Opportunities for improvement: how investor relations and corporate communication can--and should--fit together.

You work for a "hot" public company, enjoying the benefits of the rising stock options you hold. One morning, you get an e-mail from a friend, asking you about last night's news report on your company's quarterly financial results and the lower-than-expected earnings. Your friend expresses sympathy about the likely drop in the value of your company's stock.

You look up from your computer in shock, questions filling your mind. How did this happen? Why didn't my company let investors know sooner that there were problems? For that matter, why didn't I find out earlier, especially since I'm both an employee and a stockholder?

INTENSIFIED INTEREST IN INVESTOR RELATIONS 

Chances are this scenario has played out for you, a friend, family member or colleague. Although it's true that companies cannot withhold bad news indefinitely, some organizations are much better than others at handling these situations through effective communication. In fact, firms that provide a rapid update on critical news and explain the reasons behind the story tend to be rewarded by the investment community. Those that do not respond proactively feed the growing public skepticism of corporate verity.

The collapse among technology stocks following the U.S. Nasdaq stock market peak in March 2000 was the first in a number of troubling developments that shattered the confidence of investors. Soon thereafter, reports of corporate malfeasance dominated the business news and later the general press, as the impact hit individuals--and their pocketbooks. The ripple effect has heightened the interest in--and elevated the importance of--investor relations. In broad terms, IR officers serve as the watchdogs for corporate credibility, but their responsibilities and day-to-day duties span a wide spectrum.

Although some companies separate the IR function from the public relations and internal communication operations, more are recognizing the value of combining departments under one strategic communication umbrella, or at least fostering tight integration when it comes to speaking on the record to their many publics.

IR is also no longer the sole domain of accountants and finance types. With extensive skills in media relations, crisis communication and employee relations, public relations and communication professionals are finding more chairs at the IR table--provided they are willing and able to delve into the complexities and nuances of financial analysis and reporting.

NOT A BLACK AND WHITE JOB

Public companies are legally required to provide a widely disseminated report on news or developments that are viewed as "material." Material news, regardless of whether it's positive or negative, is information that can have an impact on the price of the stock.

Under securities law, public companies must operate under "fair disclosure," providing honest, complete and consistent disclosure of material news to all investors and at the same time through a public dissemination (typically a news release and filing with the Securities and Exchange Commission).

Sharing this news with one person or group of people before it is announced publicly represents selective disclosure, a violation of the law. That isn't to say that a company can't provide certain information to employees, but if it does, the employees become "insiders" and cannot share the information with others, nor buy or sell their company stock until after the information is released publicly.

Getting back to our "hot" company example, it's quite possible that the company disclosed its financial results, following a review by management, legal counsel and outside auditors, as soon as reasonably possible. Quarterly and annual financial results are announced on a regular, set schedule, unlike other material news events that occur on an often unpredictable basis. If the company issued its results on the pre-announced date and had not known about the earnings shortfall until after the close of the quarter, then it's not unreasonable for investors to find out when the release is issued and public documents are filed.

Let's take the example a step further. What if the company had previously indicated that an important new product would be introduced at a trade show in six months, and right now, senior executives aren't certain they'll meet the deadline? Should this be disclosed in the quarterly conference call to investors? And if so, would the company include this warning in the quarterly financial release? Give it visibility or prominence on the corporate web site? What about the repercussions to customers? Competitors? Employee morale?

These questions demonstrate the shades of gray that fall within an IR officer's purview. Although there are black and white issues governed by regulation, numerous situations are not clear-cut, requiring the IR professional to blend good judgment, a high sensitivity to the audience and an understanding of best practices.

AT THE INTERSECTION OF IR AND PR

Numerous opportunities exist for communicators and investor relations officers to work together. Here are some examples.

> FINANCIAL/CORPORATE PROFILES WITH THE BUSINESS PRESS. Media relations practitioners can work hand-in-hand with the IR staff, preparing background on a given reporter, conducting the preparation session for the interview and handling the follow up activities. In addition, they can join efforts to identify stories that may attract media interest and follow up with a targeted pitch to a business reporter.

> CRISIS COMMUNICATION. A crisis can be an opportunity for collaboration and strategizing across all communication functions. Notes Sam Levenson of Cedant Corp.: "If you don't have everyone at the table when you're communicating something big, you risk leaving an important audience out of the mix. Working together on the messaging is especially important when you know the information will likely be received in conflicting ways, such as a downsizing, which Wall Street loves but employees hate."

> ANALYST AND INVESTOR MEETINGS. Many companies host an "analyst day" in which they invite institutional investors to meet with and hear presentations from a variety of senior managers. Communicators can help develop the content for these meetings, making the messages come to life and adding visual excitement to what sometimes can be a dry presentation to investors. For example, there may be industry analyst comments, press clippings, customer testimonials or a video clip produced for a customer meeting that can be integrated into a PowerPoint presentation for analysts.

> QUARTERLY FINANCIAL RELEASES. At Beckman Coulter, representatives from IR, finance and PR all contribute to the earnings release. Both IR and PR executives work on preparing the CFO or CEO for media interviews.

> MEDIA AND PRESENTATION TRAINING. The skills used to train marketing and sales executives and others to make effective presentations can be readily transferred to help executives deliver their investor presentations more effectively.

> TRADE SHOWS. Your company may be exhibiting at a trade show attended by a number of important customers. Investors also could be invited to attend, with the company hosting an event for investors, customers and press.

> ANNUAL REPORT, Although the primary audience for the annual report is investors, many organizations recognize the broad range of audiences who receive the report, from customers to employees to suppliers. Notes Levensen, "The annual report is an important marketing document that helps everyone understand who we are and what we're doing."

> NEWS RELEASES. At Tiffany & Co., IR handles the financial press releases and dealings with the business press, and PR focuses on the non-financial media to promote new products, campaigns, special events or charitable activities. "However, IR and PR have daily interactions," says Mark Aaron, vice president of investor relations.

"Each of us knows who is issuing a release, and I review their releases. For example, I'll be especially interested in the quote that's included in a new store release, because it supports the growth perspectives we've shared in investor presentations. We do the same collaboration in all dealings with the press," he adds. "Our PR team may be dealing with a fashion publication that's doing an article on our products and history, and they want to get a sense of our growth strategy, so I'll get involved."

> EMPLOYEE COMMUNICATION. Employees often hold company stock through stock purchase plans or retirement savings accounts. Developing a program to educate employees about how the stock is viewed by the investment community--positive and negative--is an important role that can combine the expertise of the IR and employee communication staff.

> CORPORATE WEB SITE. According to Levenson, "We put a lot of emphasis on our web site, and we include positive articles and even streaming video interviews that appeared on the news--all of which are excellent tools to reach investors."

> TRADE PRESS COVERAGE. Although a positive profile in The Wall Street Journal or CEO interview on CNBC are highly desirable, a strong trade press article can attract visibility with a more targeted core audience for your industry. Mailing the reprint of a positive article to your investors with a short letter from the CEO, along with a link to the article on your web site, can go a long way toward educating investors about your company's market position, products or services.

WHAT'S ON THE IR PLATE?

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 valuation."

One part of the information mix involves the numbers: the income statement, balance sheet and cash flow statements. These financial statements, the trends they represent and various ratios, such as the P/E (the current price of the stock divided by its previous or estimated future earnings per share) are used by investors to develop their assessment of a company's valuation, or market worth, and to determine whether they want to buy, hold or sell the stock.

The other part of the mix is non-financial, and these factors are also critically important in determining stock valuation. They include such issues as the quality of management, competitive advantages, success of R&D efforts and brand loyalty. Strong financial communication stems from well-developed corporate messages that go a step further and address a variety of investor questions: What makes the company unique? Why should an investor be interested in the stock? What are the long-term objectives and the milestones that indicate the company is making progress?

To communicate this information, the IR officer uses a variety of tools such as the annual report, investor fact sheets or books, investor information kits, letters from the chairman, presentations and quarterly financial news releases. The goal is to reach both current and potential investors through in-person communication, small and large investor meetings, conference calls and web casts.

"A good IR person needs to understand the company and be a really effective communicator," notes Mark Aaron, vice president of investor relations at Tiffany & Co. in New York.

INTEGRATING IR WITH CORPORATE COMMUNICATION

Many companies have integrated investor relations and corporate communication into one central department to ensure that the corporate brand is leveraged among all constituents, as well as to maximize the skills and resources of all staff involved in these functions.

"Speaking with one voice is critical," notes Marge Wyrwas, senior managing director of corporate communication and investor relations for Knight Trading Group Inc. in New Jersey.

Although investors represent one stakeholder group with certain specific information needs, the same underlying corporate messages can and should be used. Integrated messaging--the use of consistent messages across various constituents-reinforces the company's position and helps ensure that the message is heard and understood. One way to accomplish this goal is to have the top communication and IR executives work together to develop corporate messages.

Sam Levenson, senior vice president, corporate and investor relations for New York-based Cendant Corp., says that he and his direct reports meet frequently to discuss message strategy and delivery. He also organizes an annual meeting for some 80 members of the PR team and has a regular conference call focused on messaging, results and information sharing.

Levenson, a CPA, moved up the ranks in finance and later investor relations, and although he was initially recruited to run IR for Cendant, he was later asked to head the combined function. "Integrated messages are of paramount importance," he states, "and it's important for people in the various communication and IR functions to resist turf wars and look for ways to support the greater good of the corporation."

Bringing staff together regularly is critical for integrated communication, according to Martha Lindeman, senior vice president of corporate communication and investor relations for Playboy Enterprises in Illinois. The challenge for Lindeman is that her staff is spread over three offices across the U.S.

"We rely on biweekly conference calls and twice-yearly meetings to ensure that our messages stay consistent, and we really exploit the value of public relations," she says. "We do very little advertising, so we rely on events and media coverage to promote our business and brand. There's no such thing as over-communicating."

Lindeman assumed the IR/communication management position at Playboy after the head of PR left several years ago and the combined position was created. Although Lindeman began her career as an equity trader on Wall Street, she later completed a graduate degree in communication. She did a stint in product PR but found that her true calling was investor relations.

"IR gives you the best of both worlds: the financial side and the challenge of messaging," she says.

Big events or big news often dictate the need for an integrated program. The shared effort includes not only consistent messages but also a timetable that adheres to disclosure regulations while communicating the information quickly to all stakeholders.

This was the case recently at SafeNet, an information security firm based in Maryland. The company acquired a much larger firm in California and decided to implement a two-part communication strategy to announce the closing of the deal, and soon thereafter launch a series of events to communicate the benefits of the newly combined organization.

"We blended all of our internal and external communication resources to ensure consistent messages about the company, backed up by facts and figures," explains Tom Serio, director of marketing, public and investor relations. "After shareholders voted to support the merger, we issued a news release and hosted an investor conference call. This was immediately followed by an interactive employee call, information packets and gifts sent to employees, letters to customers and industry analysts, and press interviews.

"We're now in the process of the second round of the program, which includes a survey of all our key stakeholders. From there, we'll fine-tune our messages, develop a new corporate tagline and integrate all of this into a month-long campaign we've called 'The Security Tour 2004.' This includes customer meetings and media events at cities across the U.S., a Europe-based trade show, employee events and a major customer event on Capitol Hill. It will end with a lunch in New York for our investors, in which our CEO and CFO will summarize customer perspectives and priorities."

Wyrwas, with the Knight Trading Group, notes that her team's need to execute integrated messages came during a crisis. Three days into the job, Wyrwas found her CEO facing a firestorm of negative publicity, first from a software glitch that caused the company's computers to sell more than 1 million shares of its own stock, and then from public accusations made by a former employee.

"Corporate communication and IR worked as a team to develop a strategy to begin to repair the company's reputation," she explains, "using advertising, employee letters, collateral, client letters and press releases."

She cites the need for communicators to put themselves in the shoes of their audiences and to institute a continual measurement process to evaluate whether audiences understand and believe the messages.

The proof of her team's success can be found in the most recent corporate reputation statistics published by The Wall Street Journal. In the last 18 months, the company has made a dramatic comeback, and the stock was cited as one of the top 25 stocks for 2003.

AT HOME IN BOTH WORLDS

Although many PR and IR pros extol the virtues of having both functions report to one executive, integrated communication can be done effectively even when participants work in separate departments.

Jeanie Herbert is director of investor relations for Beckman Coulter Inc. in California. Her pathway to the position began a few years ago when, intrigued by investor relations, Herbert went back to school for a master's degree in management. At the same time, she volunteered her communication expertise to support her company's IR department with quarterly financial releases and annual reports. Eventually, she was asked to head investor relations.

Although Herbert's IR department reports to the CFO and the corporate communication department reports to the vice president of human resources, she says Beckman Coulter works hard to ensure consistent messaging and cross-fertilization.

"IR, PR and marketing communication work closely together," she reports. "It's critical that messages for an investment analysts' event are consistent with the story we present at a press conference and the exhibit we use for a trade show."

At Tiffany & Co., IR reports directly to the CFO and indirectly to the CEO, while the PR group reports to the CEO. But reporting relationships don't interfere with the daily focus of both units. "Collaboration is key," says Aaron. "Although we're each focused on our department goals, we constantly keep each other in the loop. Just like you never want to surprise investors, you don't want to surprise your colleagues."

Such a policy clearly is important from the standpoint of disclosure, Aaron notes, but it's equally critical from the perspective of branding. "All of us, regardless of title or function, need to make sure that everything we communicate is consistent with the way we think about the business."

It's important, he emphasizes, to look for opportunities to leverage one tool or event originally designed primarily for one audience, and to think bigger than the IR or PR function or department.

OPPORTUNITY AWAITS

Investment relations officers charged with the complex task of communicating their corporation's value to multiple audiences are finding many advantages to collaborating with communicators. Their expertise in media relations, event planning, and print and online communication can be readily applied to an investor relations program.

Communicators who decide to learn more about IR can start by taking one simple step: asking the IR officer what they can do to help. Chances are the floodgates will open, allowing cross-fertilization and professional development to flourish.

10 TIPS: HOW TO SEGUE INTO IR

Whether your goal is to move into IR or manage an integrated department, here are some suggestions:

1. The more you know about your company, its strategy, competitors and the overall industry, the more equipped you'll be to craft the messages.

2. Consider getting an MBA, or at least taking finance and business classes, so you can really understand the financial statements and what they mean.

3. Reach out and ask for ideas and feedback from people you know and respect in the profession.

4. Take an accounting course. That will help you understand the numbers and which ones are important in understanding the company's performance. Then, ask to help with the development of the earnings release or the annual report.

5. Join the National Investor Relations Institute and read its list of recommended books and articles about investor relations.

6. Don't hesitate to call on smart agencies to help you.

7. Stay plugged into the organization, and center on the development of key messages and how to translate those most effectively for each audience.

8. Read the business press: Fortune, Forbes, Business Week and others.

9. Learn as much as you can about securities law and disclosure.

10. Try to capture a sense of how management thinks about the business, and learn everything you can about the company. Ask a lot of questions: be inquisitive, and be courageous.

Compiled from suggestions by Mark Aaron, Jeanie Herbert, Sam Levenson, Martha Lindeman, Tom Serio and Marge Wyrwas.

Karen Vahouny, ABC, is a founding partner of Qorvis Communications, a public relations consultancy headquartered in the Washington, D.C., area. She has also served on the executive hoard for IABC and is on the board of the National Capital Area chapter of the National investor Relations Institute. She can be reached at [e-mail].