Gathering intelligence in a low-visibility world
Multimedia communications tools
How one company uses video to reach investors
XBRL boosts intelligence and communications
Know thy shareholder is perhaps the first rule for any investor relations officer. But many IROs find getting the basic information they need in order to know their audience and communicate effectively is no mean feat.
At a time when public companies have been compelled to share more financial information, disclosing everything from executive compensation practices to how board members are selected, many IROs lament that investors have been asked to share precious little, if anything, about themselves.
In addition, shareholders are evaluating public companies on much more than just their 10Ks and 10Qs. Nowadays investors want to know a company’s record on climate change, green initiatives and other aspects of CSR.
Compliance doesn’t stop at what the letter of the law demands. It extends to how effectively a company can communicate all its activities to shareholders, and to the broader market. In this new environment, market intelligence, communications, and compliance are no longer three distinct endeavors. Instead, they are converging, and the savviest IROs know how to use market intelligence to create cutting-edge communications and more comprehensive compliance.
The ultimate goal? To use the latest technology and techniques to create a holistic view of a company, one that shareholders can appreciate from a range of vantage points.
Market intelligence
Since 1975 the SEC has required investors with more than $100 mn in assets under management to disclose their positions within 45 days of the end of the quarter. Unfortunately, the information is stale by the time an IRO can extract it from public 13F filings, and there’s practically no penalty for investors that don’t report on time. Compounding the problem is the rise of algorithmic trading and dark pools, non-public marketplaces that do not display their quotes before or during a trade.
These developments have shone a spotlight on the need for market intelligence: the identification, analysis and targeting of a company’s shareholder base. IROs consider it vital to know who owns their stock, who owns their peers and why. Understanding what shareholders are doing in the market overall can help IROs target their message to retain investors over the long term.
A good market intelligence provider can help analyze existing publicly available data and provide information about settlements within the Depository Trust Company (DTC) system and the movement between DTC banks. Market intelligence can also help IROs know who their shareholders are and identify the triggers for an investor to increase or decrease its position.
What’s more, IROs often commission perception studies to learn everything from what the market thinks about a particular industry and a company’s position within that industry to understanding the Street’s perspective on a company’s strategy or message. When there is a common misperception, these studies can help an IRO determine how to project a more accurate image and hone its message to prevent future problems.
Another key aspect of intelligence is keeping abreast of what’s being written or said about a public company online. Increasingly, financial blogs and internet news sources influence the behavior of retail investors. Given the growth in popularity of online channels, IROs should monitor what’s being said about their companies on the internet. IROs are embracing tools to help them learn when their company is mentioned – and in what context.
Arguably, keeping tabs on social media is particularly important for mid and smaller-cap companies. While more than 80 percent of shares in large-cap companies like those in the S&P 500 are typically owned by institutions, most mid-caps are 30 percent to 40 percent institutionally owned with the remainder of shares held by retail investors. With fewer available tools, retail investors tend to rely more heavily on financial sites and blogs.
Finally, intelligence is critical for an IRO to perform well professionally. Whether an IRO reports to the CFO or the CEO, it’s essential that he or she can provide a well-informed explanation for why the company’s stock is behaving a certain way.
Communications
Increasingly, financial communication falls into two camps: pull and push. On the pull side, companies are expected to make their websites sticky through strong content and links to social media outlets. Attracting investors to your IR site is all well and good, but the mark of a superior online presence is getting investors to spend time perusing the site and returning to it.
Beyond the IR website, however, IROs must also push information out to investors. While older investors still get the lion’s share of their information through traditional print journalism, Generation X and Y shareholders will probably use their laptops or mobile devices to stay current.
The more ways IROs communicate, the more constituents they will reach. Public companies continue to issue traditional press releases to reach a broad audience, but they have also begun to create targeted press releases for smaller subsets of key individuals, such as analysts and portfolio managers.
IROs are starting to experiment with some of the more cutting-edge multimedia and social media tools. In an acquisition, for instance, a company might issue a multimedia news release containing a two-minute video. This might feature an overview of the company that’s been acquired or an interview with the CEO or COO outlining the strategic vision behind the acquisition.
Multimedia news releases have the added benefit of being conveniently shared on other web outlets. Tools like Twitter, Facebook, Digg or StumbleUpon buttons let a news release be distributed to a wider audience instantaneously. Social media aficionados may repost a public company’s announcement about its latest acquisition or earnings release, thereby spreading the word without an IRO doing anything additional.
Annual reports are also evolving to incorporate the latest media. Some companies supplement the PDF version of the annual report online with interactive charts, PowerPoint decks and videos.
Compliance
By the end of 2012, all public firms will be required by the SEC to file their financial data in XBRL, a system for uniformly tagging financial data. Filing in XBRL allows investors using the tagged information to work more efficiently and make meaningful comparisons with other companies using XBRL.
Although the SEC’s decision to mandate XBRL is widely viewed as a major advance in compliance, IROs are now beginning to see that XBRL can also be a critical tool for communications. XBRL provides a more direct link between public companies and investors, who will be able to review a greater number of public companies as financial statement analysis and modeling becomes more dynamic with XBRL.
Excelling with XBRL is a badge of honor for public firms. Ultimately, the quality of the documents you file has an impact on how easily analysts and portfolio managers can work with your company’s data. Investors often perceive companies that file timely, error-free XBRL documents as being well managed and having strong governance.
In addition, a firm’s XBRL data allow an IRO to compare a company against its peers – something critical for competitive intelligence. For instance, EDGAR Online provides tagged data from the last 10 years. With this trove of information, IROs can see how well they’re communicating financial data by benchmarking their filings against their competitors’ and follow trends over time.
For example, say a company is considering pursuing a hedging strategy. The IRO can perform an XBRL search of other public companies that have used the same type of hedging strategy and see how their financials were affected. In this regard, XBRL is not only a compliance tool but also a very strong intelligence tool.
IROs have always relied upon the latest and best intelligence to inform their compliance and communications. What’s changed is that technology lets them use integrated tools to reach multiple constituents both faster and with better-tailored information.
As the lines between intelligence, communications and compliance continue to blur, IR professionals find themselves working within a very interesting landscape. Increasingly, they want – and need – a suite of integrated products to manage these three pillars of engagement in a unified fashion.
Embracing the latest developments from XBRL to multimedia press releases and social media not only sharpens a company’s ability to gain valuable market intelligence, but also improves both its compliance and its ability to communicate effectively with a broad range of constituents.
