These are tough times for investor relations officers. And we’re not just talking about IROs at tech companies or dot-coms. In a market correction (dare we call it a bear market?) and in times of national tragedy such as the one we are now living through, even the best companies have trouble being heard over the tumult on Wall Street. For mid-sized and small-cap companies, the challenge to communicate with the investment community can be even more daunting.
So, you are at a publicly traded company, with a solid business and an even brighter future. Some day the clouds will break and the sun will shine again on Wall Street, and to prepare for that time you want to position your company to be the beneficiary of the inevitable upturn.
But how? The strategy is straightforward: keep your existing shareholders and find new ones. ‘Well, no kidding. Thanks for that piece of insight,’ you’re probably saying. But there’s more to keeping current shareholders and finding new ones than mere press releases and conference calls. It requires a consistent, ongoing assessment of what you are communicating to the investment community, how you are saying it, and to whom. This requires research, feedback and a willingness to adjust your financial communications program to meet the needs of investors, both existing and prospective.
Knowing needs
Let’s first look at existing shareholders. The key to keeping them as shareholders (other than not running the company into the ground) is knowing their needs and then meeting those needs. This is accomplished by qualitative and quantitative survey research that measures the effectiveness of your communications efforts (or lack thereof). Remember, these are the owners of your company. It is important that they understand what their company is doing and why. Further, it is important that any misperceptions be dealt with and corrected.
There are five Ms that are at the core of any IR research program: message, market, media, measuring and monitoring.
Message What should I be telling my shareholders? Is the company’s positioning strategy in line with shareholder expectations? What issues are resonating the most and, therefore, what issues should get the most attention? For instance, if your company is profitable, those issues could involve expected earnings growth. If not, they could be revenue growth on the path to profitability. A biotech may have to clearly communicate what medical problem will be solved by its technology. If your company is in cargo shipping, the issue could be global trade. Identifying the key issues allows a company to build on its strengths and neutralize its weaknesses. Obviously, every company has a different message. You probably have a pretty good idea of what your shareholders are interested in hearing, but an effective research program can confirm (or modify) those messages, and it can tell you how effectively you are getting through.
Market There is a virtually infinite universe of potential audiences for your company’s message. For example: analysts vs investors, growth vs value players, and size and type of institution, to name but a few. But, most IROs do not have infinite time and money to reach every potential investor, so they have to choose which investor audiences are most likely to be receptive. Through qualitative research and targeting, a proactive investor relations outreach can land the right message with the right audience.
Media This is an often-overlooked aspect of investor relations outreach. These are times of instant communications and the options available to an IRO are myriad. Furthermore, the requirements of Regulation FD place a special burden on a company, demanding it disseminate information evenly to all audiences at the same time. Depending on your shareholder base, a different mix of communications channels may be called for. Some would prefer exclusively electronic communications such as e-mail and the internet. Others may prefer group settings such as industry and securities conferences. Still others will seek out one-on-one meetings with senior management on a regular basis. Most will desire a combination of options. A survey of your most important current and potential institutional investors will help guide you toward the most cost-effective allocation of IR budgets.
Measurement How does my company stack up against others? Benchmarking is critical to establishing the best targets and tactics for a comprehensive IR program. There are actually solid, proven methods by which to measure investor relations and management effectiveness. Simply put, quantitative research allows you to compare yourself to others that have been measured using the same process.
Monitoring Finally, research gives your IR program the capability to keep track of and refine your efforts. It also allows you to provide quantitative evidence to management and the board of directors that progress is being made in the way the company is perceived.
One step beyond
Once you clearly define what your company’s message should be, the next step is to determine who should hear that message. This is where targeting comes in, and it is a critical tool to help increase your shareholder base to include new institutional investors.
Targeting takes the marketing concept one step further. It goes beyond just identifying who might have an affinity for your message. Once you find those potential shareholders, targeting helps you determine who is most worthy of management’s limited time. The first step in an effective targeting program is a realistic assessment of the type of company you are. Small or large-cap, small or large float, growth or value stock, heavily traded or illiquid. The answers to these questions are very easy to determine and will immediately provide direction as to which investors to target.
Next, take a look at the potential investors in your stock – the end users. Are you looking for more individual investors or institutions? Institutions, of course, vary greatly in size. Those known as 13F filers (because of the SEC rule that governs their reporting requirements) include larger institutions such as big mutual funds and asset management firms. If your company’s stock is thinly traded, these investors may not be able to buy your stock even if they wanted to. Non-13F filers are smaller institutions that fall under the SEC’s 13F radar screen, but represent, in the aggregate, a substantial portion of institutional investment dollars. Non-13F filers can include small company pension funds, family trusts and money managed on behalf of wealthy individuals or foundations. Since these are not always the largest institutional buyers of stock, they can often be overlooked by the Street and are seeking out quality companies in which to invest.
In order to create a high quality list of potential investors, you may start by finding investors that have purchased stock in your industry peers (companies in your industry), your financial peers (companies that have the same financial characteristics) and/or your theme peers (companies that may have common themes, such as takeover candidates, government contracts, minority-owned, etc). This will form an initial target list. Add to that additional potential buyers of stock based on information from outside parties including consultants, stock exchanges, sell-side analysts and existing shareholders. That last one is important. If you are a quality company, no-one will be more willing to spread the word about the company than your current shareholders, for obvious reasons.
From this comprehensive list, you or your advisor can then get on the phone and start calling these institutional investors. Through a carefully crafted series of questions and description of your company, you can determine whether these institutions are interested in receiving more information about your company. From there, a dialogue will commence with those that are interested. This dialogue will ultimately lead to meetings with senior management and, ideally, new shareholders. As for those that are not interested, you get valuable feedback from the negative responses that will help you further craft your message.
In any event, measurement of targeting results is key. How many were contacted? How many are interested? How many remain interested? How many want a meeting? If you use an outside firm for this type of work, you should be able to measure their rate of success and compare it to others. Don’t settle for anything less.
Research and targeting are ongoing processes. Just as the economy and business climates change, so too does your company. With an ongoing, consistent and focused research and targeting effort, you will keep your existing institutional shareholders, find new ones and enhance all shareholder value in the process.
Brian Rivel is president of Rivel Research Group, based in Connecticut
