Friday, September 28, 2012

Selling the Academic Side of Investor Relations

When you are an academic, if you really want to make it big, you need to come up with a snappy way to sum up your thinking on your area of expertise. For example, Porter has his Five Forces that describe his thinking on strategy – supplier power, buyer power, competitive rivalry, the treat of substitution and the threat of new entry. Similarly, Kotler has the four Ps of marketing: product, price, promotion and place. So I’ve been thinking: Why doesn’t investor relations have a way to neatly encapsulate what it is we do? Seeing this as a real hole in the academic literature, I have decided to step into the void and propose (with apologies to T. E. Laurence and the Seven Pillars of Wisdom), Palizza’s Five Pillars of Investor Relations.
I choose the wording of pillars because what I am about to describe are the skills needed to form a strong support base for an investor relations program (also, I couldn’t come up with a clever acronym or make everything begin with the same letter).  Plus, this allows me to crate a clever visual slide for my class featuring Greek columns to drive the point home. So, without further ado, here is a brief description of what I consider to be the essential skill and knowledge requirements to do investor relations well – the pillars of investor relations.
FINANCE – It is essential that a good investor relations officer have a thorough understanding of the components of his company’s income statement, balance sheet and cash flow statement, as well as the accounting treatments they derive from. On the theoretical side, the IRO needs to be comfortable with the different valuation models used by Wall Street to value his company’s stock and the role of investor relations in the efficient markets.
MARKETING - How to segment the investment universe, target appropriate investors and position the company story to appeal to those investors are basic marketing skills that are critical to good IR. At a deeper level, using marketing techniques to more efficiently use limited resources to focus on the most important investors can help IR have a bigger impact.
COMMUNICATIONS – Crafting a memorable message that resonates with investors is a critical communications skill that is used in IR. This is closely followed by figuring out what disclosures, above and beyond those mandated by regulations, will assist investors in understanding the intrinsic worth of a company. All of this presupposes a solid understanding of your company and industry. Finally, the skilled use of multiple communications channels is becoming ever more important as new means of communication such as social media proliferate.
LAW – Everything in investor relations is circumscribed by laws, regulations and case decisions. They cover everything from what you say (the periodic reporting requirements of 10-Ks and 10-Qs and mandated disclosures of 8-Ks), to when and to whom you say it (Reg. FD) to why you say it (the case decisions concerning materiality and other items). 
CAPITAL MARKETS – Knowledge of how the stock markets work is an essential skill of the IRO. If you don’t think so, try telling your CEO that you don’t really understand what the markets are doing the next time he sticks his head into your office and asks why the stock is trading down. Understanding liquidity, volatility, auction markets and the other things that impact the way your stock is traded and how to access information about them quickly are necessary pieces of information for the IRO.
Well, there you have it: The Five Pillars of Investor Relations. Now all I have to do is sit back and wait for the book offers to come rolling in…