With most senior executives receiving a large part of their annual remuneration in the form of long term share based incentive schemes, it would seem only sensible they do everything possible to ensure their company’s share price performs. Whilst that would suggest a focus on usual metrics such as increased sales, improvements in productivity and general efficiency, and higher profits an aspect of their business that might fall under the radar is the performance of their Investor Relations program.
As we have written previously, a good Investor Relations person is seen as someone who continually provides investors with access to management, has an excellent knowledge of the business, is both transparent and honest, and provides frequent communication. So it goes without saying that any organisation able to deliver their IR in this way has to be perceived by the investment community as being better run and more on top of their game than a corporate that doesn’t – and, therefore, a more likely candidate for them to invest in.
One of the tasks of any IR person is to keep shareholders happy and ensure they remain on the register whilst, at the same time, encourage new entrants to step up and buy their shares. All of which helps ensure the share price doesn’t suffer from selling pressure and, as long as good results keep coming, possibly heads higher as the register tightens.
But how much is an investor prepared to pay for the contributions of the IR team to the share price? And at what point do investors say that that work is now fully priced into the shares? Recent research conducted by Peter Lee Associates sought to find an answer to these questions.
Whilst most respondents (74%) suggest that IR makes no difference at all to how a company’s shares are priced by the market, 14% believe a poorly performing IR team can cause a discount and 12% take the view that good IR results in a share price premium. After eliminating those who think IR does nothing for the share price, what sort of premium or discount do the other 24% feel can be attributed to the performance of an IR team?
Interestingly enough the respondents who believe good IR does lead to a premium were split equally between one of 0 – 5% and 5 – 10% — but most of those who take the view that poor IR leads to a discount felt that that would sit somewhere between 5 – 10%.
What do we make out of this? Clearly good IR is seen as a positive as it assists the investors in understanding more about the company, its activities and its issues – poor IR would not offer such comfort and, in fact, might be seen as them trying to hide the warts and the concerns. Good IR works with the investors, holds their hands, keeps them appraised of developments. And if all those things are being delivered by the team one can only suspect that the share price more accurately reflects the success of the company being promoted by its IR people.