Strategic imperatives for Zim’s companies

the speed and method of information dissemination.
There have also been tectonic shifts in the structure of global financial power in favour of the BRIC economies (Brazil, Russia, China and India and also now South Africa becoming part of the group in 2011). This is evidenced by significant swings in the flow of investment funds towards hedge and sovereign wealth funds.
For example, currently China is estimated to have over US$1 trillion held in United States capital markets as equities or treasury securities. These trends are likely to continue over the coming years. At the same time Zimbabwe’s economy has experienced an upturn of its economic fortunes. The year 2011 will see a third straight year of growth estimated to be 9,3 percent after a decade-long decline.
For Zimbabwe-focused quoted companies listed on the Zimbabwe Stock Exchange (ZSE) or international stock markets this means a continuing challenge to attract and retain investment funds. An investor relations programme (IR) is therefore essential. Far from being an additional cost, an effective Investor Relations programme cannot only save valuable management time, but can also help to deliver a fair valuation for the company’s equity, reduced funding costs and provide a resilient and expanding shareholder base. This will stand the company in good stead if times get tough.
What is Investor Relations?
Investor Relations is a strategic management responsibility that integrates finance, communication, marketing and securities law compliance to enable the most effective two-way communication between a company, the financial community, and other constituencies. This ultimately contributes to a company’s securities achieving fair valuation.
The term describes the department of a company devoted to handling inquiries from shareholders and investors, as well as others who might be interested in a company’s stock or financial stability. This is an important and often overlooked responsibility. It is also often confused with corporate public relations (PR). So boards must distinguish between Investor Relations and PR and understand where it fits in the programme of corporate activities for which they are accountable.
IR is primarily concerned with ensuring that the right company information is released in a fair and trustworthy manner to the current and prospective target audiences of the company. These are its shareholders and stakeholders, its investors (retail and institutional, domestic and foreign), as well as the analysts and media who comment on its performance.
The types of information involved are strategic, financial and legal. Typically, Investor Relations is a department or person reporting to the chief financial officer or financial director.
In some companies, an investor relations function is managed by the public relations or corporate communications department, and can also be referred to as “financial public relations” or “financial communications”.
Many larger publicly-traded companies now have dedicated IR officers, who oversee most aspects of shareholder meetings, Press conferences, private meetings with investors, (known as “one-on-one” briefings) investor relations sections of company websites, and company annual reports. The investor relations function also often includes the transmission of information relating to intangible values such as the company’s policy on corporate governance or corporate social responsibility.
Why Investor Relations matters?
IR matters because it is the means by which companies can target their desired shareholders; keep their current and prospective shareholders informed about long-range strategy and short and medium-term events that affect it and the resulting associated risk and reward profile of the company. To do this well, effective IR must be more than the occasional Press release when a new product is launched, a dividend is declared, or a senior executive moves.
Companies should not rely on the AGM, the annual report and quarterly results only as the main means of communicating with shareholders.
Investor Relations must be strategic and proactive as opposed to tactical and reactive – giving shareholders sound reasons to buy and hold stock or not depending on their individual risk appetites and time horizons. Given that effective IR policies incorporate the desires and expectations of target audiences it is obvious that IR must be a two-way process that involves the board on the one hand and the audience on the other and this must be managed well by the IR function.
Role of the board
The board’s job is to ensure that the strategic decision-making process takes into account IR as well as reviewing and approving the IR strategy itself and then monitoring its progress on a regular basis.
In addition, the board ought to provide regular input and feedback to improve the IR programme by sharing information on trends affecting the company and its industry, and, if possible, share perspectives from other firms and the general context within which the company operates.
Role of the audience
The company’s audiences provide feedback on the strategic, financial and legal information given, as well as disseminating that information to other audiences in the case of analysts and the media. They will use this information to profile the company (positively or negatively) by providing independent analysis, which will in turn influence the attitudes and decisions of the investing community both retail and institutional.
Role of 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 to identify the characteristics of various target audiences and how they perceive the company and its actions.
They also make 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 analyse 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.
Recently, the field has trended toward an increasingly popular movement for “interactive data”, and the management of company filings through streaming data solutions such as ZBRL or other forms of electronic disclosure have become prevalent topics of discussion among leading IROs worldwide. The Investor Relations function must be aware of current and upcoming issues that an organisation or issuer may face, particularly those that relate to fiduciary duty and organisational impact.
In particular, it must be able to assess the various patterns of share trading that a public company may experience, often as the result of a public disclosure (or any research reports issued by financial analysts). The Investor Relations Department must also work closely with the company secretary on legal and regulatory matters that affect shareholders.
Successful IR programme
A successful IR programme provides an effective two-way communication between the company, the financial community and other stakeholders. It also leads to a fair market valuation; cheaper and easier access to capital over the long term from both providers of debt and buyers of equity because of the reduced risk premium they demand.
It also provides the right mix of loyal retail and institutional shareholders and supportive stakeholders who understand and agree with the company strategy and time horizons, thereby creating a reasonable level of demand for and liquidity in its shares.
Equally important, a good IR programme links the drivers of corporate value to the risk appetite of its owners. Reflecting on the one hand what shareholders value about the company, and explaining to them what the drivers of company value are and how these create the desired risk profile is an alternative.
In both cases the effect is to allow shareholders to make informed decisions about owning the company while enabling the company to choose its shareholders by matching their time horizons and risk appetite to the risk profile of the company and its activities.
Conclusion
In challenging times such as the private sector looking to mobilise capital internationally, investor relations officers will want to stay visible and build relationships, be factual in tone and not too quick to make promises. They need to focus on the long-term story and balance sheet strength (as opposed to short-term earnings growth), aggressively refute rumours and answer concerns of investors, and co-ordinate media relations and investor communications. Finally, IROs and company boards should remember: “The story is the business, not the share price.”
l About the author: Nicky Moyo runs a Zimbabwean-based pan-African financial advisory and investor relations firm DEAT Capital and can be reached on email [email protected]