All companies in different sectors compete to attract customers and increase their market share. In investor relations activity, they compete to capture the attention of customers – the investors – and ultimately get them to invest in the company.
A modern financial communication strategy must put investors at the center of the strategy, considering them as key customers of the company. Historically, investor relations activity has focused on conveying the message of the company itself, explaining its strategy, its risks, its results. All this information should be considered simply as the necessary basic kit, but not enough.
Considering investors as clients requires, as a first step, knowing their needs and the characteristics of their work. An investor’s job is not to decide whether or not it likes a company but to be able to assess whether the reality of the company is going to exceed market expectations.
If this is the case, and always within a time horizon of normally 12 months, the share will outperform its competitors – though this time horizon is getting shorter and shorter for today’s investors.
IR managers must reflect on what need their client is trying to meet: is it a need for dividends, a need for growth? They must be aware of how their company is meeting that need compared with rival companies, and aware of when it is no longer being met, given the different business cycles.
IR must understand that investors are always meeting their needs in terms relative to other stocks they might have bought. The worst-case scenario for our client is not that the stock it has bought goes down by 10 percent. Its worst-case scenario is that another stock it could have bought – and didn’t because it bought ours instead – is going up. The investor always has an opportunity cost lurking in the background.
Know your playing field
When you compete in any discipline you must know the size of the playing field. The evolution of its characteristics can determine the success or failure of your product.
The move by regulators toward greater consumer protection has changed the playing field for many companies. The special emphasis of UK regulators on sectors such as water, gas and transport has caused pain for many companies and their shareholders. The same can be said of banks, a particularly heavily regulated industry.
On a muddy soccer pitch, it is more difficult to play well. The financial soccer field has become very muddy with issues such as increased trading through platforms, which blinds the company to who is buying or selling and simultaneously causes the broker to generate less commission. With less money to be made, the broker loses interest in supporting certain companies.
How we can help the investor to know the characteristics of our product – the company – is a basic question for an IR manager. Fortunately, along with the increased demands of the client and the change in the rules of the game, there are also opportunities. The possibility of online meetings means we have a very effective instrument with which to increase our coverage of potential clients or investors. This is a very attractive instrument in terms of both time savings – compared with the time-consuming trips of the past – and lower costs.
The online possibilities require us to be much more proactive. We have to replace the broker and contact our investors directly. In developing our information, we must not forget that our clients’ scarce resource is time, not information.
Ricardo Jiménez is an IR strategic adviser and commentator and was the award-winning director of IR at Ferrovial from its IPO in 1999 to 2020.
This article appeared in the Fall 2022 issue of IR Magazine. Click here to read the article.