Investor relations combines finance, communication and marketing to effectively control the flow of information between a public company, it's investors and its stakeholders.
Investors play a major and vital role in the success and growth of a company. Because of that fact, it’s of the utmost importance for companies to maintain strong, transparent relationships with investors. This is where the investor relations department of a company comes into play.
As we noted above, investors are essential to a company. Pretty much any company you’ve ever heard of (and some that you haven’t) have investors to thank for not only getting on their feet but also for the continuation of their operational success. Thus, it’s important for businesses to communicate effectively and honestly with investors.
To further that end, companies typically build and rely on an investor relations (IR) department. Depending on the size and scale of a business, as well as on the number of investors the business has, an IR department may be limited to one person or extend to teams of people. In the broad sense, the IR department keeps the lines of communication and information open between investors and the company.
But to truly understand the magnitude of an IR department and its importance within a company, we need to break down the different roles that individuals or teams within the department fulfill.
In a broad sense, as we indicated above, IR acts as a portal, a passage through which investors and company executives communicate, but let’s break that down a bit more.
The first piece of IR’s role in creating channels of communication is triage. Investors, analysts, and anyone else with a request or a demand for information from a company are usually funnelled to the IR department, which functions as a sort of overall catcher’s mitt. Whatever the IR department itself is capable of handling, passing off, passing down, or assigning elsewhere, it will do without involving the higher ups. This triaging is important to avoid overloading executives, who have other important tasks to attend to, with every information request that arrives at the company’s doorstep.
The second piece of the communication puzzle is, translation. IR acts as a translator for the language that Wall Street speaks. What we mean by this is that IR conveys to a company’s executives how the company is generally being viewed by Wall Street and its investors. IR works to relay what the investor community may see as assets and flaws, what they want to be changed, what they don’t understand, and, bottom line, what will drive the value of shares based on current and predicted investor wants and needs.
The final piece is for the company’s values, interests, positions, and answers to be translated back to the wizards at Wall Street in a language they understand, namely such things as profit margins, projected goals, Earnings Per Share (EPS), and dividends.
Everything we’ve mentioned so far concerns functionality, but on a fairly large scale. The difficulty in breaking down IR is the myriad minutiae surrounding the functionality of the department within a company. We’re understating things when we say that IR departments serve a variety of functions and play a host of roles.
Because IR fulfills so many duties and functions in so many capacities, it’s essential that the department stay fully integrated with nearly every other department in the company, such as the legal and accounting departments, as well as with the entire executive management team.