Getting a grip on investor relations.

• Author: Brown, Lois F.
• Position: Advice to the Rookie Director

Before joining a board, evaluate the company's IR capabilities and commitment. Here are the four cornerstones of a comprehensive program.

Congratulations! By becoming a member of a board of directors you have achieved one of the highest professional milestones. Obviously, you've made the grade. You have the background. You have the expertise. You have the connections. You even have a few ideas as to just what this company needs. After all, your have a fine legal mind or a thorough knowledge of the consumer and/or international markets or a genius for deciphering new technologies. You've got all the vital stuff down cold and you're confident and raring to go.

Then someone mentions "investor relations."

Oh, you think - that's the nitty-gritty stuff like stock transfers and requests from little old ladies looking for their dividend checks. That's the clerical stuff that's handled in the back office by guys with green eyeshades and sleeve garters. Why should you concern yourself with such mundane matters?

Think again! Investor relations as a discipline has come a long way in the past 10 years and now plays a vital role in the ability of a company to raise capital, maintain a satisfied work force, and develop a positive public image. Investor relations also touches your fiduciary responsibility as a member of this board.

A generally accepted definition of investor relations runs something like:

Investor relations is a strategic corporate marketing activity, combining the disciplines of finance and communication, which provides present and potential investors with an accurate portrayal of a company's performance and prospects. Conducted effectively, investor relations can have a positive effect on a company's total value relative to that of the overall market and a company's cost of capital.

Just as you will want to get a firm grip on how the company runs its business, you'll want to get to know how the investor relations function is organized. For openers, to whom does the IR professional report? According to a recent survey by the National Investor Relations Institute, approximately 52% of IR positions report to the chief financial officer and upwards of 35% report to either the president or CEO. The more senior the IR officer, the more important the company considers the function.

Whether the company is publicly held or privately owned, stakeholders (whether equity or debt holders) require information to evaluate the efficacy of their...