Nigeria Content Online

It
is tempting for companies to imagine that once they push financial
results, earnings releases and announcements of strategic moves out in
the public domain, their job is finished. The trouble with such
‘do-this-and-other-other-things-shall-be-added-unto-thee’ mind-set is
that when the anticipated results fail to manifest, companies blame
investors for not getting ‘it’. They insist that investors must fit
into their mold or nothing. All they want to do is ram information down
investors’ throats without bothering to learn how they react to that
diet. To aggravate the problem, on the few occasions they admit that
feedback is important, those saddled with responsibility for investor
communications at most public companies, often lack structured
processes for monitoring it. In fact, they are often unclear on what
feedback should be. But our discussion today goes much beyond the
creation of dashboards with fancy line and pie charts for the sake of
it. It drills right down to value of investor relations to public
companies from the board of directors’ point of view.

In the past year,
companies on the Nigerian Stock Exchange have taken important steps to
improve how they communicate with investors. No doubt, there is still a
long way to go but things are improving. In my interactions with
companies, I sensed a genuine interest among executives to facilitate
the flow of information to investors. Although, this has not always
translated to instant action, I put that down to the administrative
bogs that are normal in big organisations. One thing that has struck me
is the urge to push out more information to investors. There is a good
reason for this. In the past, investors had very little information of
relevance with which to assess companies on a prudent basis. Normally,
the momentum of a rising share price, enthusiasm of friends and the
slick marketing of their stock brokers was all the convincing they
needed. Few bothered to ask the hard questions or knew what those
questions ought to be. So it is not unexpected that after their
post-meltdown Damascene conversion, companies would be willing to go
the extra mile in providing information to investors.

This is a good
thing. But is it everything? When I look around, I see companies eager
to launch investor relations programs with a sole focus on pushing
information out to shareholders. This conception of investor relations
as information fulfilment probably almost guarantees that they will not
reap all the benefits they anticipate because there is no loop for
returning information on how the company ought to adapt behaviour to
better match investor expectations. It also explains why investor
relations is rarely accorded an appropriate position in the corporate
organisation chart. The US National Investor Relations Institute (NIRI)
definition of investor relations as ‘a strategic management
responsibility that integrates finance, communication, marketing and
securities law compliance to enable the most effective two-way
communication between a company, the financial community, and other
constituencies, which ultimately contributes to a company’s securities
achieving fair valuation,’ is very instructive.

Investor relation is a serving board

The point is that
the investor relations function should be serving boards as much as
investors with reports, analysis and research on what investors are
doing and thinking. A CFO needs to be able to call up his head of
investor relations and ask, ‘Why is our sector down this week?’ or ‘On
a scale of 10, how do investors in our sector rate revenues in
comparison with margins?’ The person responsible for investor relations
must know every analyst covering her sector and have all the research
they have published going back 12 months at least. She needs to know
why some analysts that cover her sector do not cover her particular
company. She has got to understand their valuation methodology and
influence among investors.

When woken from
sleep, the investor relations officer should know names of her top 50
shareholders, their investment styles, what other companies in the
sector they own and their orientation.

They also need to
know the top investors in their peers and if they do not own the
company’s shares, know the reason why. She needs to know how much time
management has to meet with investors three months in advance and
schedule meetings accordingly. These are just the beginning. There is
so much more.

Doing all this is no mean task. It takes time and resources to
produce results. Quite frankly, successful investor relations has the
two faces of Janus: one looking out serving investors and the other
looking in serving internal clients. Getting all As in pushing out
information but not sitting for the paper in providing boards with
invaluable insight is still a flunk. For companies, the message is
clear: in all thine giving information, be getting intelligence.