Boards: get to know your IRO.

• Author: Thompson, Louis M., Jr.
• Position: Investor Relations

What do you do when there is a myriad of ratings services eager to evaluate your company's governance, and the Street is poised to punish those who come up short in the rankings? You make the investor relations officer a vital resource for the board.

IN TODAY'S ENVIRONMENT of heightened emphasis on corporate governance, board members need the best information possible for decision making. One resource that boards could take greater advantage of is the company's chief investor relations officer.

Directors' duty of care in managing the affairs of the corporation requires that they avail themselves of all reasonably available material information prior to making a business decision. Some of that information should come from the investment community.

While the CEO and CFO occasionally meet with analysts and institutional investors, the investor relations officer (IRO) deals with analysts and investors -- large and small -- on a daily basis. The IRO is on the front line when it comes to explaining the company's prospects for performance. Most important, he or she is often the first to hear investor concerns.

A 2001 Rivel Research survey conducted for the National Investor Relations Institute (NIRI) found that 72% of investor relations officers provide reports to their companies' boards. The majority of these are written, although some make presentations to their boards that provide an opportunity to respond to directors' questions. But, what about the boards that are not getting this information? They might be missing an opportunity to glean important insights about their company.

Directors should receive all relevant analysts' reports on the company (regardless of the analyst's rating) or a digest of those reports. They should see, or hear about, the most frequently asked questions by analysts and institutional investors along with the substantive concerns expressed by individual investors. This could provide some of the best early warning information of a problem or potential problem that the board may have to deal with. It may also provide evidence that "the Street" understands the company's strategy or is rejecting the board-approved strategic plan.

Knowing the mix

The board should know what the company's shareholder mix is and whether the company is attempting to change the ownership percentages of its various constituencies: employees, officers, directors, institutions, and individuals (as well as geographical ownership). If so, the IRO should explain the strategy for accomplishing this. It is also helpful to know what kind of institutional investors the company is trying to attract.

The nature of a company, its recent performance, and its strategic direction strongly determine who will be its likely investors. For example, value investors tend to be long-term in their...