Transparency, Communication, Trust: Ragged Buzzwords or Major Bonus for Good Investor Relations?

The investor relations (IR) is still not getting the attention it deserves and is often confused with or tied to PR. Both these areas are obviously about building relations. However, in the case of IR, relations built with shareholders or institutional and individual investors are based on reliable information about  the market and public companies operating on it. Excellent knowledge of the niche in which the company operates, financial analysis, the tangle of national and EU regulations, communication and relationship management are the basic skills that every IR officer  needs to be able to manage this area.

Although communication addressed to the investor community is a relatively young field—the first IR departments appeared in Poland about 25 years ago, and the actual professionalization has been taking place for about 15 years now—the role of investor relations is becoming more and more strategic for the management boards of companies and their owners. The very entry into force of the MAR (Market Abuse Regulation), which was related to the change of disclosure requirements, new reporting philosophy, greater responsibility of issuers and management boards for reporting, and at the same time greater penalties for failing to comply with these requirements caused that investor relations today are handled differently than a few years ago.

IR should be transparent

For a business, the proverbial carrot on a stick for a well-run IR program may be a bonus from the investor community. The 2018 IR Magazine study shows that 9 out of 10 representatives of the investor community would grant a significant bonus to companies for a successful IR program, and an even greater discount for companies with low-standard investor relations. According to IR Magazine, 93% of investors and analysts indicated that the quality of IR influences their investment decisions and analytical reports. Globally, 31% of respondents, that is portfolio managers as well as buy-side and sell-side analysts, indicated that they would add 5% to 10% bonus to the valuation of a company with good IR. Interestingly, 6% of respondents stated they would give a 20%+ bonus. On the other hand, 40% of the sell-side analysts surveyed, as a group which is the most “sensitive” to IR practices, declared that they’d be willing to give a bonus of 10%–15% or more.

Therefore, we need more and more companies to maintain good investor relations. Unfortunately, publishing current and periodic reports alone is not enough. Communication with the market should be, above all, transparent—equal access to information, fast, understandable and modern. The capital market values high-level investor materials. Financial investors expect investor relations departments to provide information on the current financial situation of companies and their plans and strategies. They are particularly interested in the future, less so in the past. This, of course, requires effort, but it is still worth doing, especially when a company has nothing to hide and respects its shareholders. Thanks to this, the company helps itself, but also the investor, who gains trust in it over time. Fair relations make it easier for investors to make informed investment decisions, and management boards become more independent of the sentiment on the stock market. Then, we may surely talk about proper company valuation and wider access to new capital from the market. This is a WIN-WIN relationship, which is beginning to be understood by more and more WSE-listed companies.

New technologies and IR

In the age of the wider digitalization and rapid development of new technologies, communication with the capital market has become increasingly challenging. To meet the global standards and needs of global investors, modern investor relations require new means of communication: modern websites, broadcasts of result conferences also in English and the use of social media. This comes as a result of technological development and higher transparency standards, as well as investors’ wishes, as they want to be able to easily compare companies from different capital markets.

To achieve success in communication, as in any other area, we need to be consistent and meet the investors’ expectations. The Warsaw Stock Exchange lists nearly 1,000 companies (New Connect and WSE main market combined) and it really requires some effort to bid for the attention of analysts and fund managers. The fate of companies is their own doing and with a well-developed IR program—one that fits company size, shareholding structure, and market aspirations—businesses may, in the long run, expect a bonus from the capital market.

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