Understanding the Importance of Investor Relations
The Capital Network’s Chairman Christopher Ryan explains the importance of investor relations for public companies and executives while highlighting the major considerations and anticipated benefits of IR.
Lelde Smits: Hello I’m Lelde Smits for The Capital Network. Joining me is the Chairman of The Capital Network, Christopher Ryan. Christopher was an investment banker at Schroders for more than 25 years. Christopher is the currently principal of corporate advisory firm Westchester Corporate Finance, which he established more than 20 years ago. Now Christopher, in regards to listed companies what are the major considerations when it comes to their investor relations?
Christopher Ryan: It is important for a listed company to seek to communicate with its shareholders. It has an obligation under the ASX-listing rules to do so but it is a question as to whether that in itself is sufficient or whether there can be so much more that can be done in terms of communicating with shareholders and with the broad investment community.
Because, most listed companies have less than one per cent of the investment community invested in the company and therefore the more people they can attract to the company and its operations as investors and the better its share price is going to be and the better its prospects are for the company to raise capital, all of which are an essential part of being a listed company.
Lelde Smits: What does a well-run investor relations program look like?
Christopher Ryan: There’s many aspects to it, one of which starts with when the company does an IPO [Initial Public Offering]. In order to raise the capital and the initial issue there needs to be contact, direct contact, with investors through an investment bank usually. But, the way the information is presented, who it is presented to, and investor relations is an essential part of that. So, investors need to be contacted and the information that is needed to be communicated in order to raise the capital needs to be done at the best and the most effective manner.
Once the company is listed of course then there is an ongoing [investor relations] function. There is reporting obligations to the stock exchange and therefore everything that is reported at the stock exchange under the listing rules needs to be clearly written, well presented, and therefore effective in its communication. It’s a terribly important function.
But, in addition to that you have the opportunity to do investor roadshows where you can meet with institutions, or even retail investors at conferences and so on. There is opportunities of all sorts to present to stock broking firms to let the brokers there know, particularly advisory firms, what the operations of the company are, for people to meet the management which is, again, a very important function, for people to know who the management of the company is, to have confidence in the management and therefore communicate that confidence through to investors. And so, there are many many functions.
Lelde Smits: What are the benefits that listed companies can expect from a well-run investor relations function?
Christopher Ryan: Well the benefits are numerous. First of all, you have somebody doing the investor relations who knows what they are talking about. Because, there are many many aspects to investor relations. If it is done properly it should have a positive effect on the share price and people’s appreciation of the company’s business. The company has a management team who are intent all day, every day on the operations of the company and doing the very best they can to perform in accordance with their business plan.
Investor relations is about communicating how they are going and what the prospects for the company are. And, when you consider it, it is quite a substantial function. And, if it is done internally it is going to take away from the management resources of the company.
Lelde Smits: Okay, you mention internally, what are the benefits of outsourcing investor relations as opposed to managing the investor relations function?
Christopher Ryan: It really gets down to what degree of expertise you are employing to run your investor relations. Now, if you are a very big company you can afford to employ an investor relations specialist on staff and they spend all day every day doing it. If it is that you reduce the size of the company you are considering, particularly if you are inclined to think about employing somebody on a part time basis, there is always a question of what gets prioritised, is it investor relations or is it the other function that person performs?
If you hire an investor relations firm who specialise only in investor relations and the brief is clear, the terms of reference are understood and agreed between the parties, then you know that you are getting the best you can get with investor relations with all the benefits that flow from that and the management can focus on operations, delivering the results that they seek for their shareholders.
Lelde Smits: Well Christopher, thank you very much for your insights today.
Christopher Ryan: Thank you.