The Future of Investor Relations
Seven main challenges can be identified for investor marketing; each of which presents good material for future research, whether academic or proprietary. These seven challenges are as follows: (1) The uncertain regulatory landscape of online investor relations (IR). Which social media channels have the greatest potential to satisfy the market’s informational requirements without breaching compliance rules or creating reputation risks? How can corporations handle misinformation without being forced into increasing disclosure levels? Is two-way communication possible, legal, and desirable? At the same time, it may be incumbent upon the Financial Reporting Council, Securities and Exchange Commission, and other regulators to provide more precise guidance rather than waiting for companies to transgress before issuing clarification. (2) The uncertain future of sell-side analysts. How will analysts survive if all information is now publicly available? Who will pay for analyst research if all the information is already on the Internet? Is information alone enough, or does it require processing? Is there now too much information available, and might this increased disclosure be counterproductive? Do corporations need to provide a greater diversity of corporate information to match the diversity of investment styles? (3) The difficulty of justifying investing in relationships with analysts and investors in a climate of shortening investment horizons. How can IR prioritize the retention of existing shareholders and limit the revolving door of ownership that places so much strain on managerial time and restricts the development of long-term corporate strategy? (4) The reputational risks of social media tools and the difficulty of measuring the impact of social media on reputation and financial results. (5) The de-financialization of corporate value caused by the growth of intangibles. Intangible assets such as brands, knowledge, and reputation form an ever-increasing proportion of corporate value, but robust and consistent methods of measurement are lacking. The rather limited adoption of the “balanced scorecard” suggests that more research is required to provide managers and investors with metrics that they can rely on. (6) The internationalization of investment is a long-standing trend, which places additional pressures on IR. Remote investors may not be enthusiastic for contact and may use different approaches to valuation, corporate governance, communications, and financial reporting. Barriers of language and culture may make engagement a real challenge, and yet companies neglect overseas investors at their peril. (7) The final challenge to investor marketing is the reputational damage done to the entire investment industry by the financial crisis of 2007 to 2008, which undermined public confidence in the wealth generating ability of the stock market. This author believes that both the practice of investment and the art of marketing are activities that have a moral basis and generate social benefits. Investor marketing has a dual moral basis, as defending and advancing the social goals of investment in business and the social goals of the underlying businesses themselves. The economic and moral cases for the role of profit-seeking business in developed society have to be put regularly and persuasively in the “public square” as does the case for wide-scale share ownership and the role of investment, if the public’s confidence in these essential institutions of modern capitalism is to be restored and the danger of still more burdensome regulation is to be averted.
If IR professionals are to maintain and increase their influence in the boardroom and guarantee the future of their profession, and the investment industry on which their profession depends, they will need to provide cogent and credible answers to challenges like these, challenges which will determine the relevance and influence of not just IR, but of the publically listed corporation for the next decade.
Conclusion
After establishing a marketing paradigm for the field of IR, this book reviewed research and practice on the marketing of corporate stock. It is clear that the benefits that the Internet offers in communicating with financial audiences are not yet being fully utilized by many companies, and encouragement from both regulators and information recipients would be helpful in accelerating this process. The uncertain regulatory framework is a major cause of the “digital conservatism” on display, and we would welcome regular updates of disclosure guidelines in this area.
Another area ripe for development is the conceptual analysis of IR. This field has been held back by the discreet nature of the relationship between investors and corporations and the prevalence of the Efficient Markets Hypothesis, which marginalizes the role of IR. We encourage academics to experiment with new research methods and new hypotheses in order to shed further light on this area, an area that can only grow in importance in the 21st century.