Outsource investor relations

Should You Outsource Investor Relations?

There are a vast number of activities that the investor relations function might be responsible for – so many that it is nearly impossible to retain a sufficient level of in-house expertise to competently address them all. Instead, it may be necessary to outsource certain investor relations activities to one or more outside firms to ensure that all investor relations goals are met. This objective may be particularly appealing for a smaller business that cannot afford a qualified in-house investor relations staff.

One option is to hire an investor relations consultant. The main value provided by this individual or business is a large number of contacts throughout the investment community, which they can provide in exchange for payment in the form of a monthly retainer and possibly company stock or warrants. There are other situations where a consultant can be of use, which are noted below.

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Advisor to Management

The board of directors, CEO, or CFO may want the view of an outside expert on how the company is perceived in the marketplace, and on how its own operations are being run. This role tends to be on an occasional project-by-project basis. This tends to be a low-cost option, if the advisor is only brought in on an occasional basis to offer advice.

Crisis Intervention

Some consultants specialize in how to deal with the public during such crisis situations as a catastrophic product failure or a hostile takeover attempt. This is more of a public relations activity than investor relations. It can also be quite expensive, since the consultant will be needed full-time for the duration of the crisis.

Event Management

The skill sets of some consulting firms are oriented towards the hands-on management of specific events, such as investor days, road shows, and annual meetings. These parties are usually retained for a number of events, so that investors see consistently-organized events.

Regulatory Knowledge

A consultant may have detailed knowledge of the rules of the SEC and the various stock exchanges, and how they translate into requirements that a specific company must be aware of. Some consultants also monitor updates to regulations, and issue their interpretations of these updates to their clients. This reason is of particular importance when a company wants to sell shares in a foreign market with which it is unfamiliar.

Policies and Procedures

A consultant can use his knowledge of the investor relations policies, procedures, and forms used by other companies to construct systems that are tailored to the needs of a specific client. This can result in a business acquiring a number of best practices for investor relations systems.

Presentation Skills

Some consultants act as presentation coaches. They sit in on road show practice sessions and offer advice on presentation materials, speaking skills, and dress codes. This can be immensely valuable, seeing that a well-conducted presentation could generate millions of dollars in investments.

Writing Skills

Some consultants are expert writers, and can provide invaluable assistance in constructing press releases, scripts for earnings calls, and other presentation materials. They can also assist in the construction of fact sheets and annual reports. They may even have graphics departments that can provide the necessary visual enhancements to a key presentation.

Website Construction and Content

A few consulting firms specialize in the construction and maintenance of the investor relations section of a company’s website, including automatic feeds of some types of information into the site. In some cases, they may maintain this portion of the website on an ongoing basis.

Shareholder Analysis

Consultants can investigate the types of investors who buy the company’s securities, and report back to management and the board of directors regarding how the proportions of different types of investors are changing over time, as well as changes in their geographic locations.

The Need for Multiple Consultants

There is no such thing as a single investor relations consultant who can provide in-depth services in all of the areas just described. Instead, a consulting firm has a small number of areas in which it has deep knowledge, as well as more generic coverage of the other typical investor relations services. Thus, to obtain the best service, consider researching the skill levels of the various consultants in each of these fields, and hiring a small group of experts, each of which is assigned an area of specialization.

Investor Relations Consultant Fees

The prices charged by investor relations consultants can be quite high. The larger firms may insist on charging a monthly retainer for which only minimal billing detail is provided. Alternatively, smaller firms or individuals are more likely to agree to hourly billing rates and detailed explanations of the cost of each service provided. In a few cases, a consultant may be willing to provide services in exchange for company stock; this payment may be more palatable to a consultant if the company offers to include the shares in its next registration statement, so that the shares can be sold in the near future. This payment choice may be particularly appealing to the consultant if it appears that the company's market value may increase in the near future.

In summary, consultants can be used to supplement any area of investor relations weakness that a public company may have. If senior management wants a broad-based investor relations function, it will probably be necessary to budget for the ongoing services of a group of consultants.

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