Running head: WHAT IS THE VALUE OF INVESTOR RELATIONS?

What is the Value of Investor Relations?

Alyssa Young

Kennesaw State University

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Abstract

Stakeholders are undoubtedly of great priority to any publicly held company. Investors

supply financial support to companies, which makes a large impact in pay scale and productivity.

Ultimately, a company needs money to operate and investors are key assets. Some companies

may place a higher importance on this than others and it is the goal of this paper to discover what

value is placed on the communication with investors. For the purposes of this analysis, the

communication with investors will be referred to as investor relations.

The research question in this study is “What is the value of Investor Relations?” To

obtain data, a survey with ten questions related to Investor Relations was created. To discover

the importance of investor relations to different companies, six respondents provided insight

from their organization on the value of investor relations. The respondents answered how much

time is spent on communication with investors, percentage of income from investors, and

ultimately rated how much of a priority Investor Relations is to the company.

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What is the Value of Investor Relations?

Investors are people who financially support a company, making their relationship with

companies vital. The investor relations department was created to formulate and maintain

relationships with investors. Investor relations is interpreted and valued differently, according to

the public company. Some organizations put a large emphasis on investor relations and created

specific departments for the function. Other organizations place less emphasis on the function

and categorize it under the financial or communicative departments. This research provides an

in-depth analysis of the perception and interpretation of investor relations by executives in

various industries.

Literature Review

The Securities and Exchange Commission (SEC) began in after the stock market crash in

1929 to ensure that individuals and institutional investors could participate in fair and orderly

markets (Gilfeather, 2003). The SEC protected millions of Americans from blindly investing in a

company, but did not come without drawbacks. Some of the rules and regulations require that

publicly traded companies must announce all financial information to the public instead of to a

select group.

Although this protected the public, it hindered the relationships formed between

companies and investors. This hindrance is elaborated on by Chandler, who states, “One of the

principal challenges is investors want an edge versus other investors and part of what they look

for in their relationship with the company is to learn things that others don’t know” (Chandler,

2014). In addition to the communication barrier, the SEC mandated that the rules must be strictly

followed in order to evade legal consequences. In addition, Chandler discovered that 67% of

executives prefer to speak and meet with long-term investors (Chandler, 2014). This is
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significant because it displays the topics executives, as well as investors, are most interested in.

Long-term investors are people who invest in the company for more than several months. These

investors want to hold on to stock and listen to executives describe their plans (Chandler, 2014).

This explains why executives would prefer to speak with long-term investors as opposed to

speaking with someone who will sell stock in a year. Executives are busy and who they spend

their time with is an investment itself. Unfortunately, executives can not reveal any more

information to long-term investors than they would to the public. Therefore, most executives

prefer to meet with investors in the company of an investor relations employee (Chandler, 2014).

Gilfeather suggests that investor relations has two dimensions, which are compliance and

marketing (Gilfeather, 2003). The first half of this suggestion is supported in the previous

analysis that companies must comply with the regulations put in place by the SEC. Secondly, it

is imperative that companies make their stock available to the public, whether through media or

registered representatives. This is because it is important that stocks are not undervalued, so that

the company can achieve the most funding. Evaluating the amount of time, effort and money

spent on communicating with investors allows the public to gauge the importance placed on

investor relations by companies.

Investor relations puts importance on both communication and finance. To study the

relationship between the two disciplines, Laskin (2009) suggests that “investor relations is a

practice on the border of finance and communication, and the synergy between the two areas is

essential.” In his study, he found that 65% worked in a dedicated investor relations department,

27% worked under the finance department, and 8% worked under the communications

department (Laskin, 2009). This finding reveals that companies are beginning to value investor

relations as it’s own department. To conclude the research, Laskin stated that, “The results of the
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survey presented above suggest that investor relations is still largely treated as a financial

function rather than a communication function” (Laskin, 2009). These findings are to be tested

throughout this research to discover if investor relations is treated as a financial or

communicative practice.

Methods

Participants were contacted through the network of the researcher. A survey was emailed

to various representatives of companies around Atlanta and in the regional southeast.

Respondents were representative of LexisNexis, Second Helpings Atlanta, Tricord Investment

Advisors, Fellowship Bible Church, Florida Coastal Bank, and Black Oak Asset Management.

The participants responded according to the views and statistics of their employer.

Findings and Discussion

How much time does your organization spend on communicating with investors? The

purpose of this question was to gain insight on the dedication put into two-way communication

with investors. Investors value trustworthiness, transparency, honesty, and willingness to be

responsive (Chandler, 2014). A dedication to two-way communication will inevitably display if

these qualities exist in an organization. This result of an investor understanding that an

organization is trustworthy equates to the investor holding stock with the company instead of

selling it. The responses staggered. One out of six respondents replied that the company spends

less than 10% of time communicating with investors. One out of six reported that the company

spends above 60% of time communicating with investors. Half of respondents reported to

spending 10% to 60% of time communicating with investors. These findings are significant

because they represent the differentiation in values placed on investor relations. Some
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organizations completely rely on working with investors, which explains why over 60% of time

is dedicated to investor relations.

What percentage of overall income is from investors? Four out of six respondents

indicated that all income comes from investors. One respondents indicated that less than 10% of

overall income is from investors. This response was from the same organization that spends less

than 10% of time on communicating with investors. This is an important connection to identify.

It is arguable that if the organization dedicated more time to communication with investors, then

they could identify an increase in investment.

What is the preferred method of communication with investors at your organization? This

question demonstrates how organizations conduct two-way communication with investors.

Although companies are not allowed to give any secret information, the method and frequency in

which they communicate can create a more personal interaction. Half of respondents indicated

that the company communicates with investors by speaking directly with them through face to

face communication. The other half indicated a preference for electronic communication through

phone calls, emails and newsletters.

What department does investor relations fall under in your organization? The significance

of this question is to provide insight on whether the company views investor relations as a

financial, communication or different department. The classification of investor relations in

different departments can affect the process of communicating with investors. Three out of six

classified investor relations under finance. This signifies that the majority of companies in the

sample associate investor relations with financial wellbeing. The requirements of a job in a

finance department focus more on numbers as opposed to the process of building relationships.

Two out of six respondents classified investor relations under communication. The requirements
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of a job in the communicative affairs department would specialize more on revealing truth,

transparency, and honesty to develop lasting relationships with investors. These findings do not

correlate with the findings of Laskin (2009), which suggests that the majority of companies have

a dedicated investor relations department.

Why is the relationship with investors important to your organization? Despite

widespread and fictitious rumors, companies do understand the value behind investor relations.

The results from this survey support the findings of Chandler (2014) that Chief Executive

Officers want to participate in two-way communication with investors. All respondents indicated

that investor dollars are of utmost importance to the company. One respondent from an advisory

firm stated that, “without relationships with clients, we can’t serve them.” In addition, a

respondent from LexisNexis stated that the “relationship with investors is important because they

own the company.” This perspective is vital to account for because publicly owned companies

are completely supported by investors and stock value. Finally, a respondent added that if

investors are informed that the company has “strong leaders that will be able to gain market

share and in turn increase the profitability of the company,” a consistent relationship will form.

What is the name of your organization and your title? This question was simply posed to

gain a demographic and psychographic profile of subjects participating in the survey. The

respondents stemmed from companies in varied industries. LexisNexis is a corporate company

that specializes in computer-assisted legal research. The respondent was an investor relations

team member. An Assistant Vice President and financial center manager responded, who is in

the banking industry. Second Helpings Atlanta is a non-profit involved in food rescue. The

interpretation for Second Helpings Atlanta would be based on the donations they receive and

how they communicate with donors, which was answered by the Development Coordinator. The
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Pastor for Fellowship Bible Church responded in the interpretation of donations. Thirdly, the

President of responded for Tricord Investment Advisors, which advises clients on investment

strategies. Finally, the President and financial advisor responded for Black Oak Assets

Management. In summarization, this study involved the interpretation of investor relations from

legal, banking, non-profit, and investment advising perspectives.

What is the most important quality for investor relations employees to have? The

significance behind the findings of this question relate to what company’s value most about

investor relations. Is it the tangible items that matter most behind investor relations or is it

something else? Results found that 100% of respondents value written and verbal

communication skills above finance experience or collaborative skills. This finding proves that

although some companies place investor relations under the finance department, communication

is the most valued trait for an employee to have. This emphasizes the finding that companies

attempt to convey truthfulness, transparency, honesty, and a willingness to listen to the concerns

of investors. The ability to portray these qualities comes before recognizing the ability to

calculate finances.

Do you have a section on your website for investors and potential investors? Five out of

six respondents indicated that their company had a webpage resource for investors and potential

investors. This indication clearly identifies the importance of having a space for communication

to easily occur with investors.

If you are a shareholder, what is your preferred method of communication by the

company you invest in? This question was intended to inquire about how the respondents prefer

to be personally contacted with by the companies they invest in. The responses to this question

were largely inconsistent, indicating the lack of clarity in the question. However, two out of six
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responded with a preference of email and one out of six preferred personalized interaction

similar to hand written notes.

Ultimately, what value does your organization place on investor relations? This question

was used to directly inquire what value is placed on investor relations at the company. Five out

of six respondents indicated that investor relations is a top priority for the company. This

question answers the main research behind the study and presents findings that almost all

companies in the study place a high value on investor relations.

Conclusion

According to the results, all respondents place value in investor relations. None of the six

respondents indicated that investor relations is a low priority. This answers the main research

question that investor relations is of value to executives of companies. Investor relations can play

a vital role in the livelihood of certain organizations like investment firms and non-profits.

However, it is not discounted in other businesses such as banking and legal industries.

Future research should inquire what types of information is available to investors, what

types of plans investor relations develop, and how investor relations prohibits the company from

suffering during a reputational crisis. These questions were left unanswered and would provide a

more in-depth understanding of the process of investor relations.

It is important for executives to see the value of investor relations, while keeping in mind

the regulations restricting them from revealing private or “insider” information. Investor

relations is proven to be a practice of importance based on the results found in this research, as

well as the research conducted in the literature.

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References

Chandler, C. S. (2014). Investor Relations from the Perspective of CEOs. International Journal

Of Strategic Communication. 8(3), 160-176. doi: 10.1080/1553118X.2014.908296

Gilfeather, J. (2003). What You Need To Know To Measure Investor Relations.

www.istituteforpr.org. Retrieved 19 March 2017, from http://www.instituteforpr.org/wp-

content/uploads/2003_InvestorRelations.pdf

Laskin, A. V. (2009). A Descriptive Account of the Investor Relations Profession. Journal Of

Business Communication, 46(2), 208-233.

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Appendix
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