout the corporate world, departments which used barely to be aware of each other’s existence are now talking to each other: marketing departments are now routinely consulted at the engineering stage of new product development, for example, where a couple of decades ago the engineers would have produced a brilliant invention and waited for the marketers to sell it.
Investor relations and public relations, likewise, need continued dialog – and perhaps all the more so now that they are increasingly finding themselves in separate departments with distinct targets. When they do, as those companies loved both by customers and investors will testify, it can be absolutely fabulous.
Disciplining the Disciplines
To identify the keys to effective coordination of the IR and PR disciplines within a company, we asked a range of practitioners from both fields for some tips from their experiences. Here’s a distillation of their comments:
Departments need to be aware of where their responsibilities start and end; and someone at the top should be able to resolve territorial disputes.
Wherever the fine line between investor relations and public relations is drawn, there needs to be some defined commonality of purpose and a shared knowledge base. Not only does this prevent the issuing of contradictory messages, but it allows both departments to handle simple inquiries that may strictly be the province of the other. A minor point, but an important one to valued audiences tired of being passed from one department to another.
Targeting the message to the recipient remains paramount, whether that recipient is an institutional or retail investor, journalist or consumer.
Routine everyday communication bet-ween the departments is useful – copying every press release or set of presentation notes to colleagues, for instance.
Annual report time, and to a lesser extent interim or quarterly results times, are occasions when the two disciplines must work together. Not only is it arguable that this is the most important occasion in the investor relations department’s year, it’s also a time when every company, however obscure, will receive at least some attention.
Every practitioner is familiar with the phenomenon of results that are actually better than expected being presented in the press or on the grapevine as disastrous, usually because of a one off extraordinary charge, or a failure to realize that dramatically decreasing losses may be far preferable to static profits in some markets. It’s at moments like these that company reputations can be made or broken.
All year round, timing is paramount. One professional compares the media, in the broadest sense, to a porous membrane: you may pour the information into one side but it will soon leak through to the other. A public relations department issuing investor sensitive material before the investor relations department is aware of it could be catastrophic. So could, for example, investor relations briefing analysts on the implications of a product liability judgement before public relations has had a chance to prepare its side of the story.
Bridging the Gap
At the end of last year Ford Motor Co reorganized its IR and financial media relations in an attempt to make its messages more consistent and seamless.
Before the reorganization, the IR function – run by Mel Stephens – reported to the group treasurer, who in turn reported to the CFO. After it, only relations with rating agencies, debtholders and credit-line banks remained within the treasurer’s remit; all the other financial relationships fell within a new merged department handling both IR and financial media relations.
Reporting lines changed, too, underlining the extent to which this was a real marriage of at least major chunks of the PR and IR functions. Stephens, the head of the department, switched to having dual reporting lines: one to the CFO, the other to the vice president for public affairs.
Mike Holland, Ford’s investor relations manager, has no doubt that the reorganization has improved matters. He says the external messages have become more consistent; and it’s now easier for staff to coordinate strategy and implementation. ‘For example, it means that if a journalist is working on a story about an area which we know an analyst has a particular insight into, we can connect the two.’
But the structure has not remained static, even since the reorganization. Holland cites the fact that from May 1 the department took on additional areas: global news; and sales reporting & analysis.
This addresses a problem that can affect all sorts of companies. It is that PR people announcing, say, increased sales in a particular market, might treat this as a ‘good news’ story. And so it probably is. But increased sales are not necessarily reflected in immediate improvement to the bottom line. Bringing the announcement of this kind of data within the department responsible for IR should ensure that the media – and analysts – are told the timescale and extent of any bottom-line impact at the same time as they are given the data.
Holland stresses that this is just one indication of the flexibility which the new structure affords. ‘We’re continually analyzing the group so that we can refine the organization further,’ he says.
