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New World Order Necessitates Broader, Deeper Shareholder Engagement

As the discussion swirls about disclosure of material information – and exactly what constitutes SEC compliance – another more important conversation continues: how best to engage with shareholders and stakeholders.

Public companies are encountering an enormous transfer of power – from a small inner circle to public shareholders at large. That transfer of power can be seen in financial reform legislation, corporate governance issues, and the revolution in information transparency of the last decade.

Just about everything – including the CEO’s compensation package – is being put up for a vote by public shareholders.

Coincident with this transfer of power has come a transformation in the ways institutional investors, financial journalists, retail investors and influential bloggers consume information – and the kinds of information they wish to consume.

Gone are the days when investors used only audited financial information, or their broker’s advice, to decide which companies’ shares to buy. Instead, investors also are seeking non-financial information that paints a broader, and more nuanced, picture of a business, in its macro context, according to investor relations experts – and a growing body of research.

And they are deliberately seeking information from a broader set of sources including, among others, social media.

“It’s about two-way communications, and about a broader discussion that brings investors closer to a fuller understanding of the business,” says Mark Hynes, principal of U.K.-based investor relations consultancy Transparency Matters Ltd. (and a non-executive advisor to PR Newswire). Hynes, and many other IRO experts, have indicated that such an in-depth understanding is necessary before investors – including retail investors – will back management’s proposals by voting in their favor.

For all these reasons, recent research demonstrates the increasing influence of professional content and community discussions at finance portals from those at Yahoo and AOL to TheStreet.com and The Motley Fool. In a Harris Interactive-ING Direct survey conducted among retail investors in January 2010, “financial web sites and blogs” was cited as a source of investment advice more than any other information outlet. It was cited by 49% of investors under 40, and by 47% who are 40 and older.

Interestingly, the increasing influence of web sites is not driving print sources out of investors’ equations: the second-most-popular investor information source in the survey was print-based financial newspapers/periodicals, cited by 39% of respondents under 40 and 41% of those over.

Other research shows the increasing diversity of preferred investor information sources, moving away from broker-supplied information and complementing company-supplied information.

A recent study by Boston College’s Institute for Responsible Investment showed that, when it comes to non-financial information, more investors (39%) preferred third-party information sources than any other source.

The same study reported that the non-financial information investors planned to look for most was market share data (75%), information about innovative products (74%) and customer satisfaction data (69%). Thirty-five percent of respondents said they used corporate social responsibility (CSR) information to make investment decisions.

Between the investor relations experts and the research, a clear picture has emerged: shareholder oversight over public companies is growing, while at the same time those shareholders are seeking broader information from more sources than ever before.

Naturally, this is leading to a sea change in communications between public companies and their investors. Bare-bones compliance to disclosure regulations isn’t nearly enough in today’s competitive, volatile global marketplace. Traditional quarterly guidance, while still essential, is no longer sufficient to meet shareholders’ communications needs. In order to maximize success, public companies need to engage with their constituents through many different mediums on a 365 day, 24/7 basis.

All of which should make clear to IR professionals that, in this fast-evolving environment, using limited, one-dimensional communications is both a problem waiting to happen – and an opportunity left on the table.

Instead, IROs are developing outreach strategies that engage shareholders and stakeholders in a sophisticated and comprehensive manner. This includes use of multimedia assets across multiple channels as well as engagement at both live and virtual events.

The bottom line is that, today and tomorrow, companies need to communicate with shareholders wherever they are and in all the ways they want to be communicated with – whether online or offline, in the real world or in its virtual counterparts.

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