The Practice of Investor Relations: An Introduction

“You pay a very high price for cheery consensus.” Warren Buffet

With many accounting fraud cases triggering market turbulence recently, market regulators have again stressed the importance of transparency, while investors and analysts have repeatedly called for companies to provide more transparent, timelier information. Partly in response to these calls, it has become common nowadays for large public companies to set up investor relations departments to act as communication interfaces between themselves and their investors. Although the practice of investor relations is still in its initial stages in Taiwan, it has been a feature of the more fully developed capital markets in the US and Europe for many years. For companies in Taiwan committed to reforming their investor relations, this article will attempt to provide some ideas and suggestions by introducing practical methods used by well-known companies around the world to enhance how they communicate with their investors.

Activities in the investor relations value chain relate primarily to four main value areas: (1) investor relations strategy; (2) investor relations mechanisms; (3) the content of communications; and (4) applied systems and tools.

Investor relations strategy

• Formulate investor relations objective
  The main function of the investor relations department is to maintain and protect relationships between the company and its investors, so satisfying the needs of investors should be the highest guiding principle behind all its work and actions.

• Establish investor relations policy
  An investor relations policy should include a spokesperson system, a negative information management model, an investor opinion/feedback handling mechanism, linkages and interaction with the board of directors, and methods for disclosing financial and non-financial information.

• Identify principal investors
  Analyzing the composition of one’s investors and categorizing them accordingly can lead to a better understanding of investors’ needs, and hence to further improvements in investor relations.

• Adopt suitable modes of communication
  After analyzing the composition of investors and categorizing them, the company can choose appropriate modes of communication to satisfy the needs of different types of investors. Large European and American enterprises these days also consider it important to compile sustainability reports, including, for example non-deal roadshows (NDR) and similar activities, to report their corporate worth.

• Obtain necessary resources
  In order to provide high-quality services to investors, companies need to allocate adequate resources to support their investor relations departments. This includes allocations out of budget resources and from personnel and other departments. Once all these resources are ready, one can begin to implement investor relations mechanisms.

• Practical procedures
  Once one identifies which investor relations-related activities are to be conducted, the company can then go about establishing practical procedures. With some fine-tuning, these procedures can be codified as the firm’s standard operating procedures (SOP). When various activities have been going on for some time, one can begin referring to the firm’s SOP, and after a given activity is completed, any apparent deficiencies in the SOP can be corrected.

• Roles and responsibilities of investor relations department colleagues
  At the same time that a company establishes an investor relations department, it should also plan out the roles and responsibilities of colleagues in the investor relations department. The focus of this planning should be on appointing individuals for each investor relations activity to act as responsible persons who will be held responsible for the success or failure of each activity, and suitable performance measures should be established to assess their achievement in each case.

• Corporate website
  For most companies, the corporate website has now become an important medium for external communication. Large enterprises may even design special “investor relations” sections in their sites for continuous enhanced communication with their investors.

• Activity webcasting with video/audio
  Many investors are unable to attend stockholders’ meetings and investor conferences. Companies can use direct Internet broadcasting (webcasting) to allow all investors to receive information from shareholders’ meetings and investor conferences.

• XBRL
  For enhanced communication with investors, many large corporations now use XBRL, which stands for “extended business reporting language” and flexibly incorporates non-financial indicators of performance.

• Interactive interfaces
  Because some reports (e.g., annual reports) can be exceedingly large, many companies have transformed the files of such documents by giving them interactive interfaces. This saves on investors’ download times and speeds up searches for needed information.

• Email and Internet
  Companies can save time and money by taking advantage of the Internet’s ubiquitous reach. Sending out all externally disclosed information via email not only saves much time and money spent on paperwork: By saving a fair number of trees as well, companies going the paperless route are also being kind to mother earth.