Description
Investor Relations (IR) is 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.
Financial Study on Investor Relations as Marketing
Abstract Investor Relations (IR) has not commonly been associated with marketing in the UK, but could benefit from this affiliation, as IR has many connections with marketing concepts and practices, especially in a difficult financial market where firms have to be more proactive in recruiting and retaining investors. This paper argues that marketing should not be regarded as being exclusively concerned with customers, but should embrace investors as a key group of buyers whose attitude and response toward the firm can be of great significance. This paper describes the natural connections and increasing convergence between finance and marketing and releases some insights that should be of value to both IR practitioners, and to marketers. It suggests that finance and marketing should look for further connections with each other, within a new stakeholder model that exalts customers and shareholders to the status of "defining stakeholders".
Key Words: Marketing, Concept, Investor, Public, Relations Track: Marketing Communications and Public Relations
Investor Relations (IR) is the function within a listed company responsible for maintaining the relationship with the financial markets, which comprises investors, regulators and financial intermediaries such as analysts, financial journalists and ratings agencies. A large element of the role of an Investor Relations Officer (IRO) (as IR practitioners are called) is marketing related, even though my recent (unpublished) research of IROs in the UK showed that IROs do not respond favourably to this suggestion. The most authoritative definition of IR in the UK, from the Investor Relations Society, excludes marketing, preferring the more genteel label of "communication": Investor relations is the communication of the relevant and necessary information by which the investment community can consistently make an informed judgment about the fair value of a company's shares and securities. Investor Relations Society, UK However, in the home of IR, the USA, practitioners accept the label of marketing, as one of a number of contributing disciplines: Investor relations is 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. National Investor Relations Institute (NIRI), USA (adopted March 2003) Some of the leading writers on IR go further than this, insisting that marketing is the defining characteristic of IR: Investor relations is a sales function, not a communications function. (MacGregor and Campbell, 2006) ?investor relations has always been a marketing function. (Marcus & Wallace, 1997) IR is fundamentally a marketing exercise in relation to the company's shares on the stock market. (Nielsen & Bukh, 2011) Diagram 1 Academically, IR is an orphan discipline, being unmentioned in most textbooks on corporate
Public Relations Marketing
IR
Accounting & Finance La w
governance, public relations or finance. IR research grew over the 1990s and is compartmentalized between researchers from a public relations background (Laskin, 2009) and those from a finance background (Farragher et al, 1994).Whilst this means that the study of IR has great potential, it also means that an agreed theoretical framework is as yet absent, and that while the practice of IR develops rapidly, the study of IR is likely to lag far behind.
The Investor Relations Officer (IRO) consequently has a hybrid role (Diagram 1), part compliance, part counsellor to senior management, part financial interpreter, part relationship builder and part salesperson. The inevitable conflicts between these roles require the work to be performed at a high organisational level, with access to the CEO and CFO. My four propositions about marketing and investor relations are: 1. Marketing and IR have been connected from the start 2. There is a process of convergence on the side of marketing 3. There is a process of convergence on the side of IR 4. The convergence demonstrates the beginnings of a new stakeholder model
1. Marketing and Investor Relations have been connected from the start. Who does the business exist for? Two groups pre-date every organization, the people who need the service and the people who conceive of the service; customers and business owners. These are the two exchange groups. When a customer walks into a shop, he or she is effectively interacting with the owners of the business. IR and marketing were both formalised as corporate functions by the same person. Ralph Cordiner was President then CEO of GE covering the years 1950 to 1963. In this period, GE created the corporate function of IR and implemented the modern marketing concept for the first time. Cordiner managed the greatest team of marketers that has ever existed, including Peter Drucker (employed as a consultant) John McKitterick and Fred Borch. For Cordiner, an obsession with customers had to be combined with dedication to the owners of the firm. IR and marketing share basic goals. Both functions were established to formalise and professionalise communication with a key stakeholder. Both functions operate around a planned structure of periodic communications, that flows from the strategy of the organisation. The IRO spends much of her time on marketing. Investors get segmented, the stock gets positioned, investor preferences are researched and tested, investor buying history is analysed, investor decisionmaking processes and buying units are studied, the IRO facilitates the personal selling of the company's strategy and prospects in meetings with investors and analysts. All of this is pure marketing. There are increasing moves by marketing academics to measure the impact of marketing on shareholder value. For instance: Hoffman et al (2011), Joshi & Hanssens (2010), Hanssens et al. (2009). 2. On the side of marketing, the "marketing concept" has been extended to include IR Profit Focus. The introduction of the profit theme into marketing definitions, has brought the shareholder into the definition, and made marketing into a responsible and strategic function, allowing marketing to shake off many of its negative associations with "sales growth at any price". Loosening of customer centricity. "Customer orientation" has been replaced with "corporate marketing" (Balmer, 2001) "Stakeholder" orientation (Freeman, 1984) and the innovation orientation of high-tech firms like Apple, who have limited faith in market research. A more balanced view that looks for satisfaction not just from customers but also from other stakeholders including investors. 3. On the side of Investor Relations, Investors now see the value that marketing produces, and IROS are more focused on relationships with investors Marketing is now part of the language of investors. Investors have become more interested in strategy, business model, products, markets and drivers of growth. If you compare the annual reports of 2013 with the annual reports of twenty years prior, you will notice that annual reports have grown substantially in size. The financial accounts are now accompanied by a hundred or so pages of marketing information about products, markets, business models, strategy and USP. Investors are very aware that marketing is the difference between a mediocre and a great company. IR has many of the answers to investors' questions. The city is very focussed on sales growth and corporations need to understand not just past performance but where future performance is coming from, and it is marketing that holds the answer to future growth. MacGregor and Campell (2006) urge CEOs to talk the language of marketing when speaking to their investors as well as their customers: "Today's marketing buzzword (one of them, anyway) is 'value proposition': a statement of the satisfactions you're going to get in return for the funds you're committing... What your investors are looking for is a 'shareholder value proposition'. Let's call it an SVP...It's quite astonishing how difficult it is to find anything resembling an SVP in the public pronouncements of a great many companies."
Relationships. Relationship marketing has become one of the dominant paradigms in marketing theory since Berry (1983) introduced the term. As Reichheld (1996) demonstrated, the curse of promiscuity and short-termism has impacted on the relationships firms have with customers, employees and shareholders, but firms are not helpless, and can reverse this trend. Large firms in the UK have tended to rely on investors and analysts initiating contact with the firm, often through an investment bank that acts as broker. This pattern is changing towards a more proactive approach, as firms recognise increasingly that investors are very diverse, and that by segmenting investors they can identify investors who are likely to develop a long term relationship with the firm. Targeting these investors may take effort and time, but the firm will have a much more sympathetic and stable investor base. In this respect, the firm is more like a bank who carefully pre-screens and may reject customers because they want customers to exhibit certain characteristics, rather than the supermarket for whom all customer transactions are equally valuable. This is pure relationship marketing, and is an essential philosophy and function for IROs. 4. Prospects for a new "defining stakeholder" model The debate about whom the corporation should serve has pervaded corporate law and ethics since the 1930s debates of Berle vs Dodd (Donaldson & Preston, 1995). The stakeholder model I propose (Diagram 2) has just two stakeholders, customers and shareholders. These two groups are the reason for the firm's existence. This doesn't mean that other stakeholders are unimportant. The good treatment and satisfaction of other stakeholders, most significantly employees, is essential to corporate success. But no other stakeholder group is a "defining stakeholder" in the same way as customers and shareholders. That is, employees do not have the right or ability to define the nature of the business, and organisations that are defined by employees soon lose their ability to satisfy customers and shareholders. This model is focussed on publically listed corporations, as it is my contention that these organisations have different DNA from other organisations. This model clearly has limited applicability to the public sector, where an absence of either investors or clear customer relationships can produce employeecentricity and its attendant problems. However, I suggest that this new binary model is the one that Ralph Cordiner pioneered to such success as the originator of modern corporate marketing and IR (and in many respects the modern corporation). Both IR and marketing have much to gain from a combined orientation around customers and investors. Meeting with investors is valuable marketing research. Investors and customers can both give you great insight into the company you currently are, and they company they want you to be. Marketers should therefore try to be represented in meetings between management and shareholders. Diagram 2 IR should recognise the value of marketing in building corporate value. Companies become great though delivering superior products that fit with their customer's lives. The consumer companies that have built most shareholder value have done it by excellent marketing e.g. Walmart, Toyota, Apple, & Tesco. Segmentation, sensitivity and satisfaction will continue to be the path to success in maintaining profitable relationships with both customers and investors. Listen, yes; but choose carefully who you listen to. Always listen carefully when your loyalist customers and investors speak. Loyalty will continue to count.
References
• • •
• • • • • • • • • • • • • • • • •
Balmer, J.M.T. (2001), "Corporate identity, corporate branding and corporate marketing: seeing through the fog", European Journal of Marketing, Vol. 35 No. 3 and 4, pp. 248-91. Berry, L.L. (1983) 'Relationship Marketing', in L.L. Berry, G.L. Shostack and G.D. Upah (eds) Emerging Perspectives of Services Marketing, pp. 25-8. Chicago, IL: American Marketing Association. Dodd, E. M., Jr. (1932). "For Whom Are Corporate Managers Trustees?" Harvard Law Review, 45:1145-63. Reproduced in M. B. E. Clarkson (ed.) (1998) The Corporation and its Stakeholders: Classic and Contemporary Reading. Toronto: University of Toronto Press. Felton A.P. (1959). Making the marketing concept work. Harvard Business Review, 37, (July/August), 55-65 Donaldson, T. & Preston, L.E., (1995) The Stakeholder Theory of the Corporation: Concepts, Evidence, and Implications, The Academy of Management Review, Vol. 20, No. 1, pp. 65-91 Farragher, E. J., Kleiman, R., & Bazaz, M. S. (1994). Do investor relations make a difference? Quarterly Review of Economics and Finance, 34(4), 405-412. Freeman, R.E. (1984). "Strategic Management: A stakeholder Approach". Boston, MA: Pitman. Freeman, R.E. (1999). "Response: Divergent Stakeholder Theory", Academy of Management Review, 24/2: 233-36. Freeman, R.E (2004). "A Stakeholder Theory of Modern Corporations", Ethical Theory and Business, 7th edn. Freeman, R.E & Evan, W.M. (1990). "Corporate Governance: A stakeholder Interpretation", Journal of Behaviour Economics, 19: 337-59. Friedman, M. (1970), New York Times Magazine, 13 September Hanssens, D. M.; Rust, R. T.; Srivastava, R. K. (2009). Marketing Strategy and Wall Street: Nailing Down Marketing's Impact. Journal of Marketing, 73(6), p115- 118. Hoffmann, A. O. I., Pennings, J. M. E., & Wies, S. (2011). Relationship Marketing's Role in Managing the Firm-Investor Dyad, Journal of Business Research, Vol 64, 896-903 Joshi, H., & Hanssens, D.M. (2010). The direct and indirect effects of advertising spending on firm value. Journal of Marketing, 74, 20-33. Laskin, A. V. (2009), Descriptive Account Of The Investor Relations Profession, A National Study, Journal of Business Communication, Volume 46, Number 2, April 2009 208-233 Lukas, B. A., Whitwell, G. J., & Doyle, P. (2005). How can a shareholder value approach improve marketing's strategic influence? Journal of Business Research, 58(4), 414-422. MacGregor, J, & Campbell, I (2006) What every director should know about investor relations, International Journal of Disclosure and Governance Volume 3 Number 1 McKitterick, J.B. (1957), "What Is the Marketing Management Concept?" in The Frontiers of Marketing Thought, Frank M. Bass, ed. Chicago: American Marketing Association, 71-82. Marcus, B. W., & Wallace, S. L. (1997). New dimensions in investor relations: Competing for capital in the 21st century. New York: John Wiley. Nielsen, C., & Bukh. P.N., (2011) Investor Relations: Communicating Strategy from a Business Model Perspective, Working Paper Series, No 1, Aalborg University Department of Business and Management Reichheld, F. F. (1996) The Loyalty Effect, Harvard Business School Press. (Revised 2001)
doc_170604696.docx
Investor Relations (IR) is 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.
Financial Study on Investor Relations as Marketing
Abstract Investor Relations (IR) has not commonly been associated with marketing in the UK, but could benefit from this affiliation, as IR has many connections with marketing concepts and practices, especially in a difficult financial market where firms have to be more proactive in recruiting and retaining investors. This paper argues that marketing should not be regarded as being exclusively concerned with customers, but should embrace investors as a key group of buyers whose attitude and response toward the firm can be of great significance. This paper describes the natural connections and increasing convergence between finance and marketing and releases some insights that should be of value to both IR practitioners, and to marketers. It suggests that finance and marketing should look for further connections with each other, within a new stakeholder model that exalts customers and shareholders to the status of "defining stakeholders".
Key Words: Marketing, Concept, Investor, Public, Relations Track: Marketing Communications and Public Relations
Investor Relations (IR) is the function within a listed company responsible for maintaining the relationship with the financial markets, which comprises investors, regulators and financial intermediaries such as analysts, financial journalists and ratings agencies. A large element of the role of an Investor Relations Officer (IRO) (as IR practitioners are called) is marketing related, even though my recent (unpublished) research of IROs in the UK showed that IROs do not respond favourably to this suggestion. The most authoritative definition of IR in the UK, from the Investor Relations Society, excludes marketing, preferring the more genteel label of "communication": Investor relations is the communication of the relevant and necessary information by which the investment community can consistently make an informed judgment about the fair value of a company's shares and securities. Investor Relations Society, UK However, in the home of IR, the USA, practitioners accept the label of marketing, as one of a number of contributing disciplines: Investor relations is 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. National Investor Relations Institute (NIRI), USA (adopted March 2003) Some of the leading writers on IR go further than this, insisting that marketing is the defining characteristic of IR: Investor relations is a sales function, not a communications function. (MacGregor and Campbell, 2006) ?investor relations has always been a marketing function. (Marcus & Wallace, 1997) IR is fundamentally a marketing exercise in relation to the company's shares on the stock market. (Nielsen & Bukh, 2011) Diagram 1 Academically, IR is an orphan discipline, being unmentioned in most textbooks on corporate
Public Relations Marketing
IR
Accounting & Finance La w
governance, public relations or finance. IR research grew over the 1990s and is compartmentalized between researchers from a public relations background (Laskin, 2009) and those from a finance background (Farragher et al, 1994).Whilst this means that the study of IR has great potential, it also means that an agreed theoretical framework is as yet absent, and that while the practice of IR develops rapidly, the study of IR is likely to lag far behind.
The Investor Relations Officer (IRO) consequently has a hybrid role (Diagram 1), part compliance, part counsellor to senior management, part financial interpreter, part relationship builder and part salesperson. The inevitable conflicts between these roles require the work to be performed at a high organisational level, with access to the CEO and CFO. My four propositions about marketing and investor relations are: 1. Marketing and IR have been connected from the start 2. There is a process of convergence on the side of marketing 3. There is a process of convergence on the side of IR 4. The convergence demonstrates the beginnings of a new stakeholder model
1. Marketing and Investor Relations have been connected from the start. Who does the business exist for? Two groups pre-date every organization, the people who need the service and the people who conceive of the service; customers and business owners. These are the two exchange groups. When a customer walks into a shop, he or she is effectively interacting with the owners of the business. IR and marketing were both formalised as corporate functions by the same person. Ralph Cordiner was President then CEO of GE covering the years 1950 to 1963. In this period, GE created the corporate function of IR and implemented the modern marketing concept for the first time. Cordiner managed the greatest team of marketers that has ever existed, including Peter Drucker (employed as a consultant) John McKitterick and Fred Borch. For Cordiner, an obsession with customers had to be combined with dedication to the owners of the firm. IR and marketing share basic goals. Both functions were established to formalise and professionalise communication with a key stakeholder. Both functions operate around a planned structure of periodic communications, that flows from the strategy of the organisation. The IRO spends much of her time on marketing. Investors get segmented, the stock gets positioned, investor preferences are researched and tested, investor buying history is analysed, investor decisionmaking processes and buying units are studied, the IRO facilitates the personal selling of the company's strategy and prospects in meetings with investors and analysts. All of this is pure marketing. There are increasing moves by marketing academics to measure the impact of marketing on shareholder value. For instance: Hoffman et al (2011), Joshi & Hanssens (2010), Hanssens et al. (2009). 2. On the side of marketing, the "marketing concept" has been extended to include IR Profit Focus. The introduction of the profit theme into marketing definitions, has brought the shareholder into the definition, and made marketing into a responsible and strategic function, allowing marketing to shake off many of its negative associations with "sales growth at any price". Loosening of customer centricity. "Customer orientation" has been replaced with "corporate marketing" (Balmer, 2001) "Stakeholder" orientation (Freeman, 1984) and the innovation orientation of high-tech firms like Apple, who have limited faith in market research. A more balanced view that looks for satisfaction not just from customers but also from other stakeholders including investors. 3. On the side of Investor Relations, Investors now see the value that marketing produces, and IROS are more focused on relationships with investors Marketing is now part of the language of investors. Investors have become more interested in strategy, business model, products, markets and drivers of growth. If you compare the annual reports of 2013 with the annual reports of twenty years prior, you will notice that annual reports have grown substantially in size. The financial accounts are now accompanied by a hundred or so pages of marketing information about products, markets, business models, strategy and USP. Investors are very aware that marketing is the difference between a mediocre and a great company. IR has many of the answers to investors' questions. The city is very focussed on sales growth and corporations need to understand not just past performance but where future performance is coming from, and it is marketing that holds the answer to future growth. MacGregor and Campell (2006) urge CEOs to talk the language of marketing when speaking to their investors as well as their customers: "Today's marketing buzzword (one of them, anyway) is 'value proposition': a statement of the satisfactions you're going to get in return for the funds you're committing... What your investors are looking for is a 'shareholder value proposition'. Let's call it an SVP...It's quite astonishing how difficult it is to find anything resembling an SVP in the public pronouncements of a great many companies."
Relationships. Relationship marketing has become one of the dominant paradigms in marketing theory since Berry (1983) introduced the term. As Reichheld (1996) demonstrated, the curse of promiscuity and short-termism has impacted on the relationships firms have with customers, employees and shareholders, but firms are not helpless, and can reverse this trend. Large firms in the UK have tended to rely on investors and analysts initiating contact with the firm, often through an investment bank that acts as broker. This pattern is changing towards a more proactive approach, as firms recognise increasingly that investors are very diverse, and that by segmenting investors they can identify investors who are likely to develop a long term relationship with the firm. Targeting these investors may take effort and time, but the firm will have a much more sympathetic and stable investor base. In this respect, the firm is more like a bank who carefully pre-screens and may reject customers because they want customers to exhibit certain characteristics, rather than the supermarket for whom all customer transactions are equally valuable. This is pure relationship marketing, and is an essential philosophy and function for IROs. 4. Prospects for a new "defining stakeholder" model The debate about whom the corporation should serve has pervaded corporate law and ethics since the 1930s debates of Berle vs Dodd (Donaldson & Preston, 1995). The stakeholder model I propose (Diagram 2) has just two stakeholders, customers and shareholders. These two groups are the reason for the firm's existence. This doesn't mean that other stakeholders are unimportant. The good treatment and satisfaction of other stakeholders, most significantly employees, is essential to corporate success. But no other stakeholder group is a "defining stakeholder" in the same way as customers and shareholders. That is, employees do not have the right or ability to define the nature of the business, and organisations that are defined by employees soon lose their ability to satisfy customers and shareholders. This model is focussed on publically listed corporations, as it is my contention that these organisations have different DNA from other organisations. This model clearly has limited applicability to the public sector, where an absence of either investors or clear customer relationships can produce employeecentricity and its attendant problems. However, I suggest that this new binary model is the one that Ralph Cordiner pioneered to such success as the originator of modern corporate marketing and IR (and in many respects the modern corporation). Both IR and marketing have much to gain from a combined orientation around customers and investors. Meeting with investors is valuable marketing research. Investors and customers can both give you great insight into the company you currently are, and they company they want you to be. Marketers should therefore try to be represented in meetings between management and shareholders. Diagram 2 IR should recognise the value of marketing in building corporate value. Companies become great though delivering superior products that fit with their customer's lives. The consumer companies that have built most shareholder value have done it by excellent marketing e.g. Walmart, Toyota, Apple, & Tesco. Segmentation, sensitivity and satisfaction will continue to be the path to success in maintaining profitable relationships with both customers and investors. Listen, yes; but choose carefully who you listen to. Always listen carefully when your loyalist customers and investors speak. Loyalty will continue to count.
References
• • •
• • • • • • • • • • • • • • • • •
Balmer, J.M.T. (2001), "Corporate identity, corporate branding and corporate marketing: seeing through the fog", European Journal of Marketing, Vol. 35 No. 3 and 4, pp. 248-91. Berry, L.L. (1983) 'Relationship Marketing', in L.L. Berry, G.L. Shostack and G.D. Upah (eds) Emerging Perspectives of Services Marketing, pp. 25-8. Chicago, IL: American Marketing Association. Dodd, E. M., Jr. (1932). "For Whom Are Corporate Managers Trustees?" Harvard Law Review, 45:1145-63. Reproduced in M. B. E. Clarkson (ed.) (1998) The Corporation and its Stakeholders: Classic and Contemporary Reading. Toronto: University of Toronto Press. Felton A.P. (1959). Making the marketing concept work. Harvard Business Review, 37, (July/August), 55-65 Donaldson, T. & Preston, L.E., (1995) The Stakeholder Theory of the Corporation: Concepts, Evidence, and Implications, The Academy of Management Review, Vol. 20, No. 1, pp. 65-91 Farragher, E. J., Kleiman, R., & Bazaz, M. S. (1994). Do investor relations make a difference? Quarterly Review of Economics and Finance, 34(4), 405-412. Freeman, R.E. (1984). "Strategic Management: A stakeholder Approach". Boston, MA: Pitman. Freeman, R.E. (1999). "Response: Divergent Stakeholder Theory", Academy of Management Review, 24/2: 233-36. Freeman, R.E (2004). "A Stakeholder Theory of Modern Corporations", Ethical Theory and Business, 7th edn. Freeman, R.E & Evan, W.M. (1990). "Corporate Governance: A stakeholder Interpretation", Journal of Behaviour Economics, 19: 337-59. Friedman, M. (1970), New York Times Magazine, 13 September Hanssens, D. M.; Rust, R. T.; Srivastava, R. K. (2009). Marketing Strategy and Wall Street: Nailing Down Marketing's Impact. Journal of Marketing, 73(6), p115- 118. Hoffmann, A. O. I., Pennings, J. M. E., & Wies, S. (2011). Relationship Marketing's Role in Managing the Firm-Investor Dyad, Journal of Business Research, Vol 64, 896-903 Joshi, H., & Hanssens, D.M. (2010). The direct and indirect effects of advertising spending on firm value. Journal of Marketing, 74, 20-33. Laskin, A. V. (2009), Descriptive Account Of The Investor Relations Profession, A National Study, Journal of Business Communication, Volume 46, Number 2, April 2009 208-233 Lukas, B. A., Whitwell, G. J., & Doyle, P. (2005). How can a shareholder value approach improve marketing's strategic influence? Journal of Business Research, 58(4), 414-422. MacGregor, J, & Campbell, I (2006) What every director should know about investor relations, International Journal of Disclosure and Governance Volume 3 Number 1 McKitterick, J.B. (1957), "What Is the Marketing Management Concept?" in The Frontiers of Marketing Thought, Frank M. Bass, ed. Chicago: American Marketing Association, 71-82. Marcus, B. W., & Wallace, S. L. (1997). New dimensions in investor relations: Competing for capital in the 21st century. New York: John Wiley. Nielsen, C., & Bukh. P.N., (2011) Investor Relations: Communicating Strategy from a Business Model Perspective, Working Paper Series, No 1, Aalborg University Department of Business and Management Reichheld, F. F. (1996) The Loyalty Effect, Harvard Business School Press. (Revised 2001)
doc_170604696.docx