1.2 Definition and Objectives

Investor Relations objectives, Source: Drillⁱ

One subtlety should be pointed out in the illustration below: A fair valuation is a means to an end, increasing shareholder value (a concept that has now become discredited, although the term remains accurate in its actual meaning as «enterprise value»). Investor Relations thus sets out to provide a transparent description of the status quo and to create realistic expectations in the sense of valuation levels that can be maintained as a maximum over the long term and the reasonable stability of that valuation. On the other hand, unrealistic forecasts and empty promises are not appropriate.

You may be asking: Ultimately, isn’t it the strategy and its execution, reflected in the management’s performance and in hard figures, that are key to a fair valuation? Why invest so much time and money in an activity that has little impact on a company’s value? The answer depends on the specific situation of the company. If a company funds its strategy from operating cash flow and has a core shareholder shielding it against takeovers, those resources might be better invested in research or market expansion. However, if the company is on a steep growth trajectory and will need fresh capital sooner or later, or if its shareholder base is fragmented, then it has a strategic interest in achieving the highest possible valuation and building a strong reputation in the capital market. Investor Relations can at least partially contribute to this.

How the objectives of the communication policy described in the illustration can be achieved is described in more detail in this handbook. The illustration below presents the idea that management and communication tasks are interlinked.

Reducing Capital Costs as an Objective of Investor Relations

Investor Relations, when seen as part of strategic corporate management and a focal point for corporate strategy, governance, finance and communications, plays a key role in managing the expectations of investors. Those who understand what makes investors tick and who recognize their role will appropriately consider their views in key corporate governance matters (e.g. strategy formulation and capital allocation by the board of directors and management) and will tailor the communication to their needs.