The Bird’s Eye View On IR Practice In Nigeria, Different Countries

Enam Obiosio

Under ideal circumstances, the quality of investor relations (IR) can serve as a crucial competitive edge, leading to higher valuations. This perspective is not just a personal belief but is also backed by extensive experience of many executives whose practice spans over 20 years in the field of investor relations, both in-house and as an external adviser to public and private companies across various sectors and sizes worldwide.

Traditionally, the core objective of IR is to facilitate the promotion of securities—such as shares, bonds, or hybrid products -issued by publicly traded companies, ensuring compliance with regulations and promoting equal access to information. The goal is to provide all market participants with sufficient information to accurately assess the fair value of these securities.

The landscape of IR and financial communications is continually evolving due to advancements in technology, regulatory changes, and globalisation. The scope of information now extends beyond traditional financial statements to include non-accounting factors such as patents, commercial achievements, market shares, and management reputation. These elements are increasingly influential in determining a company’s value. Additionally, lawmakers are demanding greater transparency regarding management compensation, corporate governance, and sustainability policies, with accounting standards likely to continue evolving and potentially converging.

In this dynamic context, IR has become a multifaceted discipline and a vital corporate responsibility aimed at building trust. It acts as a strategic tool for corporate development by influencing capital costs—impacting share prices and credit ratings—and enhancing reputation. Therefore, IR should be an integral part of a company’s communication framework and strategy, deserving a prominent role in corporate decision-making.

The complexity of IR is growing, targeting a broader and more demanding audience. This necessitates a high level of professionalism, as the stakes and risks involved are substantial and increasing. IR officers must master both  the strategic and tactical aspects of IR, regardless of their geographic location or whether they operate in the public or private sector. Given the variation and evolution of rules and regulations in Nigeria and across different countries, it is crucial to adhere to international best practices. These practices can be implemented to comply with widely adopted regulatory requirements and appeal to the global investment community.

While IR traditionally focused on marketing and finance functions within publicly traded companies, these practices are equally important for other types of companies competing for capital, irrespective of their size, sector, or financial history.

While the primary focus of IR is on companies that are publicly traded or planning to go public, the principles and strategies of IR are beneficial to a wide range of organisations. Whether you are aiming to raise capital by attracting venture capitalists or private investors, or you are a government-owned enterprise or sovereign entity looking to enter the bond market, understanding and effectively communicating your value is crucial.

IR blends the art of marketing with financial analysis, highlighting that going public introduces companies to a competitive environment with many other market participants. It is about outlining various objectives for listing on a financial market, such as issuing new shares or bonds to fund expansion, diversifying the shareholder base, fostering employee loyalty, maximising asset portfolio value, and increasing company visibility.

The IR process guides companies through the four stages of an initial public offering (IPO), from structuring the transaction in the primary market to managing post-IPO activities. Emphasising the fundamentals of IR is vital to ensure long-term success in capital markets, likening its role to that of customer-supplier relationships.

An effective IR executive should understand and present the key elements necessary for successful investor relations, including the importance of senior management commitment and reliable information systems. Comprehending disclosure requirements and legal obligations is essential, as is the ability to professionally structure and implement a strategic IR program.

A successful IR strategy involves designing a comprehensive plan to attract and retain shareholders or funding providers, utilising tools like annual reports and crisis communication management. This strategy helps gain coverage from media and financial analysts and addresses the impact of corporate governance and socially responsible investments on corporate reputation. Key aspects include shareholder identification and targeting, gathering financial and industry information for consistent messaging, financial calendar planning, and implementing communication tools for outreach.

IR executives must be adept at writing financial press releases, organising roadshows, developing contact lists, and leveraging innovative communication technologies. Measuring the effectiveness of IR goes beyond share price improvement, considering multiple factors. It requires empirical methods to assess IR strategy results against objectives, focusing on continuous improvement and value creation. Both quantitative metrics, such as stock-market performance and earnings consensus, and qualitative parameters, like awards or perception studies, are important.

Ultimately, IR must provide senior management with unbiased market sentiment through cost- and time-effective audits. Despite future changes in technology or regulation, the quality of IR, both in form and content, remains a key factor in the fair valuation of a company by the capital markets.