Most companies still see investor relations management as a one-way street—as a way of marketing a company's performance or strategy to its investors. Wilhelm Schmundt, a partner in Bain's Corporate Finance practice, outlines four ways that companies can unlock the full potential of investors.
Read the article: How Companies Can Use Investors to Their Advantage (HBR.org)
Read the transcript below.
WILHELM SCHMUNDT: Surprisingly, most companies still see investor relations management basically as a one-way street, as a means of marketing during the capital markets day or investor calls to promote corporate performance or corporate strategy to their investors. But what if investor relations moved from marketing to the CEO agenda, basically becoming a two-way street? And there are some companies that are really good at it.
They pursue targeted investors. They solicit their feedback. And they ensure that the feedback travels back to the executive suite for possible action and analysis—and with good reason: investors are smart, they're industry savvy, and they're objective.
And this joint effort and approach helped to turnaround companies like Nikon, for example. But nevertheless, there are just a few companies that have the structured dialogue between investor relations and corporate strategy in place. Most of the companies have an ongoing dialogue on a one-on-one basis between the management, the executives, and their anchor investors.
There are four ways to unlock the full potential of investors. Understanding the gap between the current valuation and the intrinsic value of the firm—are you just targeting the wrong investors, or are you using the wrong metrics and wrong messages to communicate your strategy and performance? Then target the right investors; understand who is moving the stock, what is actually the rationale behind buying the stock. Then understand which investors are most valuable for you and provide, therefore, the most valuable feedback. And then—and that's a little bit of marketing—tailor your messages and emphasize the elements of your equity story that are most relevant to them.
And as a next step, create a two-way dialogue. Use the feedback to hone strategy in an institutionalized, and especially in a structured, way. Communicate the equity story with the right metrics and establish feedback loops. Continuously improve. And by doing that, a lot of companies have shown that management and shareholders can profit alike.
Investors can be a powerful strategic resource, providing not only capital but also less-biased insight into the threats and opportunities that a company encounters.