Shoe-String Theory

Budget season is upon us. What is the correct IR budget? I guess the easy answer is ‘as long as a piece of string’. The balance that must be found between doing and keeping costs under control is increasingly delicate.

With a wink Wink_Emoji_large we look at this notion of the “shoe-string budget” as the IR equivalent to string theory where according to physics, a particle is replaced by one-dimensional objects known as strings.

Just like a physicist who uses multiple dimensions with string theory so too must your IR budget work in order to be effective.

  1. Basic corporate communications for regulatory filings (quarterlies);
  2. Conference calls;
  3. Analyst visits;
  4. Annual reports;
  5. Institutional marketing through roadshows;
  6. Industry conferences you cannot be seen to be missing;
  7. Investment conferences that are essential to meet your target audience;
  8. Web page;
  9. Social media;
  10. Integrating overall plan with potential corporate activity (M&A, financing).

The real question is ‘Where will my company get the most bang for the buck?’ Management is bound to ask how to measure the success of IR efforts?

There is no universal correct answer, but I do know two things.

Firstly, it can’t be measured directly. You can measure stock price but that is driven by so many factors other than the IR effort that the IR impact cannot be directly isolated. At best you can track liquidity, but that should be compared to an appropriate peer group (is your sector in favor or vice versa, are you part of the same ETF’s).

The second thing, is that companies offering superior IR do get a premium. That premium is part of the brand/trust/credibility built up by management with its investor base. IR will not stand by itself, but as part of a well-executed business it delivers better valuations which over long term provide lower cost of capital.

I titled the piece with the word “theory” because a theory is not proof. Just because it cannot be explicitly proven this does not mean it does not exist!

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Shoe-String Theory