Although many argue that investor relations is more suited to finance professionals, the inconsistencies presented in literature and by the National Investor Relations Institute (NIRI) support the confusion and misunderstanding of this less researched area of corporate communications and suggest that it is truly a subset of the public relations profession.
Laskin’s national study of the investor relations profession highlights Petersen and Martin’s (1996) claim that “CEOs do not perceive invested relations to be a part of the public relations function as it is frequently treated as a financial function, both in terms of who is in charge, and what qualifications are for the job.” In addition to this, Petersen and Martin found that in 57% of corporate communication companies, chief financial officers supervise investor relations activities, while public relations or communications officers are only in charge 13% of the time.
In their discussion of investor relations, Brian Bushee and Gregory Miller suggest that small companies seeking to adopt investor relations strategies should first develop a strategy to better develop “investment viability attributes,” such as stock liquidity, which may be a task better suited to members of the finance profession rather than public relations.
Role conflicts occur later when Bushee continues to identify areas of improvement, such as “improved disclosure and increased press coverage” and specifically mentions that “many companies begin the IR process with press releases in an attempt to ‘wake up investors.'” All of these activities fall within the realm of public relations, and when professionals see them used as key processes in the investor relations profession, it only encourages the idea that investor relations is a subset of public relations.
According to Bushee & Miller’s survey and empirical tests, companies that adopt investor relations strategies experience “significant increases in their disclosure, press coverage, trading activity, institutional investor relationships, analyst following, and market valuation.” Many of the study respondents also indicated that media coverage can be an effective tool for communicating with “current and potential shareholders,” and “helpful in attracting and retaining the buy side and analysts” because it adds credibility to the company.
While these results are mixed between finance and communications, one should notice that many of these benefits can result from an effective public relations function as discussed in James E. Grunig’s (2006) article, Furnishing the Edifice. Grunig’s interviews with CEOs and senior public relations officers revealed that an empowered public relations function could “reduce the costs of litigation, regulation, legislation, and negative publicity cause by poor relationships, reduced the risk of making decisions that affect different stakeholders, or increased revenue by providing products or services needed by stakeholders.”
Even though “investors are increasingly considering non-financial aspects in their assessment of companies,” the importance of communication and public relations to investor relations is continuously downplayed. Favaro (2001) states that “CFOs have to be able to explain not only the numbers, but also the nature of the business…and non-financial information as investors incorporate these factors into their buy and sell decisions” and suggests that today’s investor relations specialist “possess extraordinary public relations skills.”
Where do you think investor relations belongs? Is it a public relations function, or does it belong in finance? Leave a comment sharing your professional experiences and opinions.
- Bushee, B. J. (2005). “Investor Relations, Firm Visibility, and Investor Following.” 1-58.
- Grunig, J. E. (2006). “Furnishing the edifice: ongoing research on public relations as a strategic management function.” Journal of Public Relations Research, 18(2), 151-176.
- Laskin, A. V. (2009). “A Descriptive Account of the Investor Relations Profession.” Association for Business Communication, 46(2). 208-233.
Image via Tax Credits