Can Regulations Help Investor Relations Officers Learn Why Shareholders Buy The Stock?

I finally got to reading the August’s issue of IR Update, a publication of the National Investor Relations Institute. The first article of the issue, Institutional Ownership: No More Secrets, makes a good claim that it is vitally important for companies to know who their shareholders are. Even more, it is also important for companies to know why the shareholders buy that particular stock.

When I worked in investor relations, I devoted significant efforts into the shareholder research. It was even more difficult in my case since much of the stock was in the American Depositary Receipts or Global Depositary Receipts. I would only see Bank of New York, ING Bank or Euroclear as the recorded owners of shares, when in fact they were just holding them for the owners of depositary receipts. I had to go through many layers of nominal shareholders before I could get to the actual beneficial owners.

What I find naïve, however, is the solution that the IR Update’s article seems to propose: change in regulations, namely 13F, 13d, and 13g filings. The only thing this change can accomplish is providing faster information on who owns the stock, but no legislation can help IROs learn why these shareholders buy, sell or hold on to the stock. Learning the answer to that why question would always be on the IROs themselves and their ability to develop good relationships with shareholders as well as sell side.

This is why I believe investor relations is a professional occupation – it requires specific skills and knowledge set in finance, communications and law. And this is also why I cannot stand when some companies put unqualified people to run their investor relations departments, from former financial analysts with no ability to communicate to former journalists with no understanding of business or finance. But they at least have a chance to learn on the job (especially with the help from great NIRI events). What I think is even worse is so-called “rotating” appointments, when a person get assigned to the investor relations duties for just a year or two. Even if a good solid professional relationship can be developed in a year, there is no guarantee it will transfer to the next “rotating” person. Having that rotation, in my mind, shows lack of respect from the company to its shareholders – I do not know of any company doing rotating assignments to their CEO, CFO, or COO positions!

No comments: