The Intersection of Academic Theory and the Everyday Practice of Investor Relations, or, This Isn’t as Boring as It Sounds

This Spring marked the fifth anniversary of my leaving the corporate world for the much less structured world of teaching, consulting and writing.

I like to think that the change has brought some perspective, as I’ve had the opportunity to step back from the day-to-day pressures of investor relations and really think about what it is IR practitioners do, or attempt to do, in their interactions with investors.

Couple this with the opportunity I was presented to develop a MBA level investor relations class at the Jones Graduate School of Business at Rice University, and it presents a rich area for thought. Never being one for keeping my thoughts to myself, over the course of the coming posts I plan to set forth some of the thinking I’ve done on how the practice of investor relations intersects with the theories of finance, capital markets and corporations.

My thinking here is that if people have a better understanding of the theory, the practice will improve. By way of example, you don’t have to be a mechanical engineer to drive an automobile, but an understanding that it is powered by an internal combustion engine that requires periodic maintenance will result in better operation and upkeep of the car.

When you think about the discipline of investor relations, it incorporates aspects of marketing, communications, finance, law and the capital markets. It requires a thorough knowledge of the company and its industry and the regulatory environment in which the company operates. Further, the audiences it affects go far beyond just investors to encompass employees, customers, suppliers, creditors, bondholders and governmental entities, among others. When you throw into the mix that there are some schools of academic theory that hold that active investing and investor relations activities add no value, there’s quite a bit that can be discussed.

Just by way of a teaser for some of the topics I will cover in coming posts, here are some of the things I plan on writing about:

• Finance – most stock valuation models are constructed using discounted cash flow techniques, and how they work has a significant impact on your company’s stock price. Beyond the modeling technique however, there is a significant takeaway to think about.
• Marketing – a lot of investor relations literature talks about targeting investors, but that is only one-third of the three crucial steps to marketing. Further, how marketing should inform your thinking about the sell side and where you should spend your time with buy side investors.
• Capital Markets – understanding how the markets work and who gets paid for what, will help investor relations practitioners sort through the competing demands of the buy and sell side.
• Communications – there is a lot of really bad IR communications out there, much of it in the form of PowerPoint slides. I look at examples from some of the biggest corporations to see what they could do better and the hidden subtext of the slide. (In order to protect the guilty, we will not identify the guilty.)
• Law – lawyers are taught to think in a particular way, and regulatory lawyers have a unique take on that. As someone who practiced law for ten years, I will attempt to bridge the communications gap between lawyers and IR practitioners.

I’m somewhat of an evangelist on bringing more academic rigor to investor relations and I hope the upcoming series will cause people to think seriously about what they do on a day-to-day basis in IR.

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John Palizza

John works with strategic communications and consulting firm Three Part Advisors, to assist them in their investor relations practice, and is a Lecturer in Management at Rice University’s Jones Graduate School of Management, where he teaches investor relations. Prior to this, John was in charge of investor relations for Sysco Corporation and Walgreen Co. He holds a MBA from the Kellogg Graduate School of Management at Northwestern University and a law degree from Loyola University of Chicago. You can learn more about John’s thinking about investor relations at his blog, Investor Relations Musings.

Latest posts by John Palizza (see all)

• More on Marketing, Corporate Life Cycles and Investor Relations - December 7, 2012
• Marketing, Corporate Lifecycles and Investor Relations - November 9, 2012
• Marketing, Investor Relations and the Pareto Principle - October 19, 2012
• Finding the Hook – More on Marketing and Investor Relations - September 28, 2012
• Marketing, Investor Relations and Customer Service - September 12, 2012

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The Intersection of Marketing Theory and Investor Relations Efficient Markets – Even More on Financial Theory and Investor Relations More on Financial Theory, Future Estimates and Investor Relations The Role of Financial Theory in Investor Relations What Makes for Effective Investor Relations Sites? (Part 1)