How well do you know your investors? More importantly, how well do they know you? Considering that a firm’s valuation relies almost entirely on consistent and honest communication with the market, there is a surprising level of disconnect from the investment community among businesses.
According to a recent survey by Bain & Company, 40% of companies do not keep track of shareholders that are not invested in their stock. Nor do they link investor feedback to their overall business strategy. This lack of insight leaves firms more vulnerable to activist rebellions and hidden from prospective investors.
What is an investor relations team?
This is where an investor relations (IR) function comes in – a team of people dedicated to establishing constructive relations and dialogues with a company’s investor base and wider analyst community.
At a time when businesses are exposed to rapidly changing economic, political and regulatory headwinds, the IR department can play a key role in keeping management and the board informed on critical issues affecting their market position. They can, for example, ensure the company is better at timely adjustment of guidance or more transparent and accessible when required. Many firms rely on the guidance provided by their IR team to raise capital, demonstrate strong metrics over time and craft a compelling story of profitability to existing and potential investors.
It used to be primarily large companies that worked with an IR team in a structured and professionalised manner. But now even smaller companies are appointing a dedicated head of investor relations or are combining the function with other roles.
IR is climbing up the CFO agenda
A few years ago, investor relations was not a priority for all CFOs. A 2023 survey by Deloitte found that less than half of all finance chiefs working for a publicly listed company reported spending time on IR and only half said they had an IR function at all.
Now, however, finance leaders are taking on increasing responsibility for investor relations. New research published in the Global Investor Relations Practice Report 2024 shows that three-quarters (75%) of IR teams now report directly to the CFO – up from 66% the year prior.
In times of great uncertainty, the market needs to know about the board and management’s perspective and focus. And who better to provide that than the CFO? They are most able to ensure consistency in messaging with the company’s financial strategy and goals which, in turn, helps build trust and management credibility with the investment community. It is also understood that finance chiefs can help with resource allocation to ensure the IR department is as effective as possible.
A CFO with a strong focus on IR can be a major advantage to companies, helping to gain easier access to capital markets and differentiate the business in a competitive landscape. But there are challenges to building this function. IR professionals must have their finger in every pie, stay abreast of a wide range of evolving topics, from ESG and cybersecurity to AI and regulatory requirements. Finding capable talent that can also handle the constant pressures and demands of the job is not easy.
With companies facing mounting attacks from activist investors while tough economic conditions make raising capital harder, a good IR strategy is one way CFOs can create a sense of security in an otherwise volatile market.
How well do you know your investors? More importantly, how well do they know you? Considering that a firm's valuation relies almost entirely on consistent and honest communication with the market, there is a surprising level of disconnect from the investment community among businesses.
According to a recent survey by Bain & Company, 40% of companies do not keep track of shareholders that are not invested in their stock. Nor do they link investor feedback to their overall business strategy. This lack of insight leaves firms more vulnerable to activist rebellions and hidden from prospective investors.
