Role and Importance of Investor Relations
13 Oct 2021
Before investing in any company, it is crucial to know everything about that company. These bits of information include the performance of the company, the financial condition through its statements, and the governance policies of the corporate work culture. Checking these factors help you have a structured knowledge about the inside of the organization. Through the new policies devised by SGX (Singapore Exchange Board), every company that is verified and listed on the Singaporean stock market has to be transparent about such information that explains their existence to the public as well as the prospective investors.
This is where the investor relations role is played. It is one of the important departments in every listed company and looks after the proper compliance of these regulations set by the higher authority. They have the sole job to provide this crucial information to everyone including the investors. Following is a deeper explanation of what does investor relations do.
What are Investor Relations (IR)?
Investor relations or IR is a specific department in every listed company that derives information from the other departments. It combines all these data from marketing, finance, legal, compliance, and executive management, and compiles them all into presentable information to the investors.
There are dedicated public domains that can be accessed by these companies and their investor relations department. They publish the collected information there for all the investors, including existing and potential. Investors need this information to get accurate knowledge about a company's workings and management. These IR activities also help them make the right decisions about investing in that particular company. These insights about a company are also available on the company's official website. Nearly every public listed company has a specific "Investor Relations" column on their website that explains all the possible information.
In simple terms, investor relations can be defined as the connection between a company's core management and its existing and prospective investors.
Why are Investor Relations Important for a Company?
For a constant growth and development of a company, they must value their investors. Again, investors would only value those companies that are transparent and reliable with the information they have provided. A company will only be valued if they are authentic with what they put forward to their investors. To maintain a strong position in the market, investor relation is a crucial factor alongside maintaining its financial stability.
Since the investor relations department in a company is considered as the bridge between the company and its investors, it needs highly qualified people to look after things. The importance of investor relations is at this very point since it plays a pivotal role in a company's overall growth, development, and success in the market.
Why do you need investor relations?
In 2002, the Sarbanes-Oxley Act, also known as the Public Company Accounting Reform and Investor Protection Act, was passed, a regulation that increased how much and how often publicly traded companies were required to report financial and trading information. That was when IR became an absolute necessity to ensures that a company remains transparent and honest with their investor to allow the company to evolve consistently.
What are the Goals of Investor Relations?
A number of goals are needed to be met by the investor relations personnel to keep up the company’s reputation and its numbers. They are important as they help a company grow and develop to its fullest potential. Investor relations function in a manner to reach these goals successfully. Here are some of those specific goals:
- To maintain a transparent relationship between the company and the investors so that the company can succeed on a long-term basis.
- Help the company attain the best share price in the market in order to make them perform well and get hold of a loyal shareholder base.
- Connecting the company and the investors by showcasing the company's highs to the investors and representing the investor's prospect to the company. If this is done properly, it creates a strong bond that helps both parties.
- Providing and updating the investors with financial and management information of the company regularly and correctly. This instills a sense of trust in the investors and creates a strong professional relationship.
- Provide additional data like non-financial statistics to support the valuations held by the company. This non-financial information includes changes in company policies, governance rules, and much more.
- Implementing and looking after the various regulations set by the securities commission and the stock exchange authorities. To also match company policies with the regulations set.
- Promoting sales of the company through a non-aggressive or indirect method. This includes the promotion of schemes like IPOs (Initial Public Offering) and FPOs (Follow-on Public Offerings).
- The role of investor relations is to keep the company and its board updated with regular feedback from the investor's side.
- Aiding receptive capital markets that provide funding and financial help to future projects and agendas.
What are the Responsibilities and Roles of Investor Relations?
What most people know is the investor relations role is to act as a bridge between the company and its investors and connect them on trustworthy terms. But there are several other roles and responsibilities that an investor relations department of a company performs. Since it is an integral part of an organization, it also has to handle some crucial responsibilities like:
- Providing the existing as well the potential investors with extensive information about the company's financial and management conditions and steps. This helps the investors to make accurate and calculated decisions regarding the investment in the company.
- Providing the existing as well the potential investors with information regarding the non-financial matters of the company. Non-financial issues include governance reports of the corporates, various managerial policies, and compliance regulations.
- Since the investor relations department is responsible for establishing a trustworthy connection between the company and its investors, it also needs to get directly involved with the investors. For instance, it is responsible for contacting investors directly and collecting their feedback and grievances. Again, they need to convey these points to the higher authorities for the required solutions and orders.
- Examine all the policies of the company and check whether they are compliant with regulations set by various authorities. The laws and regulations need to be followed and the authorities include security boards, stock exchanges, and various acts declared by the government. Their main function is to keep the company in sync with all the rules, regulations, and guidelines.
- If the company is listed on the stock exchange, the price of its share is a crucial and intrinsic component that shows how successful it is. The investor relations department plays an integral role in regulating and assisting the share price of the company. This endorses a sense of respect and trust within its investors.
- They are also involved in the marketing of the company's future endeavors. They are the core team that informs potential investors regarding the company's IPOs (Initial Public Offering) or FPOs (Follow-on Public Offerings).
What are the Benefits of Investor Relations to the Business?
A properly functioning investor relations division is a boon for any company. The number of benefits it brings to a company is unimaginable. Here, let’s take a look at what is investor relations' advantages and benefits towards a company:
- Shareholder relations are crucial for a company to excel in the market. A smoothly functioning investor relations department excels in creating that relationship with the shareholders. This ensures that the company is stable in the stock market.
- The sole task of the investor relations division is to maintain the transparency of information and promote the smooth functioning of the organization. It helps to keep the shareholders and investors informed about the various policies of the company. It also enables to create a solid shareholder base for the existing ones. They also thrive in deploying newer and potential investors on board.
- Credibility is an integral aspect that the investor relations department looks after. It helps to create a strong bond with the investors, which in turn, makes the company's financial future secure and easy.
- An IPO is the most modern way in which companies are making profits and solidifying their presence in the market. The investor relations department plays a vital role in reaching out to investors for this scheme.
- The investor relations team is also closely responsible for creating a company prospectus along with its board and openly distributes the required information about the company to existing as well as prospective investors.
A company consists of several departments that are crucial to run the whole unit smoothly and successfully. Where departments like finance, management, human resources, marketing, and accounts count significantly to a company's development, the investor relations department too has a significant role to play. For a publicly listed company to hold a solid place in the stock market, an investor relations division is pivotal. This department also acts as a bridge between the various other departments of a company. Therefore, the smooth functioning of this division is of the utmost importance.
The investor relations services need to be efficient to keep track of the ever-changing securities regulations and market alterations. They need to work effectively by conveying and implementing these changes to the company operations. Another crucial task that an investor relations department looks after is to manage the higher authorities. Here, by managing, it is meant that they need to collaborate with the higher authorities regularly to strengthen the position of the company in the market. With the right decisions at the right time, a particular company can become an investor's favorite, which is quite a goal of every organization. And, investor relations help them achieve the same.
So this is how the investor relations function to accelerate a company towards success. They indeed are a significant part of an organization that helps them get stable in the stock market and attract more investors over time.