Investor relations (IR) is a subdiscipline of public relations that helps communicate an accurate account of a business’s affairs to its shareholders and others who have helped finance or may have an interest in its operations. The purpose of such communications is to give private investors sufficient information on buying, selling and holding stock while also ensuring that the company’s corporate management also has current market intelligence.
Individuals working in investor relations often have a communications degree but must also have extensive knowledge of accounting, legal issues, and regulatory requirements. Most larger public relations companies have investor relations departments and some large businesses also have a dedicated department. Investor relation specialists arguably perform the most important task in public relations as they are among the most highly paid in the field.
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Why Investor Relations is Needed
Investopedia notes that the function of investor relations is to provide accurate information so that a company’s stock is traded fairly. Although the formal discipline of investor relations has been around for a long time, it became much more important in 2002 when the U.S. Congress passed the Sarbanes-Oxley Act that significantly increased the reporting requirements of public traded stocks. This legislation was passed primarily in response to the Enron insider trading scandal that occurred in 2001.
The Need for IR Departments
Company IR departments are usually developed before a business has an initial public offering (IPO) of stock. Prior to the IPO, investor relations perform tasks such s establishing corporate governance and conducting internal financial audits. They also begin communicating with potential investors who will want detailed qualitative and quantitative information about the company. The type of information gathered for this purpose consists of products and services, financial statistics and financial statements, plus an overview of the company’s business structure. The department must also regularly interact with investment analysts who are responsible for providing much of the information in a raw form. Investor relations is vitally important for regulatory compliance and in building relationships with current and potential investors.
What Tasks Do Investor Relations Professionals Perform?
Shift Communications indicates that IR professionals who work in public relations, either at an agency or in a dedicated IR department, perform a wide variety of tasks. These can include:
- Prepare quarterly and annual reports and presentations
- Coordinate shareholder meetings
- Disseminate financial information in press releases
- Conduct financial analyst briefings
- Maintain media relations
- Handle financial disclosure crises that may arise
- Safe Harbor compliance
- Be well-versed in regulatory requirements
- Create certified financial statement disclosures
Many Factors Can Affect Investor Sentiment
IR professionals need to be on top of all rumors and news about a company, even non-financial concerns, as virtually any type of information about a company can affect its stock price. That price is generally determined by how well the company performs, along with market conditions and expectations, however, bad publicity can negatively affect share price.
Students interested in becoming an investor relations professional should concentrate on obtaining a communications degree. To move up in the industry, it’s a good idea to have a well-rounded background that includes finance and continuing education courses that cover governmental compliance.