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Investor Relations (IR) integrates finance, communication and marketing to efficiently manage the exchange of knowledge between a public entity, its investors and its stakeholders. This article is intended to help you better understand the importance of investor relations in the broad sense and to contemplate the role of CFO in this regard.
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In the past few years, IR has grown rapidly, and it is difficult to believe that it is not a significant function of large corporations with a foreign shareholder base. It provides substantial support for a company’s financing and is therefore directly involved in value creation.
Investors play a big and vital role in a company’s success and development. Mostly every company owes a debt of gratitude towards its investors for not only getting the business on its feet but also for continuing its operational success. Because of that fact, maintaining strong and transparent relationships with the investors is of utmost importance to companies. It is here that a firm’s department of investor relations comes into play.
IR is a strategic management responsibility that is required to be met incessantly, especially for publicly-traded companies. It integrates finance, communication, marketing, and securities law compliance and enables effective two-way communication between a company, its shareholders, and the financial community. Some of the standard elements of Investor Relations (IR) comprise the following:
The main objectives served by the department of investor relations/professionals working towards IT are as follows:
As already stated, the importance of investor relations is paramount for any entity. And in order to communicate effectively and honestly with investors, companies usually build and rely on an IR department.
An IR department may be limited to one person or expanded to a team of people, depending on the size and scope of a company, as well as the number of investors the company has.
The IR department, in a broad sense, keeps the lines of communication and knowledge sharing open between investors and the company. Investors, analysts, and anyone else with a business question or request for information are typically drawn to the IR department.
Considering the importance of investor relations in a firm, the IR department performs the following functions:
Since IR performs so many tasks and functions in so many capacities, it is important that the department remains completely integrated with almost every other department in the organization, such as the legal and accounting departments, as well as with the entire executive management team.
The importance of investor relations is even more accentuated by virtue of various regulatory requirements.
Multiple laws apply to different entity structures that require separate event-based and annual compliance. In order to sustainably develop any business, it is important that the company complies with legal, secretarial, accounting, taxation, employee-related and other relevant compliance. The consequences of failure to comply may be punitive fines imposed on the company.
Different types of compliances need to be made by a company to keep its investors informed, some of which are enumerated below:
CFOs need to be careful because their portfolios are increasingly falling under the IR function. A CFO needs to have a much better understanding of the entity’s business model and be able to communicate the key metrics that make the company more competitive relative to other entities.
Considering the growing importance of investor relations, CFOs are recognized as the face of communication to investors and, therefore, must oversee that an effective IR department is put at place. Some of the steps that should be undertaken by a CFO for successfully accepting the responsibility of the IR function are:
A CA together with MBA (Fin) and M Com, she relishes taking interest in insightful writing in the domain of taxation and finance. She has gained experience as a full-time author and has also served an accounting role in industry.
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