Seven ways a board can improve investor relations and attract more backers

Effective investor relations strategy should be high on the board agenda to drive investor confidence and attract future backers.

Ultimately, public companies exist for the benefit of their stakeholders and shareholders. It stands to reason that shareholders have a keen interest in how a company is run, and it’s important to keep them on side.

Not only do investors wield ultimate power through shareholder votes, but they can vote with their feet.

This can weaken the share price, thereby making it more dilutive to raise further equity capital.

It can also make it harder to raise debt finance, by sending a red flag to a company’s banking partners, or even directly cause it to breach covenants.

Poor share price performance can cast a company in a bad light with suppliers and customers and can reduce the value of incentives provided to staff.

Here are seven things a company can do to maintain good investor relations (IR) and attract more backers.

1. Ensure you have a properly resourced IR function and a comprehensive IR strategy

“IR needs to be an ongoing process,” explains Jude Lau MAICD, a partner with HLB Mann Judd Melbourne and head of its audit division. “It’s not just a matter of saying, ‘We need to raise some money now, so let’s talk to investors’. That interest needs to be there already.”

Depending on a company’s size, it may be most effective to bring in these skills with employed staff or an external consultant, but there needs to be a dedicated resource.

That resource should work with the board and management to create an IR strategy — involving things like the types of investors a company should be trying to attract and how to reach them — and it should then report back regularly.

Where there’s a specific need to raise further capital, or perhaps a company is considering an IPO, it may make sense to supplement the IR function with an advisory board.

By combining directors of the company with external advisers, these can broaden a company’s network of potential investors and provide the expertise to refine and present a compelling business case.

2. Understand your existing and potential investor base

Having a clear understanding of your investor base can help frame how you interact with those investors.

“Retail shareholders appreciate being treated with the same respect as institutional investors,” explains Rachel Waterhouse, CEO of the Australian Shareholders’ Association. “Where feasible, companies should publish recordings or transcripts of analyst briefings and make regular investor updates available online.”

Hybrid AGMs, which can be attended online or in person, “are no longer a nice-to-have — they are a governance standard”, notes Waterhouse. It can be a red flag, she adds, when AGMs are not available online or are held in remote locations.

Changes in the shareholder base can also point to changes in how investors perceive a company or as a warning of takeover bids or shareholder activism.

Reaching a new cornerstone investor, on the other hand, can help to build confidence in your company. “A well-regarded institutional investor or perhaps even a large customer investing in your company can provide a strong endorsement,” explains Lau.

3. Provide timely, transparent and effective communication

Communicate your strategy and performance in a clear and consistent fashion. When performance departs from what’s expected, provide updates in a timely fashion.

“The board needs to have oversight of this,” says Lau, “not least because most announcements will say ‘authorised by the board’ at the end.”

It applies to bad news as much as good news. “You build trust slowly, but you can lose it very quickly,” warns Lau. “You can’t run away from bad news. Treat it the same as the good news.”

Delivering bad news in a clear and timely fashion can be reassuring to investors. “It can show that you not only perform well when the going is good, but that you have the resilience and risk management framework to cope with harder times,” says Helen Liossis GAICD, a non-executive director of Zeal Futures Learning and ADSSI Ltd and an AICD NSW Division Councillor.

“If there’s an outlier valuing the stock too high because they’ve got some assumptions that are incorrect, you need to correct those assumptions with factual, publicly available information,” says Liossis.

It will be a red flag to investors if there’s a lack of transparency, “spin”, or if a company is seen to be encouraging unrealistic expectations.

“If your business plan is overly optimistic or vague, investors will see right through that,” she says.

Institutional investors are “good at picking out what does and doesn’t make sense”, adds Lau.

4. Educate investors about your business and strategy

Educating investors about your business and strategy can help to prevent misunderstandings.

This can be achieved  in regular briefings or meetings with large investors, or more formally through investor days and presentations, focusing on things such as technology, risk management or overall strategy, depending on the company.

These should be released online where feasible “to reach all shareholders, thereby supporting transparency and reducing the risk of information asymmetry”, notes Waterhouse.

5. Ensure good governance

“You need to run a sound company, and be seen to do so, in order for people to be interested in investing in you,” says Lau.

This means having a well-structured board with the right skills and a high proportion of independent non-executive directors. There should also be strong and independent remuneration and audit and risk subcommittees.

Good governance also means having specific plans for crisis management. “For example, we’ve seen with a number of cyber incidents and data leaks that those who weren’t prepared suffered reputational damage with customers, investors and other key stakeholders,” says Liossis.

Investors also like to see a clear succession plan, to give them comfort over the long-term execution of a company’s strategy.

Particular red flags on governance will be an overly complex governance structure, frequent changes in board composition, too few independent directors and too many related party transactions.

“Related party transactions are not an automatic negative, but investors will want to understand their nature and finer details and see that they are appropriately identified and disclosed,” says Lau.

6. Demonstrate a clear commitment to ESG

Investors often have their own concerns over ESG (environmental, social and governance) factors, or at least represent people that do.

“Boards should oversee ESG as a strategic issue, not just a compliance item,” suggests Waterhouse.

“Investors are looking for evidence of progress, not just policy — so companies should disclose how ESG factors are being managed, measured and reported. They also expect ESG targets to be meaningfully linked to CEO remuneration.”

7. Maintain clearly delineated roles

The way a company is perceived by investors starts at the top.

“The board is there to talk about things like governance, succession planning, risk management and strategic direction, but institutional investors will want to see the management team having clear control of operational execution,” says Liossis.

“Otherwise they will wonder who is running the show.”