Customs Street Advisors is a full service investor relations firm based in Lagos, Nigeria.

Get on the next bus because this one won’t take you any further: Why PR agencies’ remedies are not an alternative to professional investor relations for Nigerian companies.

Not much attention has been paid to the role of PR agencies in the success of the Nigerian stock market in recent years. Rather, most commentators have laid emphasis on the critical role played by regulatory changes, macroeconomic conditions and the shifts in corporate financing patterns of Nigerian companies in the liftoff of equity investing among Nigerians. However, a careful look at the success of most offerings will show a tight positive correlation between the brand visibility of institutions and their success in raising capital. One may go as far as saying that during the 2004-2007 IPO wave, investor decisions on where to invest were drivrn by identity affinities. While this opportunistic approach, which was carefully planned by agencies may be faulted, when one considers the tight fundraising schedule, it was a pragmatic choice. It certainly succeeded in raising capital for companies. Without prejudice to the contributions of issuing houses and other midwifing agents, most issuers owe the success of their capital market entree to their PR agencies. Still, a sentimental investor clientele for equity offerings poses challenges for issuers. Since offering communications and promotions are scanty on past business performance, competitive dependencies, operating conditions and the economic environment, investor expectations are spread across a wide range. This complicates the inherent uncertainty of post-listing performance of the securities and results in increased volatility of the shares. To address these issues, companies need to work with experienced investor relations professionals to develop and execute market engagement strategies that match their situation so that fair valuation of their securities is achieved.

The July 2004 announcement by Professor C.C. Soludo, governor of the Central Bank of Nigeria, that Nigerian banks had until December 31, 2005 to raise their share capital from N2 billion to N25 billion, had three effects on the affected financial institutions.

The first and direct effect, which was immediate, was that it raised questions about the survivability of several banks. At the time, only about five of the eighty-nine banks in the country had the balance sheet strength and captive shareholder constituencies to be confident about their ability to meet the new conditions. Anxiety among bank management, customers and investors was a foreseeable and logical result.

The second effect, which was anticipated by definition, was that it created profit opportunities for ‘mid-wifing’ firms involved in bringing these companies to the capital market.

The third effect, which was not foreseen, and the consequences of which would linger, was that within the limited timeframe set to raise capital in the most fierce competition, the victors would be those with the widest brand recognition.

The deluge of offerings overwhelmed investors with choices on where to place their capital. In such circumstances, heuristics prevailed. Simply put, companies succeeded in the capital market based on the public reception of their metaphorical ambiance, and not on the basis of their real world performance or prospects. If the companies excelled at the latter, that was incidental, and not germane to their success.

At the core of their value proposition to companies preparing an equity sale or listing on the Nigerian Stock Exchange was the agencies’ ability to generate a lot of publicity for the issuers through the media. It became common to promote public offerings like fast moving consumer goods (FMCG). At its most crass, such publicity fell into three categories:

1. Radio jingles with refrains in pidgin English like ‘e don shele again o!’ (it’s happening again), ‘make una come partake o!’ (come and be a part of this), ‘if you miss this one, na you know’ (you can’t afford to miss this) and other promotional claims.
2. Billboards and TV ads showing familiar settings with endearing images like young families and old couples in retirement as representational of the type of people whose future security is guaranteed by an investment in the company.
3. News paper articles with headings like ‘XYZ Bank Public Offering tickles investors’, ‘ABC Industries IPO excites capital markets’, ‘Investor clamour for EFG Technologies shares.’

Effective as these communications were in their primary purpose of publicity, they failed to provide investors with a clear understanding of the business, its operating environment and the miscellaneous dependencies which could affect its performance.  Essentially, these agencies conflate their ability to attract investors to a discrete event, the public offering, with the expertise to sustain that interest over an extended period.

Until quite recently, the practice of professional investor relations was unknown in Nigeria. The novelty of the profession means that it has yet to differentiate its value additivity sufficiently enough from those of related practices. This leaves room for neighbouring practices to climb over its low walls. Such an impersonating logic can claim that there are enough similarities between the practices to allow for the transfer of skills in one to the other, while conveniently ignoring the differences between them.

However, instead of committing to learn the ground rules of engagement on meeting new demands, agencies chose to use the old tools of their trade to meet the new demands investors make after the companies shares start trading on the Exchange. The mind set was that hype was sufficient for all seasons. Moreover, the one-way communications train, supported by huge marketing budgets, which had proven so successful in the offering wave, was ill-suited for the level of engagement that can only thrive through open dialogue channels built on balanced messages, transparency and admission of evidence that may not confirm management expectations. This was a classic old-wine-in-new-wineskin case, which was bound to produce mediocre results at its best.

The US National Investor Relations Institute (NIRI) defines investor relations as ‘a strategic management responsibility that 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.’  In a nutshell, the role of investor relations is to ensure that two way communications channels exist for constructive and informed dialogue between companies and markets. For the investor relations officer or consultant, the end-game is not simply to sell the companies securities, but to ensure that post-sale, open communications are established and maintained between the company and its investors. It is not enough that the offering was ‘over subscribed’. The markets’ pricing of the company’s securities has to converge with management’s candid views on its company’s prospects.

First, let us look at the similarities in roles. Before and during an offering, there are some responsibilities that should be jointly handled by those responsible for the company’s public relations and investor relations. These include:

• Strategic media relations
• Developing the key messages of the offering story
• Recommendations for the company’s online presence
• Coordinate all external and internal communication measures
• Segmentation of target groups and the preparation of talking points and responses for each
• Fire drill training for management on responses to possible leaks of confidential information or other unforeseen compromising situations
• Constant monitoring and evaluation of the media
• Preparation of informational materials (brochures, fact sheets, handouts)
• Developing concepts for your complete online activities.

Let us now consider the specialist value that IR brings at two levels:

1. Before and during the offering and
2. After the offering.

In addition to the joint roles described above, the IR officer or consultant will also be responsible for creating a workable investor relations infrastructure, so that management is not overwhelmed with requests for access or information. In addition, the investor relations officer  is responsible for identifying opportunities for supporting the stock’s liquidity after its listing.

After the offering, the IR officer or consultant is responsible for:

• Creating consistent, credible communications practices in compliance with the rules and regulations of the Nigerian Stock Exchange and the Securities and Exchange Commission.
• Providing responsive feedback channels between management and markets.
• Fostering relations with the investment community, especially the financial press, institutional investors and analysts, including proactive provision of access to management.
• Performing administrative tasks including building investor lists, shareholder register audit, carrying out market intelligence, developing the content and structure of the investor relations section of the company website, preparing and issuing market related and price sensitive press releases and
• Developing actionable plans for management aspirations on the positioning of the company among investors.

These are duties and relationships that require an entirely different skill set from those found in most agencies. When companies use agencies for these tasks, they pass up the opportunity to draw the full benefits of engaging with the markets with optimal results for their securities and investors.

Investor relations is a professional practice. Like all professional practices, its skills and ethos can be learned. In fact, the practitioners of IR and PR in Nigeria, as well as their clients, stand to benefit a lot when there is a cross-pollination of ideas. But IR is not PR. When PR professionals try to pass off what are essentially brand-centric services as IR, it does a disservice to companies and investors. Companies need to understand these differences between the two and put square pegs in square holes. Until then, companies and investors will continue to miss opportunities due to the misconception that marketing and PR are sufficient to sustain investor interest in a company.

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