5 Common Misperceptions About Investor Relations

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The age of myths, misperceptions and even dis-information is upon us, often pumped through the echo chambers of news media, social platforms and podcasts. The investor relations sector is not immune, with reality and perception not always being aligned. To help clarify any confusion, below are five common misperceptions.  

  1. Performance alone will impact stock price. Performance is just one of several factors that affect valuation. While a company’s financials are critical on Wall Street, that narrative must be conveyed professionally to investors and analysts, we well as to the business press. Gaining the right attention does not happen by itself and is another critical building block in attracting and retaining investor interest and ultimately enhancing valuation.
  2. The primary goal of a public company is to serve its customers. While serving the customer well usually leads to great financial performance, management teams and their boards should never lose sight of their primary mission, namely, serving the shareholders through enhancing value. Under federal law, corporate directors have a fiduciary duty to make decisions in the “best interests” of the shareholders, not customers, and to supervise management teams to make sure that happens.
  3. Share price is the only measure of true success. While share price is certainly an important metric – and perhaps the most important in shareholders’ minds – there are other factors that contribute to a company’s overall success, including revenue growth and profitability. Additionally, a company may have a strong underlying business but experience short-term fluctuations in share price due to external factors beyond its control.
  4. ESG is really not that important. While investors seek shareholder value principally through a company’s financial performance, environmental/social/governance (ESG) initiatives are becoming increasingly important to investors. According to PwC’s Asset and Wealth Management Revolution 2022 report, fund managers are expected to increase their ownership in ESG-focused companies to $33.9 trillion globally by the end of 2026, up from $18.4 trillion in 2021. Ownership of ESG-focused companies is on pace to represent 21.5% of total assets under management globally in less than five years.
  5. Investor relations is only about talking to investors and enhancing valuation. While investor relations is not listed in the Merriam-Webster dictionary, a simple Web search will reveal myriad definitions, far too many to list here. In reality, investor relations goes way beyond communicating with investors and enhancing valuation. Conveying a company’s mission and objectives, adhering to full disclosure, communicating transparently to multiple audiences and fostering sound media relations are just a few of the many areas that support a comprehensive, professionally managed IR program.

Chris Casacchia, ccasacchia@pondelwilkinson.com