How a comprehensive IR program pays off: an investor relations veteran analyzes the advantages of taking a comprehensive and proactive approach to investor outreach.

• Author: Conger, Mary

Public companies have different philosophies and different approaches to investor relations, with some viewing it as largely reactive--having delegated people respond to inquiries from analysts or investors as they come in. But a more proactive approach can pay big dividends. Consider the benefits to be gained:

1. THE MORE YOU TELL, THE MORE YOU SELL. The more a company makes investors aware of its existence, business and strategies, the more likely it is to increase sales of its stock. "Making investors aware" doesn't mean a spin campaign, but a program to communicate and educate investors about the company's market, its strengths and potential as an investment.

   The National Investor Relations Institute (NIRI) defines IR as "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."

   Says Marc Greene, vice president of capital markets intelligence for Thomson Financial, "If a company isn't proactive at all with its IR efforts, some investors are still bound to find it. But investors, like us all, have a limited amount of time at their disposal. They will, therefore, invest in those companies they have heard of, are familiar with and can trust. When a company is willing to communicate, it decreases investors' uncertainty and risk."

   Greene adds: "A few years ago, I was covering the telecommunications sector for Thomson. I had five clients and called a powerful telecom analyst, who owned millions of shares of four of the five. I asked him why he did not own the fifth company. He said, 'They have never made the effort to get in touch with me, and they are not good about returning my phone calls. I have no desire to invest in a company that has no interest in its investors.'"

   John Fox, co-manager of the FAM Value Fund for Fenimore Asset Management, a long-term, buy-side institution that does its own research, says outreach can make the difference. "I got a call this week from a company which we don't own but visited several months ago," he recalls. "The IRO [investor relations officer] called to follow up and see if I had any questions. I am now seriously considering buying stock in this company because of that phone call. They demonstrated that they are responsive to investors. When a company reaches out, that sends a positive message.

   "IROs are useful because they facilitate communication between investors and the CEO and CFO by arranging meetings and attending industry trade shows and conferences where investors can talk with senior management. IROs can also respond a lot more quickly to investors than can the CEO or CFO," says Fox.

   Can the CEO and CFO market the stock without an IRO? Absolutely, but the IRO can save them time by doing it for them. "When a company has a competent IRO on board and the right outside consultants in place, its CEO and CFO should be able to spend two to four days per month on IR to get the job done," says Greene of Thomson Financial.

   After several years of trying to fulfill the IR responsibilities in addition to his "day job," the CFO of Reynolds and Reynolds Inc., a provider of software and services to auto dealers worldwide, appreciated the value of investor relations and the time it took to execute a strong program. A couple of years ago, he hired John Shave as the company's vice president of IR.

   "When I first got to Reynolds and Reynolds, the Street did not know the company, so its stock didn't trade much. We launched a targeting program to educate buy- and sell-side analysts about the stock," Shave said. The result? "We increased the...