While usually not a direct measure of success, valuation is hard to ignore
Experienced IR professionals often advise against using the share price as a direct measure of IR performance. There are far too many variables that go into valuation for IR to take full responsibility for it, they point out. That’s not to say there is no connection between IR and market value, however.
On the contrary, research has shown that investors put a premium on companies with good IR (and a discount on those without it). Ultimately, however, investors make their decisions based on many factors beyond a company’s control.
Andrew Berger of SM Berger & Company tries to steer clients away from share price as a measure of success. Companies today have even less influence on share price than they used to, he notes, given the rise in passive investing and significant increase in financial data flow. ‘IR's ability to drive value in stock price was probably greater 20 or 30 years ago,’ he says.
In the end, credibility wins the day
But some companies do use valuation as a metric for investor relations success, often on a relative basis compared with sector peers or an index. Indeed, as IR Magazine research notes, one in 10 IR professionals say their company uses the share price to track IR performance.
Rodney Nelson, head of IR at Qualtrics, the provider of experience management software, says the stock price offers a ‘scoreboard’ for IR professionals. ‘I wouldn’t want to sign up for the stock price moving, for example, post-earnings call – that’s a fool’s errand,’ he says. ‘Over time, however, IROs should feel some responsibility for the share price.’
Felise Kissell of Aramark highlights that the share price alone is not an exclusive measure of success, although an important factor, and needs to be considered as part of a series of checks and balances about how the equity story is being received and measured.
‘What you don’t want is to be an underperforming outlier,’ she says. 'If you are, then there should be a clear rationale behind it. Or if you are significantly overperforming, you should be highly informed regarding the attributes you are exhibiting that warrants that valuation.’
Above all, IROs should strive for a fair and appropriate valuation of the company, states Kissell. ‘IR teams should be balanced and not purely marketeers of their story so Wall Street can make informed investment decisions using the company’s disclosures,’ she says. ‘In the end, credibility wins the day.’
