In the first part of our series, we looked at the development of the investor relations industry. In this second instalment, we examine an investor relations officer's external role and the crucial part they play in communicating a company's message.
The growth of the investor relations (IR) industry in Hong Kong is closely connected to the IPO market's simultaneous expansion. It is correct to say that the link between IR and institutional investors is robust, but it's not an exclusive bond and individual investors can also utilise the services of a professional internal relations officer (IRO) – particularly if they have specific questions about a company and its operations. When we talk about an IRO's external role, it is essential to begin by noting that it involves liaising with all market participants and not just a select group.
"We communicate with all shareholders, and everyone has the right to contact the IR team of the company before making a final investment decision," says Eva Chan, Chairman, Hong Kong Investor Relations Association (HKIRA).
Ms Eva Chan, Chairman, Hong Kong Investor Relations Association
Utilising an Investor Relations Team
Against this backdrop, it would appear to be a transparent process for all involved. But having this resource available and using it efficiently can mean different things to each group. "As an individual investor, you need to know how to get the most from an IRO," says Chan. "This is a major difference between individual and institutional investors." Everyone will want to know about a company's dividend policy, for example, but institutional investors will explore further and ask about the impact of industry regulations on a company's ability to pay said dividends. This deeper dive isn't necessarily something that individuals will perform.
IRO's aren't the source of all knowledge. They can explain what has driven a company's performance over the past year or six months, as this is based on publicly available material divulged at the result announcement. They cannot, however, comment on whether the price of the firm's stock price will rise in the future. "The HKEX requires that all listed firms have their own website that shows contact details, information disclosure, and announcements to shareholders, investors, and the general public. Yet,
it is not uncommon for listed companies to fail to respond to any enquiries," says Chan. "The onus is on the IR team to go beyond that and ensure that all communications are open and helpful."
Communication at the AGM
There is a forum that allows both the board of directors and investors to meet, and that is the AGM referenced above. These public events tend to be more suited to individual investors rather than institutional players, with the latter often meeting with IROs on a face-to-face basis, which precludes the strict need to attend the event. "As the stock market is highly liquid, we need to remember that the shareholders of today may not be in the same position tomorrow and vice versa," explains Chan.
From an AGM perspective, the IRO's role is centred around, responding to shareholders' questions during the meeting. This can involve preparing a Q&A database to brief their directors so they can answer any potential questions about the industry, the company, or its finances. "There are usually a few controversial topics, like the re-election of directors," says Chan. With most listed companies in Hong Kong owned by families, the re-election of directors usually doesn't pose a problem. "But if the significant shareholders own 55% of the stock and the voting results reveal only 60% approval, then it can look bad. A good IRO should sense-check this before the AGM and prepare the directors accordingly," illustrates Chan.
In another case, an extraordinary general meeting (EGM) is required to discuss a potential transaction. Given that it is a connected transaction, the major shareholders cannot vote. The IR team will then need to communicate with independent shareholders to solicit their support by explaining how the transaction will benefit the company.
As we touched on in the first part of this series, one necessary separation is between the company secretary and the IR team's role. "Company secretaries deal more with compliance and logistics: how to inform shareholders about the AGM and what will be on the agenda," says Chan. "Or to put it another way, company secretaries focus on what to write, while IR specialists focus on what to say."
The Making of a Good IRO
Having considered the need to communicate effectively with external groups, we need to bear in mind some of the specific skills required to ensure that a company's message is clearly conveyed.
- Adopt a proactive approach – A good IRO must show a willingness to engage with their investors, peers, and the wider industry. This involves meeting people, telling them what their company does, sharing its key selling points, and explaining why it's worthy of their consideration.
- Be prepared – An in-depth knowledge of your firm and its industry is vital: "If you cannot convince yourself, you can hardly convince anyone else," says Chan. So, it pays to have a firm grasp of detail, which involves possessing strong analytical skills coupled with robust emotional intelligence to 'read the room'.
- Have credibility – Regardless of market size, everyone will know someone within any given industry, "You cannot just tell people that your company is good. Everything an IRO says must be fair and honest," explains Chan.
Banking on Knowledge
An effective IR team needs access to information that will underpin its message. Many IR teams now maintain databases that are a store of market trends and company information. "An up-to-date source of information helps me to understand and identify potential shareholders. It also furnishes me with details about the main players in a business. It circles back to being proactive," says Chan.
The concept of 'social listening' is also vital, so an IRO is fully aware of the latest industry news. This is especially useful for investor meetings, as it avoids surprises about what's being said about the IRO's firm and what is happening elsewhere. Again, there is nothing to be gained from being unaware of broader developments.
A Turning Point
In a perfect world, all companies would have an effective and proactive IR team as described above, along with an easy-to-access portal in their websites to manage information about corporate events. This is not yet the case. "For basic company and financial information, many companies fail to prepare even a summary for easy and convenient reading," says Chan. "This is all public information, but it takes time for potential investors to find it." Some companies still omit their stock price from their homepage, as it requires extra IT investment. The primary aim of many firms is just to meet but not necessarily exceed compliance requirements.
This may be set to change. "The pandemic may have caused upheaval in our lives, but it has forced us to communicate via different channels. Information cannot be tucked away," concludes Chan. A proactive IR team will prove to be a powerful advantage in today's competitive capital markets.