The Institute for Public Relations has divided the evolution of Investor Relations into three phases. The first phase began in 1953 with Ralph Cordiner, the president and later chairman of General Electric. Ralph created a function in charge of all shareholder communications. The post war boom had created a lot of wealth in the hands of American public. Therefore, American corporations such as GE began to use Public Relations as a tool to attract this wealth as investments in their corporations.
The second era was the finance era where financial institutions controlling massive funds were courted to invest in the stock market. Many of these institutions saw the main objective of Investor Relations as a mechanism to push for higher prices of the public issue. The Enron and WorldCom Scandals would later end this period of creative accounting and publicity blitz for artificially inflated stock prices.
The current era has been defined by the Sarbanes Oxley Act on one side and by social media on the other. Regulators have bestowed new importance upon the IR industry by making executive management responsible for any shenanigans. Thus boards today focus more on the fair value of their company’s shares as opposed to driving the share price to its highest point possible.
Social Media has given an impetus to real time communication aimed directly to millions of stakeholders. Facebook and more importantly, Twitter have become the de facto outlet of choice for disseminating information for most major corporations. Investor Relations in a hyper online world has shifted and is now driven by buzz words like data analytics and reputation reengineering.
The evolution of Investor relations can be now be seen through the prism of a “valuation premium” some companies enjoy over their competitors in the same industry. Many would agree reputation is a big reason Johnson & Johnson (JNJ) trades at a much higher price-earnings ratio than Pfizer (PFE), Procter & Gamble (PG) than Unilever (UN), and Exxon Mobil (XOM) than Royal Dutch Shell (RDS). This valuation premium is believed to be a result of better reputation among all stakeholders.
Investor Relations plays a vital role in demonstrating a company’s transparency and commitment to its investors. Today’s investor is more interested in understanding the qualitative side of earnings than the 10k or 10Q. Financials are now dissected more thoroughly and leave little to chance. Thus, the Investor Relations Industry has evolved from being considered a publicity gimmick to a necessary tool in today’s corporate affairs. Public companies now understand that Investor Relations has transformed in a way that helps create synergy for both investors and the company.
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