THE IMPORTANCE OF INVESTORS RELATIONS

THE IMPORTANCE OF INVESTORS RELATIONS AND ITS BENEFITS

Hi readers,

THE revised Malaysian Code on Corporate Governance which incorporated the fifth responsibility of a board - “developing and implementing an investor communications policy for the company” - should be viewed positively by all parties as a whole. This initiative has been taken by the authority to address this critical issue seriously.

With this in mind, I intend to emphasize the importance of Investors Relations,which more than often had been either overlooked or lightly taken as Corporate Public Relations, should be properly tackled by the Boards of Directors of the publicly listed companies, so as to raise the standard of Corporate Governance for which they are accountable for.

The Investors Relation's primary function is to ensure that the company's information is released in a fair and trustworthy manner. These recipients comprise of its shareholders and stakeholders such as its investors (retail and institutional, domestic and foreign), as well as the analysts and media who may analyze and comment its performance accordingly. These information also have strategic, financial and legal implications. Therefore, due care and diligence is required to handle such information.

The IR is to update its' current and prospective stakeholders about the company's long-range strategy; short and medium material events that may likely affect the company's performance. By doing so, it will only enable its shareholders to make informed decision based on their risk appetites and objectives.

Thus, it establishes a communication platform so as to regularly update and interact with its stakeholders; more than just issue occasional press release when a new product is launched, or a dividend is declared, or a senior executive moves. Hence, it serves as an additional avenue apart from relying on the normal means of communication such as AGM, the annual report and quarterly results. 

An effective Investor relations need to function strategically on a proactive basis so as to give comfort to shareholders to buy and hold its shares and not only purely rely on their individual risk appetites and time horizons.

Role of the board of directors

To ensure the IR achieves its end, its board of directors need to constantly review and approve its IR strategy in line with its values and cultures. Efforts of monitoring its progress on a regular basis need to be taken seriously. As usual, the boards not only need to share the significant and material information on trends that likely to affect the company, its peers and the industry as a whole, but also need to provide regular inputs and feedback regularly so as to improve its IR programme.

Role of the audience

On the other hand, the company’s audience may provide feedback on these given strategic, financial and legal information or use this information to profile the company either positively or negatively especially the media. In return, they may then use their independent analysis to recommend to the investing community – both retail and institutional.

IR function

The IR function must act as a two-way communication channel because it has two roles. On the one hand it must analyse the ownership structure of the company to identify the characteristics of various target audiences and how they perceive the company and its actions, making sure that the information regarding strategy, finances and any legal issues are disseminated appropriately so that the target audiences can make informed decisions on material matters. On the other hand it must analyze audience feedback and update the board on how the market sees the company both in absolute and relative terms – absolute as far as decisions taken or announced are concerned; relative as far as comparing the company with its peers as a desirable investment.

IR Benefits

A successful IR programme always serve as an effective communication channel between the company, the financial community and other stakeholders resulting in fair market valuation of its' company's shares. Consequently, it enables the company to access to its required funds with a much cheaper rate from both its lenders and investors due to the lower risk premium that are demanded. 

Moreover, a strong and long term relationship with its loyal retail and institutional shareholders can be easily achieved so as to ensure the stability of the company's share price especially in bad/uncertain investment's climate.

Thanks and seeing you again.

James Oh

Skype me at james.oh18