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Investor realations servicesEnhanced investor relations govern most of the public financial institutions today.
Earlier, investor relations were not taken too seriously by financial institutions. But, with the broadening of disclosure norms by the Securities and Exchange Commission (SEC), banks are forced to divulge material information to their shareholders.
Jerry Grundhofer, president and CEO of Minneapolis-based U.S. Bancorp, understands that his responsibility lies in presenting his company to the financial markets as well as in valuing the investor relations.
Investor is the key!!
Financial institutions now are accountable to the investors for every move they make. This has lead to heightened apprehension in dealing with customer data security issues. If the banks fail to maintain customer data privacy, they are subject to increased regulatory scrutiny.
Moreover, in the past, the earnings ratios and other long-term strategies were discussed only in the annual shareholder meets held once a year. But now the scenario is entirely different. Today, financial institutions are made to send out monthly performance reviews via the internet, so that the shareholder can know how his stocks are performing. U.S. Bancorp, for instance, makes available its quarterly earnings report to all its investors through webcasts.
Today investor is the part owner. The financial institution is accountable to the investor for every bit that he contributes to the institution. Besides, the investor holds a me too approach towards every aspect of the business dealings. He wants to know how well his money is being put to use. Now he even has a say in major business decisions.
Likewise, the financial institutions should catch on this trend in improving their performance. The involvement of the shareholder in the company affairs, in turn, helps the enterprise in increasing its earnings ratios.
Differentiation Strategy
The right approach to enhance business performance and win the investor confidence is to employ the differentiation strategy. The key lies in understanding what your business is, and how different it is from your other market peers. Once this is done, it becomes easy to present yourselves in the market. As Vernon Hill, chairman and CEO of Cherry Hill, N.J.-based Commerce Bancorp, puts it You have to have a very clear idea of your business model and how youre different. You have to understand what you are.
According to Grundhofer, Strategy has become more important than the next quarters earnings. This means a steady long term growth is more valued than a timid short term earnings.
Transparent dealings
A good investor relations program helps a company in evaluating its stock performance in comparison with its select industry counterparts. Companies also employ portfolio managers in managing their stock performance. A good investor relations program also executes as a channel through which outsiders can approach the senior management.
As the aim of an investor relations program is to build transparency in business dealings, it presents an opportunity to an outsider to approach the management with good business proposals, future dealings etc. Greg Ketron, senior vice president and director of investor relations at Atlanta-based SunTrust Banks Inc. believes that investors wish to understand a companys strategy in depth and its long term implications.
Our job is to make that transparent to the investor community, he reiterates.
Hulus Alpay, senior vice president and head of investor relations at Makovsky & Co., emphasizes that valuable communication and consistency in dealings can build essential confidence in the markets. Once this is achieved, investors would be willing to pay premium for its shares. This implies reduced cost of capital and increased profits for the company.
However, the investor relations have become further more intricate after the SEC has passed Regulation Fair Disclosure (Regulation FD) in October 2000. The new rule was meant to prevent public companies from selective disclosure of material information to promote certain shareholders.
New rules
The new rules imply that all public companies should release material information to all, from the individual investors to the institutional investors, at the same time. The Regulation FD rule reads as follows: "Whenever an issuer, or any person acting on its behalf, discloses any material non-public information regarding that issuer or its securities to [certain enumerated persons], the issuer shall make public disclosure of that information, simultaneously in the case of an intentional disclosure; and promptly, in the case of a non-intentional disclosure."
In the past, many companies released significant information to certain select shareholders excluding other shareholders and the general public. The purpose of this rule thus, is to achieve a level playing field, between individual investors and institutional investors at large.
The pros and cons
Louis M. Thompson Jr., president and chief executive officer of the National Investor Relations Institute, believes that the Regulation FD has to a great extent achieved the purpose with which it was put in place. However, the critics believe that the new rules would prevent companies from approaching the analysts for performance forecasts.
According to Fred Cannon, a sell-side analyst at Keefe Bruyette & Woods Inc., the new regulations have considerably improved investor relations throughout the industry, with the emphasizes now on reaching out public opinion rather than entrusting on certain select investors.
Grundhofer of US Bancorp holds a similar opinion. He believes that the Regulation FD has persuaded investors to establish a long term approach to growth. This is against the short term earnings perspective in the past. Similarly, Hill of Commerce Bancorp affirms that a long term strategy always yields a higher price/earnings ratio.
One of the things you have to determine is who you want your shareholders to be. If you do it right, you get the shareholders you deserve says Hill.
Confidence game
Every enterprise is unique in its own right, so is their growth plan. Companies should seize on this to attract investors with similar perspectives. Sharing critical information with the investors through webcasting of investor conferences is one aspect of confidence building measures. Besides, constant communication between the investor community and the companys senior management pays off.
Again, mere spending of time with the investor is not sufficient. Eventually the companies should be able to build in confidence in their stock by executing whats been set out in their growth strategy.
As Alpay of Makovsky & Co rightly puts it, part of the investor relations process is to ferret out what you think is unique to your company and is deserving of a premium [in comparison] . Other Articles
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