The development of an IR strategy presents IR departments with new challenges every year: For example, is it precisely defined which tasks IR has to fulfill? What are the IR’s objectives? Where are the gaps between the objectives and the current situation? Which IR instruments can be used to achieve the IR goals? In what time frame and with what budget? And how can the achievement of IR goals be made measurable?
Initial Situation: The Range of Tasks of IR
What is the spectrum of tasks of IR? Only then can the corresponding goals be formulated. As studies show, companies define the range of IR tasks very differently in some cases. There are, for example, companies that regard the scope of IR tasks exclusively as fulfilling their duties. Topics include reporting and compliance, i.e. compliance with all regulatory requirements, and possibly shielding, i.e. protecting the company and management from activist shareholders.
Other companies define the scope of IR somewhat further. In addition to complying with regulatory requirements, IR’s remit includes maintaining relations as a dialogue and mediation of interests between the financial community and management. This range of tasks also includes the observation of capital market participants and corresponding reporting. And finally, there is the group of positioners. The range of tasks at these companies is extended to sustainability issues, management support (coaching and active positioning of the board of directors) as well as internal management, which is concerned with coping with digital transformation and competence development. Only when it is clear internally which tasks belong to the IR area can the analysis of the current situation and the elaboration of the goals be started.
Analysis of the Current Situation on the Capital Market & in the Company
The range of tasks is clear, now it is a matter of becoming aware of the actual situation and thus uncovering possible weak points: Are, for example, all processes, responsibilities, procedural instructions so clearly defined and assigned that no errors can occur in the regulatory requirements? Are there control processes? Is a corporate disclosure policy in place? What protection is there against activist shareholders? For relationship managers, the question arises of an investor targeting program and how effective it might be. Do investor presentations meet the information needs of analysts and investors? Is a perception study carried out regularly to check whether the company takes sufficient account of the needs of analysts and investors in its IR work or whether it knows enough of them at all?
The results of the analysis process show which areas of IR should be addressed. For example, a perception study may show that investors are dissatisfied with the communication and communication content. The share price & liquidity may not meet the expectations of important shareholders. The share of institutional investors, for example, is classified as too low. In the area of rule publicity, mistakes may occur again and again. IR processes, procedures, documentation and representations may not be clearly defined. Employees may not be adequately trained. The handling of stock forums & social media may not be clarified. Are employees allowed to post in stock forums? If so, who? And what? Is there a Corporate Disclosure Policy that explains exactly which publications exist by which persons/departments, taking into account which approval processes? All these revealed IR challenges must be collected and grouped together.
Definition of Target Categories, Strategic IR Targets and Their Significance
The problems and challenges were identified in the analysis process. Now it is time to work out target categories, formulate strategic IR targets and then evaluate them in terms of their significance. For example, a target category can be an improved market valuation & higher liquidity. Strategic objectives in this category may include strategic objectives such as improved investor targeting, more proactive communication with analysts and investors, optimisation of shareholder structure, improved transparency, improved retail IR and peer benchmarking. It is important to assess these strategic goals in terms of their significance for IR work.
This is because it is very likely that not all objectives will have the same significance for the subsequent measurement of target achievement. Further ‘target categories’ can be, for example, the implementation of a Corporate Governance Best Practice, an improvement of the quality in the area of Corporate Disclosure or also the improvement of IR processes. For all these strategic target categories and other target categories defined by the companies, the strategic goals and their significance must be worked out in accordance with the above description.
The Definition of IR Instruments
The goals are known, now the question is how these goals can be implemented. What instruments and measures can be used to achieve these objectives? What is the timeframe and budget for this? For example, the goal of more proactive communication with analysts and investors can be achieved through a regular workshop with the target group, which is not simply a presentation, but the gathering of opinions and suggestions from investors and analysts. The goal of investor targeting could be achieved by creating investor profiles with a subsequent roadshow. The increase in liquidity can be achieved through a retail investor program and better support for management through regular reporting and appropriate meetings with management.
Measuring IR Target Achievement
The objectives and instruments are defined, it is important to define how the achievement of objectives can be measured within the framework of an IR strategy. For each strategic goal, key performance indicators (KPI) and an operational goal must be defined. For example, the goal of “proactive communication with analysts and investors” can be the KPI: the number of meetings & telephone calls with the top 50 shareholders. And in order for the KPI to be measurable, the operational goal is defined: “At least 1 meeting/telephone call per quarter with 80% of the top 50 shareholders“.
Now we still have to determine how to deal with it if goals are only partially achieved. For example, is it possible in a quarter to speak with only 70% instead of 80% of the top 50 shareholders, is the target then completely missed? Or has the target been partially achieved? So it would be conceivable to say that a communication with 70% of the top 50 shareholders in a quarter can still mean a target achievement of 50%: Once all strategic goals have been made “measurable” in this way via their KPIs and operational goals and their achievement has been determined, the weighted achievement of the goals must be determined. An example calculation of the achievement of objectives can look as follows: The time required for documentation, measurement and adjustment should not be underestimated. Over time, some KPIs will probably prove to be unusable and some operational targets too ambitious. Appropriate capacities for control and adjustment should be planned and form the basis for adjusting the further development of IR strategies next year.