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

Two-Way Street: What are Investors Thinking?

This week on Street Talking in NEXT, I recommend that companies on the Nigerian Stock Exchange need to pay as much information to monitoring their investors' behaviour as they do to getting information out to them.

It is tempting for companies to imagine that once they push financial results, earnings releases and announcements of strategic moves out in the public domain, their job is finished. The trouble with such ‘do-this-and-other-other-things-shall-be-added-unto-thee’ mindset is that when the anticipated results fail to manifest, companies blame investors for not getting ‘it’. They insist that investors must fit into their mold or nothing. All they want to do is ram information down investors’ throats. Companies hardly bother to learn how they react to that diet.

To aggravate the problem, on the few occasions that they admit that feedback is important, those saddled with responsibility for investor communications at most public companies, often lack structured processes for monitoring it. In fact, they are often unclear on what feedback should be (the next day’s closing price, share price volatility over the following week, an increase in trading volumes, greater liquidity in the stock, more positive mentions in the press, a spike in visits to the company website, more equity analyst following, bigger attendance at the next shareholder meeting).

But my topic today goes much beyond the creation of dashboards with fancy line and pie charts for the sake of it. It drills right down to value of investor relations to public companies from the board of directors’ point of view.

In the past year, companies on the Nigerian Stock Exchange have taken important steps to improve how they communicate with investors. No doubt, there is still a long way to go but it would be unfair to say that things are not improving. In my interactions with companies, I have started to sense a genuine interest among executives to facilitate the flow of information to investors. Although, this has not always translated to instant action, I put that down to the administrative bogs that are normal in big organizations. One thing that has struck me is the urge to push out more information to investors.

There is a good reason for this. In the past, investors had very little information of relevance with which to assess companies on a prudent basis. Normally, the momentum of a rising share price, enthusiasm of friends and the slick marketing of their stock brokers was all the convincing they needed. Few bothered to ask the hard questions or knew what those questions ought to be. So it is not unexpected that after their post-meltdown Damascene conversion, companies would be willing to go the extra mile in providing information to investors. This is a good thing. But is it everything? No, it is not.

When I look around, I see companies eager to launch investor relations programs with a sole focus on pushing information out to shareholders. This conception of investor relations as information fulfillment probably almost guarantees that they will not reap all the benefits they anticipate because there is no loop for returning information on how the company ought to adapt behaviour to better match investor expectations.

It also explains why investor relations is rarely accorded an appropriate position in the corporate org chart. The US National Investor Relations Institute (NIRI) definition of investor relations is very instructive:

Investor relations is 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.

- US NIRI

The point is that the investor relations function should be serving boards as much as investors with reports, analysis and research on what investors are doing and thinking. A CFO needs to be able to call up his head of investor relations and ask, ‘Why is our sector down this week?’ or ‘On a scale of ten, how do investors in our sector rate revenues in comparison with margins?’

The officer responsible for investor relations must know every analyst covering her sector and have all the research they have published going back 12 months at least. She needs to know why some analysts that cover her sector do not cover her particular company. She has got to understand their valuation methodology and influence among investors.

When woken from sleep, the investor relations officer should know names of her top fifty shareholders, their investment styles, what other companies in the sector they own and their orientation. She also needs to know the top investors in their peers and if they do not own the company’s shares, know the reason why. She needs to know how much time management has to meet with investors three months in advance and schedule meetings accordingly. These are just the beginning. There is so much more.

Doing all this is no mean task. It takes time and resources to produce results. Quite frankly, successful investor relations has the two faces of Janus: one looking out serving investors and the other looking in serving internal clients. Getting all As in pushing out information but not sitting for the paper in providing boards with invaluable insight is still a flunk.

For companies, the message is clear: in all thine giving information, be getting intelligence.

The original article may be read here on the NEXT website.

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