Building Credibility for Long-Term Success:
Drawing a Line Between Investor Relations and Stock Promotion

by Brandon Tran

Investor relations is a vital part of a public company's capital management strategy. As businesses with similar stories compete for limited investment dollars, building credibility with the investment community is key.

Investor relations activities benefit both a corporation and the public. Properly executed, investor relations can have a significant impact. Transparency and information empower investors to make informed decisions and build confidence in the integrity of a corporation's securities. By working to fulfill regulatory and disclosure requirements, investor relations provides the investment community with an accurate understanding of the history, ongoing operations and financial affairs of a company. The clear flow of information will ideally result in a fair and sustainable valuation of the company.

Stock promotion is not the same as investor relations. Promoters typically look to influence share price in the short term, often with mixed results. A promoter's effort to market the securities of a particular company may have short-term positive effects on the share price, but the impact may be purely cosmetic. This may involve actively increasing the dissemination of positive information while glossing over negative news. Inadvertently, investor relations and promotions do cross paths, and lines blur as both look to "sell" a corporation to the investment community. In this fashion, the role of investor relations professionals as advisors may become distorted as they take a more active promotional role. It is important for these professionals to understand these fine lines and to be objective in their approaches.

The short-term horizon of stock promotion causes problems for both investors and companies. An unsustainable overvaluation could do immense harm to a company's reputation by shaking the confidence of long-term investors and scaring away potential investors. Relying on information about a company from someone whose compensation is directly tied to the share price can lead to an obvious conflict of interest.

Admittedly, no clear line separates stock promotion and investor relations. The single most important function of promotion, however, is to drive short-term share price. By contrast, investor relations takes a long-term approach to achieving fair market value for securities through a variety of ethical communications channels. Investor relations firms operate in an advisory role and preferably do not have a large stake in the companies they represent, while promoters are often compensated with options. Placing emphasis on the public interest, disclosure and transparency instead of a short-term bump in a company's share price helps differentiate investor relations from promotions.

Bryan Mills Iradesso is a firm believer in the strength of investor relations, not stock promotion. Investor relations professionals must be able to develop a strategy to actively manage investor needs. By using key messaging and being proactive in maintaining full disclosure, investor relations professionals work to develop confidence in a firm's securities. While adding value strategically is a highlight for investor relations advisors, being detail oriented and accurate is equally as important. Public companies and their shareholders must be able to trust the information from their investor relations providers.

Investor relations combines strong relationship management, integrity, strategic thinking and a mastery of capital markets. Wise investors look for strong investor relations programs in their investments. Not only do such programs give investors peace-of-mind, they build credibility and undoubtedly improve returns over the long term.