All's Not Fair, We're Competing for Capital
The definition of investor relations as seeking “fair value” for a company’s shares is disappointing at best, pathetic if analyzed in the context of the value building potential of professional investor relations. Best practice IR is competing for capital with the goal of establishing a security’s maximum sustainable valuation. To me “fair value” is a cop out because it implies an unfocused and passive effort. Winning the competition for capital is IR’s responsibility to the public company and shareholder alike, and is how the most outstanding professionals I’ve worked with over the decades led their programs. Sadly, setting clear goals and committing to win over the long term frightens the distressingly large number of IR bureaucrats as well as the proponents of the popularity contest approach to judging IR success.
If you know me, you won’t be surprised by the above, if you don’t and you have a passion for the capital markets and investor relations, you deserve some context. My first IR one on one was with Peter Lynch and Honda Motor Company in the early 80s, we had a telex in the office, mechanical stock tickers in the brokerage firm down the hall at the top of Wall Street where I worked. I have attended and analyzed thousands of one on ones, countless group presentations and conference calls, and have helped develop world-class programs for some of the best-known global companies. I have been making a living at IR consulting for 35 years and - please let me be very American here and say that - I have made myself wealthy by always doing the right thing for my clients.
Most importantly for this discussion, I have worked as part of IR teams that have moved hundreds of millions and billions of dollars of shares into the portfolios of investors most supportive of their business model and strategy… companies that have built and sustained higher valuations through Best Practice IR.The reason I am starting this blog is to help you consider ways to bring more efficient and effective approaches to the issuer-investor interaction. There is much to be “discovered” and implemented into investor relations, and the root cause of why IR is calcified and relatively disrespected in the capital markets is the “fair value” approach. Value is perceived and set by the vast, mysterious financial marketplace, and the capital markets, like life, are not fair. They are by their nature highly competitive and if you are not ready to compete, you will be relegated to a supporting role, which is exactly where IR sits, on the sidelines.
My guesstimate is that only 50% of what should be Best Practice Investor Relations has been “invented” and I have specific ideas about what that other half can and should look like. If there are enough professionals in the capital markets who are willing to consider these, even a small percentage, my thesis is that they will be adopted and become key components of an approach that competes for capital instead of simply complying with “what has become expected” of the investor relations process. You’re an IR professional and you think you are competing? If you can’t immediately calculate how much market value is represented by one multiple point of your valuation, then you are not really competing. Because no one will take the amounts of value on the table seriously until the IR professionals do so themselves.