The role of IR in a successful corporation.

• Author: Kinnear, James W.
• Position: Investor relations function

The investor relations function can make a major impact on the ability of a company to compete in a tough global marketplace.

Good investor relations is absolutely essential to the success of a corporation. When the Harvard Business School wrote a 40-page case study on Texaco, one of the points made was the importance of good investor relations -- to know who your constituencies are and to work with them, before you need them.

I believe that we are in a new era of investor relations. It's going to be more important in the future than it has been in the past.

Investor relations is important in any corporation, and particularly one in the oil business, because of its high public profile. Texaco's corporate logo stands at the corner of Elm and Main in virtually every city and town in the United States and at highway interchanges all over the world. Everything we do, from drilling for oil to pumping gasoline, is subject to dose public scrutiny.

Part of that public consists of shareholders. We compete for investors just as we compete for customers at the pump. So in one sense, the shareholders vote on our performance every day in the stock market. We rank investor relations very high in our priority of things to do at Texaco. It is key in our communications with the outside world.

We could liken investor relations to an open window. Like any open window, things flow in both directions, in and out. Outward, we try to build the company's reputation with the public. Inward, we get valuable intelligence about our industry, our competition, the marketplace, and society. Let's talk first about the outward flow of information.

The starting point is our belief -- and it's certainly my own, strongly held belief -- that the reputation of a company is one of the four vital factors that determine its stock price. The factors I look at are earnings per share, cash flow per share, dividends per share, and corporate reputation. A company's reputation demands the most constant attention from senior management. It can be very easy to damage a reputation, and very hard to repair!

Reputation is complex. In the oil industry it consists of the tangible: How well do you do at finding oil? What percent of capacity are your refineries running at? It also comprises intangible factors: What kind of corporate citizen are you? What are your people like? How do you manage your business? And, perhaps most importantly, how credible are you? It is hard to overstate the importance of credibility to a corporation. There is no question in my mind that a good reputation for credibility can bring an extra multiple in your price-earnings ratio.

Value of Credibility

The value of credibility was demonstrated very dearly at Texaco in 1988, during a tough proxy fight with a well-known corporate raider. A proxy fight is one of the ultimate tests of investor relations: not only to have a proxy fight and to do well but to be alive and well thereafter. That, in itself, is somewhat rare. But, if you've built your investor relations program on a solid basis of good performance and candid communications, then you have the artillery you need.

We had that artillery in 1988. We had built our contacts with our investors before and during the Pennzoil litigation and ensuing bankruptcy. I personally talked to every investor in the world with over 20,000 shares. In a constant stream of personal meetings and other...