The IR challenge: balancing expectations
The IR function occupies a very specific space at a company: on the one hand, IROs serve their constituents, and should provide transparent, honest information to their investors and analysts; on the other, there’s a duty to serve one’s firm and present it in the best possible light. Striking a balance between these two audiences is crucial to the success of investor relations.
‘IROs need the trust of the market if they are to be effective, and the way in which to gain this is to develop messaging that is as transparent and factual as possible without divulging information that could harm the company competitively,’ explains Sarah Elton-Farr, senior director of investor relations at UK-based biotech firm Shire.
The widely accepted aim of IR is to achieve a fair market value for the company, rather than the highest price possible. This gives IR teams a guiding principle to follow that helps them manage the differing demands of management and investors.
‘We always have to plan our communications with both stakeholders in mind,’ says the head of IR at a major Swiss pharmaceuticals company. ‘By definition, the role of the IRO or IR department is to communicate information so that the stock price is at a fair market value. It’s absolutely critical and something that is core to our company’s values and behavior.’
Elton-Farr, whose firm won best IR in the UK & Ireland at the IR Magazine Awards – Europe 2015, also stresses the importance of targeting a ‘fair price’ for the company.
‘The way to [do this] is to ensure the market fully understands your story and the value of what you are trying to achieve,’ she states. ‘Being knowledgeable about the markets in which you operate and your company’s strategy, and having precise knowledge of the facts relating to your company are all crucial to helping the market get comfortable with the investment case and achieving a fair valuation.’
There are, of course, limits to exactly what information can be shared, whether due to competition concerns, insider trading rules or other regulation. But as long as it is made clear where the line falls, the market ‘is very understanding of these limitations,’ notes Elton-Farr.
Ultimately, IR professionals must consider their personal reputation as they attempt to walk this tightrope between management and the market. IROs need to gain the trust of both their internal and external stakeholders; sugarcoating their message to either side will damage their credibility and make it much harder for them to be effective in their roles.
‘Professional integrity is highly important to the role of IROs,’ summarizes Elton-Farr. ‘They need the trust of the market if they are to be effective.’