How Investor Relations Works
Companies typically develop an IR team prior to an initial public offering (IPO). A primary role of an IR representative is to address investor concerns, from the IPO through the various stages of a company’s growth, to help build the company’s image and maximize its share price. IR responsibilities include:
Represent the company at investor presentations and meetings, as well as with mediaProvide information on company performance in a timely fashionProvide non-financial information that addresses investor questions regarding corporate governance and overall missionProvide regular reporting to the board of directorsCommunicate investor concerns to company executivesProvide a fair business valuation for the companyCollect, report, and address questions and feedback from investorsInstill and inspire investor confidence in the long-term future of the company despite any negative news that might occur
In general, IR departments communicate with the investing community through a variety of means, including social media, press releases, conference calls, roadshows, and websites. Because the IR team interacts with a number of departments within a company, it must have clear lines of communication with each. This includes the CEO, chief financial officer, public relations department, and various product divisions. While IR is a different department than media relations (IR focuses on the investing universe, not the general public), the two may work together for news releases. For example, when Peloton announced in February 2022 that co-founder John Foley would step down as CEO, a position he has held since the company was formed, the company’s IR team was the first point of contact listed in the company’s press release, and the release was posted in the IR section of the Peloton website.
Notable Happenings
Instilling investor confidence in the long-term future of a company with correct, accurate, and complete information about the company, is a primary function of IR teams. That role became significantly more important with the passing of the Public Company Accounting Reform and Investor Protection Act of 2002 (PCARIPA). They are held accountable for it given the high stakes associated with it. Corporate scandals that occurred over the past two decades, including the collapse of Enron, Corp. in the early 2000s, led lawmakers to institute more stringent oversight and financial reporting requirements via the Public Company Accounting Reform and Investor Protection Act of 2002. The legislation strengthened the independence and financial literacy of corporate boards while also holding the CEO and CFO responsible for the accuracy of the information conveyed and communicated to investors via the IR team. The Sarbanes-Oxley Act increased the importance of investor relations. IR practitioners must be knowledgeable of legal requirements and help management meet these requirements.
What It Means for Individual Investors
An IR team helps you become more informed about key areas such as big changes that may affect stock prices and quarterly financial reports. Because IR departments have become more important over the years, individual investors who are researching investment opportunities should be able to easily access information on a company’s past performance, future plans for growth, and responses to any corporate events that made headlines. Getting more information is usually better when making investment decisions. IR teams make that possible.
