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D. Murali

FORTY years ago, `investor relations' didn't exist. "It was financial public relations - public relations, but to a financial community," writes Bruce W. Marcus in `Competing for Capital', from Wiley (www.wileyfinance.com) .

The book has resurfaced after nearly three decades, with inputs for the current century. "The investment relations officer has long since been a fully trained finance professional," writes Marcus, making a special mention of the role played by NIRI, the National Investor Relations Institute.

NIRI defines investor relations as "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, which ultimately contributes to a company's securities achieving fair valuations."

Chapter 1 looks at the post-SOX world, where Sarbanes-Oxley Act has come to the rescue of a sagging investor confidence.

"In one grand stroke, the Act put greater controls on corporate governance, on the oversight of the accounting profession, and on the independence of security analysts," describes the author, extolling SOX's contribution to investor interest. India too has been working on governance issues.

According to Marcus, three basic points that investor wants to know are earnings and other measures of financial soundness, management, and plans. "At best, earnings, and even cash flow at any given moment, constitute only a small portion of the measure of a company's viability, and they demonstrate not the near future but the immediate past," points out Marcus; what's important is the company's ability to continue to earn.

Management does make a difference. The author refers to a study by the University of Iceland that found about 40 per cent of the difference in the herring catch among the 200-boat fleet dependent upon the captain. A different study found that the personality of the CEO makes as much as a 15 to 25 per cent difference in profitability!

Plans are different from dreams, distinguishes the author. Plans can be specific to concepts, but general to specifics, counsels Marcus, giving an example: "We are putting $10 million into research on a new formula we've developed that we think may offer a cure for the common cold." This is specific, but general about the formula; thus, you can communicate to your investors both realistic and valid intentions, "without giving away competitive information."

Can we measure investor relations performance? Yes, says the author, listing varied metrics such as increased valuation of the company's securities in the market, realistic price/earnings ratio, enthusiastic sponsorship and more market makers, and trust in management. "Investor relation is not an action - it's a process," notes Marcus.

"It takes time, and effort, and patience. It informs, it persuades, it educates. In other words, it markets."

The book explains many associated concepts. For example, `safe harbour law' that the US passed about a decade ago puts a check on frivolous lawsuits. Else, shareholders were suing when companies failed to meet their forecast earnings. The Private Securities Litigation Reform Act clearly defines a forward-looking statement, as a protection for management. "Under the law, both written and oral statements must be identified as forward-looking, and accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially," elaborates Marcus.

How to communicate to "the army of information-hungry investors and investment advisors"? Marcus gives the clues: "Stick to principles. Understand the process. And... take the management ego out of the mix."

You can use the following vehicles to communicate artfully: Web cast, Web site, conference call, meeting with individual analysts, talking to individual investors, meeting stockbrokers, annual report, news releases, corporate advertising and the like. Rather than waste these by making them conduit for irrelevant information, let them serve a singular objective, advises Marcus. That objective should be "to persuade investors and analysts that a dollar invested in your company will increase in value faster and more substantially than a dollar invested in another company."

Marcus appeals to every corporate executive to learn to work with the media. "Good media relations serve to characterise the company - to give it dimension beyond numbers." The future of investor relations will be shaped by the dynamic configuration of the economy, regulation, corporate practice, globalisation, and technology, predicts Marcus. "Politics have no relation to morals," is a practical quote of Niccolo Machiavelli. To affirm it, however, may not be politically right, as much as to say that business has no relation to investors.

An essential book of soft-skills to go beyond SOX drills.

BookValue@TheHindu.co.in

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