Communicating with external stakeholders

國

立 政 治 大 學

‧

N a tio na

l C h engchi U ni ve rs it y

communication for IR professionals. Although it requires knowledge of different fields to execute different IR tasks, communication is the thing that takes the most important position in IR’s work.

Scholars agreed that IR should be the communication function about financial themes instead of the financial function related to communication (Laskin, 2004;

Regester, 1990). In Hoffmann, Tutic and Wies’ study (Hoffmann et al., 2011) on how educational diversity affects IR teams’ performance, the result supported their argument that “the presence of marketing and communication experts in IR teams contributes to higher IR quality and lower shareholder activism” (p.311). Nevertheless, in practice, the situation is usually the opposite. IR has been taken as a finance-related work most of the time and drifted away from public relations even if it is within the public relations paradigm (Laskin, 2014; Peterson & Martin, 1996).

Neglecting communication function of IR may harm the quality of information delivery or even causes stakeholders to have wrong impressions toward the corporation. There is a need to look into the communication dimension of the profession and understand its value and importance.

2.2.1 Communicating with external stakeholders

In many corporations, IR serves the role as the spokesperson or acting spokesperson. They are responsible for drawing up information to deliver to external stakeholders. IROs are considered as management representatives as well.

Their words represent the official opinions from the corporation. As a result, IR has to ensure the accuracy and properness of information he/she gives.

‧

立 政 治 大 學

‧

N a tio na

l C h engchi U ni ve rs it y

Financial report is an important information to investors. Financial statements provide information about the financial position, performance and changes of a company and are very helpful for investors to analyze the company and make investment decisions (International Accounting Standard Board [IASB], 2010). Financial information disclosure is also one of the main reasons for many companies to set up the position of IR. IR practitioners disclose financial statements regularly through different publications and their company’s websites to satisfy the needs of the investment community and the requirement of securities laws.

Asides from financial information, abundance of research indicated that non-financial factors significantly affect a company’s market performance. A survey conducted by Ernst and Young Center for Business Innovation (1997) showed that financial numbers are lagging information while non-financial information is more useful when predicting a company’s future development.

Baruch Lev (2001) also supported the statement, saying that financial statement cannot precisely capture the true market value of a company. Thus, capital market participants actually take non-financial factors as important references when analyzing a company (Gabbioneta, Ravasi & Mazzola, 2007). Non-financial information usually plays an influential role in a company’s earnings and stock performance (Farragher et al., 1994).

In Hoffman and Fieseler’s research (2012), they concluded eight categories of non-financial information that equity analysts take into consideration when forming an impression on a company, including its stakeholder relations, corporate governance, corporate social responsibility, reputation, brand, management quality, and strategic consistency.

‧

立 政 治 大 學

‧

N a tio na

l C h engchi U ni ve rs it y

It relies on IR to integrate all the untrimmed financial and non-financial information to an easy-to-understand story and deliver it to stakeholders and build up a positive corporate image, which is the “total impression” of the company (Dichter, 1985).

The external audiences for IR are diverse. At the very beginning, IR was designed to attract the general public to buy the company’s stock; while nowadays, the professional financial community is the group that IR interacts with most often, and this task is even considered as part of corporate strategy (Dolphine, 2004).

Different from retail shareholders, professionals from the investment market require more detailed information of the company. They want accurate and the latest information about the company and its position in industry. To respond to their needs, IR must have an adequate understanding of the current situation of the industry as well as the company’s venders, costumers, and peer companies.

Analysts from the sell-side and portfolio managers (or the funds’ own analysts) from the buy-side² usually visit IROs and keep an eye on the company.

In addition to them, there are also institutional salespersons from the sell-side that contact IR professionals very often. Institutional salespersons often serve as the bridge between professional investors/analysts and IR practitioners, and arrange one-on-one meetings or conference calls for them. They also play the role as brokers and recommend professional investors/analysts worth visiting companies.

That is, building up relationships with them is also important since they not only help contact with current shareholders but also bring potential investors.

2 The sell-side, including investment bankers and brokerage firms, is the middleman between funds and companies. They employ analysts, stock traders, investment bankers and institutional salespersons.

The buy-side is the entities that manage capital funds and give orders to the sell-side to buy or sale stocks (Bragg, 2010).

‧

立 政 治 大 學

‧

N a tio na

l C h engchi U ni ve rs it y

In such a dynamic industry like securities market, information is the thing that matters. Financial professionals transfer information from one to another quickly and constantly, and massive information exchange turns into rumors from time to time. They want to clarify rumors from the official to confirm what the situation really is. It is IR that serves as the contact to communicate with them, clearing their doubts and uncertainty, and rebuilds their trust and confidence. The instant information delivery is especially important when an unexpected event happens or after announcing significant news. In other words, crisis management is also an important issue for IR.

Communicating and interacting with these institution investors is important for a company. It is believed that a company with a well-organized and controlled IR program may increase institution investors’ interests and willingness to invest in (Craven & Marston, 1997).

By participating in roadshows, conferences, and holding group/one-on-one meetings or conference calls, IR practitioners respond to requests from shareholders, analysts, and brokers directly. These are also the tools that IR practitioners most often use to interact with their external target audiences (Laskin, 2006). According to the survey conducted by BNY Mellon in 2012, IROs from around the globe undertake 145 meetings with investment professionals and participate in about eight broker-sponsored conferences both inside and outside their home market per year. (BNY Mellon, 2013).

Besides the professional investment community, media and the general public is the other group of external audience for the corporation. The general public, who seldom has direct contact with IR practitioners, relies on media to get company’s information mostly. The professional investment community also act

‧

立 政 治 大 學

‧

N a tio na

l C h engchi U ni ve rs it y

on information from media. Media, especially the financial media, plays a significant role in the investment process, and is thus an important partner for IR.

Reporters are “at the best position to release favorable coverage” (Bragg, 2010, p.63). The basic tactic is to provide a press release to major media whenever a significant company event is announced or the latest company earning information is released. IR practitioners also have to prepare for answering journalists’ questions and interviews. The long-term goal is to build up credible relationships with those journalists, which is really difficult since journalists work in a very different practice from the investment community and they do not provide favorable coverage all the time (Bragg, 2010).

Davis (2006) studied on the role of the mass media in IR, and divided the communication process into three stages: “production and dissemination of financial information, media coverage, and media-source relations” (p.7). It takes public relations and communication skills to deal with the media and the investment community since any misleading information or even positive/negative attitudes can lead to undesirable consequences. Silver (2004) proposed that the combination of public relations and IR contributes to a favorable performance in the stock market and also enhances corporate image in the long run.

Nevertheless, IR activities are usually separated from public relations.

Laskin’s investigation (2006) revealed that only 7% of the Fortune 500 companies has IR activities managed by the communications or public relations department.

The backgrounds of IR practitioners are also not surprising; the majority of them have business-related education rather than communication education.

‧

立 政 治 大 學

‧

N a tio na

l C h engchi U ni ve rs it y

Some corporations tend to separate the mission of media relations from IR since they believe issues related to mass media should be taken care of by public relations. However, when it comes to financial media, it becomes a problem that who should manage the communication process. Is media included in IR’s external target audiences? Who are the major external audiences for IR? How do IR interact with them? It is an interesting topic to know the situation in Taiwan and how IR practitioners communicate and maintain relationships with external audiences.

RQ1.1: Who are the major external audiences for IR in Taiwan?

RQ1.2: How do IROs interact with the investment community?

RQ1.3: How do IROs interact with media?