Four Effective Strategies Every Investor Relations Exec Should Follow

Over the years, the role of investor relations (IR) has included some pretty standard responsibilities. However, increasing use of social media and other technologies by investors and Wall Street is forcing IR executives to adapt — or risk being left behind.

According to the National Investor Relations Institute, IR "integrates finance, communication, marketing and securities law compliance to enable the most effective two-way communication between a company, the financial community and other constituencies, which ultimately contributes to a company's securities achieving fair valuation."

This definition shows just how many and varied skills that IR executives need to be successful. Essentially, they need to combine the skills of multiple critical departments, each of which has its own set of professionals and executives with specific expertise in those areas.

Of course, amid such a diversity of required skills comes the need for effective strategies. In today's environment, the strategies that once worked well often don't apply, and those that do still apply require adaptation to remain effective. Every investor relations executive would do well to follow these three effective strategies.

1. Communicate early and often.

Traditionally, IR executives focused on communicating with investors, and those communications were often limited to quarterly earnings reports and other significant announcements that could move the company's stock. However, an effective communication strategy for today is multi-faceted.

Beyond earnings releases

Of course, an effective communications strategy still starts and ends with investors, but today, it now goes far beyond quarterly earnings releases. It's always best to be proactive, especially when the news is bad. IR executives don't want their company's management to appear lacking in skill, savviness, care or engagement.

As a result, it's always better to issue a statement whenever there is the potential for negative interpretation or a dramatic shift in sentiment. At the same time, IR executives should beware of sending too many press releases.

Activists often target companies that come across as too promotional because they send a press release hyping their stock or activities numerous times a month despite the lack of any significant news.

Dealing with shareholder activists

Shareholder activism in the U.S. against S&P 500 companies grew more than 42% during the first half of 2022 alone, highlighting the need to communicate with investors early and often. One mistake many IR executives make when dealing with activists is delaying a response for as long as possible.

Many of the most contentious activist situations developed due to a lack of open engagement of the sort that IR executives would've had with regular investors. The goals should be understanding and correcting how the activist perceives the company, determining what they think the company should do, and improving communication with shareholders.

Stay in touch with key shareholders

An effective communications strategy for investor relations also includes regular meetings with key shareholders. These investors hold the most shares and are the most influential, not just through voting but also through referrals.

They're more likely to tell other investors with deep pockets about your stock, so they always want to feel like they're in the know about anything that's going on with the company. IR executives should never allow these investor relationships to slip into oblivion.

Serve all stakeholders

Finally, today's IR professionals not only communicate with and serve investors. They also work closely with company management and all other stakeholders, which includes analysts, contractors, and anyone else with a stake in the company. In terms of management, IR executives should weigh in on expected reactions from investors or the Street so that management can prepare or perhaps adjust their messaging on a particular announcement.

2. Craft an effective story.

Traditionally, investors used fundamentals to determine what a company is worth. However, the rise of story stocks and dramatic increase in profitless companies going public show that storytelling has become an even more important part of investor relations than ever before.

Why storytelling has become so important

Perhaps the poster child of story stocks a few years ago was Tesla. Although CEO Elon Musk was censured for his social media activities, his storytelling abilities should be commended. The electric vehicle manufacturer was deep in the red ink for many years.

However, Musk painted a picture of roaring future success, explaining to investors why they should invest in a company that was losing so much money. He started with an inspiring purpose: improving the environment and driving the transition to renewable energy.

A review of Tesla's stock action over the last five reveals just how highly effective storytelling can drive the shares of a profitless company, simply because it inspired investors to open their wallets. Between 2012 and 2019, after adjusting for stock splits, the shares traded up from penny-stock status to around $15 or $16 — even though Tesla didn't become profitable on a full-year basis until 2020.

Going further with a master plan

An effective story also includes a master plan. For Tesla, the plan started with creating an expensive, low-volume car and using the revenue from that car, the Roadster, to develop a medium-volume car at a lower price, the Model S. Then the plan called for using the revenue from the Model S to create a more affordable, high-volume car, the Model 3. Investors were happy to invest because Musk clearly articulated the plan in a way that enabled them to envision a bright future with soaring profits.

Focus on what investors feel is important

One of the many reasons Musk's storytelling strategy was so effective was because he focused on what investors felt was most important rather than what the C-suite felt was critical. Of course, this will be different for every company.

Thus, IR executives who have their fingers on the pulse of the investor conversation about their stock will be able to steer management commentary in the right directions. For example, investors might want to hear more about free cash flow or capital allocation, while management might prefer to emphasize sales growth.

Regular meetings with key, influential investors will grant investor relations executives unparalleled insight into what the investor base wants to know most. Some IR executives may also find that conducting regular surveys with current and past shareholders are helpful.

3. Tap the latest trends for further advancement.

Finally, investor relations executives should be continually adapting their strategies to best meet the needs and wants of current and prospective shareholders while keeping in line with disclosure requirements.

Use social media where disclosures allow

For example, social media was one trend that forever changed the shape of shareholder engagement and disclosures. As social networking shifted from nascent to ubiquitous, it became a necessary way for investor relations executives to connect with prospective shareholders.

In fact, data has shown that 75% of investors use social media when making investing decisions, so IR executives can't afford to miss out on these opportunities. Investor relations professionals can use social media to educate investors about their industry and shape the overall narrative around the company.

Be on the lookout for the next technology

Investor relations executives should stay on top of every new technology that could shape the way they disclose or report information and engage with investors. Some examples of developing technology IR professionals might want to keep an eye on include the Metaverse and artificial intelligence.

While they may be still developing as far as investor relations go right now, that could change suddenly one day.

4. Look for investors beyond your nation’s borders.

Just as investors are advised to diversify their portfolios, so companies might want to consider diversifying their investor base. Holding IR and corporate roadshows in the European Union and Asia can help companies reach a wider audience and gain exposure to the international markets. 

More exposure to more markets can increase interest from investors, potentially boosting investment in your company. While attracting investors overseas might sound challenging, Philip White of Thumos Capital says it’s not as difficult as it sounds to attract overseas investors.

“Foreign market investors can play a significant role in the U.S. stock market, as they bring in capital and diversify the market. In general, foreign investors may be attracted to the U.S. market due to its stability, liquidity and potential for long-term growth. Pension and sovereign wealth funds can be particularly attractive sources of capital.

Signs that an investor relations strategy is effective

Successful IR executives know there's always more to learn and easily adapt their methods to best serve their companies. On one hand, there's the pressure to remain relevant with an ever-changing market environment, but on the other, some things will never change.

At the end of the day, while technology is always changing and shaping best practices, the pandemic demonstrated that it will never replace the power of in-person contact.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.