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Chapter 08 – Investor Relations

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joycef@prattcc.eduChapter 8

Investor Relations

Investor relations, or “IR” as it is commonly called, is such a specialized field that you

will probably have to read another book to understand what is really going on unless

you have an MBA or a background in accounting and finance. I would recommend a

few different books for this purpose. One of the best books written about the function

is Using Investor Relations to Maximize Equity Valuation (Wiley Finance, 2004) by

Thomas Ryan and Chad Jacobs, former Wall Street professionals who now run an IR

consulting firm. Also see William Mahoney’s The Professional’s Guide to Financial

As I mentioned in the short description on this material in Chapter Three, you

should also try to get a guest speaker into your class who is an expert in Investor

Relations. Most public companies have someone working exclusively in Investor

Relations who you can invite in to talk to your class about what a typical day is like.

Keep in mind that IR executives are very busy people and are essentially

unreachable at the end of each fiscal quarter. Even if they cannot attend your class,

a teleconference is always a good possibility, especially since IR executives typically

spend a large chunk of their day on the phone with investors. For me, actually

talking with people who work in the area of investor relations was worth much

more than all I have read.

Another way to get information is to through the National Investor Relations

Institute (NIRI). Their website (www.niri.org) has a wealth of free information

about the function.

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Given all of the news about nefarious activities by executives and corporations

ranging from abuses at Enron to questionable loans at WorldCom, to the more

recent Wall Street bailout and the ensuing Great Recession that began in 2007, the

investor relations function has become even more critical as corporations try to

Once you have done these things, well in advance of the class, you should also collect

as many annual reports as possible. Try to get a range of them from a variety of

industries displaying many different styles. Annual reports are now readily

available online via a variety of resources. If you want a more organized guide to

finding good annual reports, you can find evaluations of these documents in various

publications such as Bloomberg Business Week or from the Cato Institute. Don’t

forget that most companies now have robust investor relations sections on their

websites. As discussed in the text, Microsoft won the IR Magazine Award for the best

investor relations website. It is well worth it for your students to spend some time

exploring IR websites and then discussing what they like and what else they would

like to see on these websites.

Once you have the annual reports, whether in print or online, you then need to look

at them in two different ways. First, look at the overall design. Which ones stand

out? Why? The infamous Marvel comic report, for example, was an obvious one

because it was written like a comic book, but what makes other reports stand out in

terms of design? Is it color? Is it use of design elements? Pictures? How accurate

and honest are executives’ statements today versus a few years ago? How clearly

have they explained where their numbers come from?

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Finally, you can give the students an assignment that will allow them to focus on the

last part of the chapter. Have them develop an IR program for a company by

conducting research or by interviewing people in the company itself.

Teaching Note

Steelcase

This case represents a rare opportunity to experience vicariously the life of an IR

professional. I have replaced the United Technologies case from the second edition

because some of the reviewers felt it was out of date. It remains an excellent case,

however, and either one of these cases can offer a glimpse into some of the

problems and opportunities that IR professionals face every day.

Steelcase Problems

1. The biggest problem for this company is that it has not had a strong IR function

before and Perry Grueber must create one as a newcomer to the company.

2. Although management has promised Grueber resources to create a strong

strategy for IR, it’s unclear if they will stand by him and give him what he

needs when the time comes.

3. The stock price is down over 70% from its post IPO high, which has made it

unattractive to investors.

4. The company still has a family business mentality, despite its ascendance into

the Fortune 500. The case implies that this mentality affects its

communications with the board and with investors.

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6. Although the company values are strong and well-articulated, it is not clear

that they have been as well communicated to investors as they have to other

key constituencies, particularly employees.

8. Softness in the balance sheet has reinforced investors’ concerns over

deteriorating earnings performance.

9. The case suggests that this company has basically limited its channel of

communication to the press release, which is one of the least effective in

building a strong IR communications program.

10. The company seems to be limited in the number of institutions holding its

stock. Furthermore, those that do buy turnover more rapidly than the

company would prefer.

11. Unclear lines of responsibility exist between IR and Corporate Communication.

This is a growing problem at a number of companies. You will want to explore

with students whether IR is better placed separately (as here) or as part of a

strong Corporate Communication function.

13. The case states that an “inner circle” mentality remains from the earlier

shareholder base. This attitude, coupled with the low accessibility of

management, again makes the company less attractive to new institutional

investors.

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Case Questions

Many of the issues raised above will come up again in the case questions; let’s look

at each of these in more detail:

1. Where should Grueber report?

For most jobs and functions, this is an easy question, but in IR, it is a can of

worms. The first question to ask is how much experience Grueber has had and

in what areas (we have purposely left this vague so that you can speculate

about how you would approach this issue depending upon whether he was

more finance oriented or communications oriented). You would also need to

2. What resources should Grueber ask for? How should he organize the

function?

As mentioned earlier in the list of problems, we don’t really know what

resources he may have negotiated up front, but my guess is that it would be

fairly limited. Most of these departments have only 2-4 people in them, so he is

not going to need or get more headcount than that. How he organizes this

depends on where he reports, to some extent, but we can still identify some

basic personnel needs. Grueber will probably need a strong number cruncher

who can deal with the financial model of the firm and communicate with the

CFO. In an ideal world, this person might even sit in the CFO’s area. He will

also need someone with strong connections to analysts, perhaps even a former

The case study suggests that corporate communications staff has assisted IR

with press releases, the annual report, and other projects in the past. As part of

a better integration for the IR subfunction with corporate communications,

Grueber may establish a more formal line of connection between his staff and

the Allan Smith’s corporate communications staff. This cooperation can allow

them to pool resources in areas of mutual concern and also link the

‘newcomer’ IR team with a slightly more established group at the company.

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This is a good question to talk about first how the corporate communication

function is best organized overall, then how a subfunction can best be

organized.

3. What investor constituencies should Steelcase try to interest in the

4. What mistakes has Steelcase make in its past IR efforts?

5. What are the biggest challenges for IR? How would you position the

function to handle those challenges?

Building the credibility of the new IR team and creating a new approach to

communication among the senior leadership is the key to success here. Both of

Solutions

There are no “right answers” to the Steelcase situation. Your job is to get students to

see what some of the challenges are in this area, to put themselves in the shoes of