What are investor relations?

Investor Relations (IR) is a department in a publicly listed company that focuses on communication with institutional and individual investors, members of the financial community such as equity analysts, investment banks, and government entities.

Definition and Example of Investor Relations

Investor Relations is the department within the company responsible for communicating with the investment world, which includes those who have invested in the company either individually or institutionally, as well as investment analysts and government entities.

For example, Nike’s Investor Relations department continuously shares information regarding corporate governance principles, requirements for board member candidates, sustainability efforts, and broader social goals on its Investor Relations page. Microsoft, Alphabet, Amazon, and many other companies do the same.

Key Points

The role of Investor Relations within the company is to provide information related to the company’s past performance, future growth strategies, corporate policies, and to respond to corporate events that may affect the stock value. The importance of Investor Relations departments has increased in recent years due to stricter regulations on corporate governance and demands from activist investors for greater transparency. The Investor Relations department must work closely with several different components within the company, including executives, public relations, and legal oversight. The increasing benefit of Investor Relations to individual investors comes from providing information about past performance and future strategies in a more accessible manner.

How Investor Relations Works

Companies typically develop an Investor Relations team before the initial public offering (IPO). The primary role of the Investor Relations representative is to address investor concerns, through the IPO stage and during various growth phases of the company, to help build the company’s image and maximize its stock price.

Responsibilities of Investor Relations include:

• Representing the company in presentations and meetings with investors, as well as with the media.
• Providing timely information about the company’s performance.
• Providing non-financial information addressing investor questions regarding corporate governance and the overall mission.
• Submitting regular reports to the board of directors.
• Conveying investor concerns to company officials.
• Providing an accurate commercial assessment of the company.
• Gathering and reporting on investor questions and feedback.
• Building trust and influencing investor confidence in the company’s long-term future despite any negative news that may arise.

In general, Investor Relations departments communicate with the investment community through a variety of means, including social media, press releases, conference calls, promotional tours, and websites.

As the Investor Relations team interacts with various departments within the company, it must have clear lines of communication with each department. This includes the CEO, CFO, public relations, and various product departments.

Although Investor Relations is a separate department from Media Relations (where Investor Relations focuses on the investment world, not the general public), they may work together on news releases. For example, when Peloton announced in February 2022 that founder John Foley would step down as CEO, a position he held since the company was founded, the Investor Relations team was the first point of contact mentioned in the company’s statement, and the statement was posted in the Investor Relations section on Peloton’s website.

Notable Events

Building investor confidence in the company’s long-term future through the provision of accurate, precise, and comprehensive information about the company is a core function of Investor Relations teams. This role has become significantly more important with the passing of the Sarbanes-Oxley Act of 2002 (SOX). They bear responsibility for this due to the high risks associated with it.

Corporate scandals that occurred over the past two decades, including the collapse of Enron in the early 2000s, led to stricter oversight and financial reporting requirements through the Sarbanes-Oxley Act of 2002. This law strengthened the independence of boards of directors and the financial culture of executives and finance managers, as well as the accountability of the CEO and CFO for the accuracy of information communicated and shared with investors through the Investor Relations team.

Increased

The Sarbanes-Oxley Act and the Importance of Investor Relations. Investor relations practitioners should be aware of legal requirements and assist management in meeting them.

What Does This Mean for Individual Investors

The investor relations team helps you become more informed about key areas such as significant changes that may affect stock prices and quarterly financial reports.

As investor relations departments have become more important over the years, individual investors seeking investment opportunities should have easy access to information about the company’s past performance, future growth plans, and responses to any corporate events that receive media coverage. Generally, obtaining more information is better when making investment decisions. Investor relations teams make that possible.

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Sources:

• Nike, Inc. “Investor Relations.”
• Boston University College of Communication. “Investor Relations 101: A Broad View of IR.”
• Peloton. “Peloton Announces Leadership Transitions To Position Peloton for Sustainable Growth, Profitability, and Long-Term Success.”
• Marquee Equity. “The Role of Investor Relations–Importance of the IR Department.”
• Congress.gov. “S.2673—Public Company Accounting Reform and Investor Protection Act of 2002.”
• SAGE Publications. “The SAGE Handbook of Public Relations,“ Page 613.

Source: https://www.thebalancemoney.com/what-is-investor-relations-5270282