Chapter 8 Investor Relations 8-1

Definition of Investor Relations The National Investor Relations Institute defines Investor Relations as: “A strategic management responsibility that integrates finance, communication, marketing and securities law compliance to enable the most effective two-way communication between a company, the financial community, and other constituencies, which ultimately contributes to a company’s securities achieving fair valuation.” Source: National Investor Relations Institute, NIRI Corporate Website – www.niri.org, accessed August, 2007. 8-2

Investor Relations (IR) Provides information to investors according to regulations governed by the United States Securities and Exchange Commission (SEC). Began in l933 with the passage of the Securities Act and the Securities Exchange Act of 1934—aimed at protection of the public from abuses in the issuance and sale of securities.

Investor Relations is aimed at: Helping the firm’s securities reach their market price. IR professionals encourage stockholders to buy and hold company shares and persuade Wall Street financial analysts and institutions to take an interest. Shareholders are necessary to support management’s objectives.

Objectives of Investor Relations The main goal of IR is to position the company to compete effectively for investors’ capital To achieve this, IR focuses on the following objectives: Explain the company’s vision, strategy, and potential to investors and “intermediary constituencies” such as analysts and the media Ensure that the expectations of the company’s stock price are appropriate for its earnings prospects, industry outlook, and the economy Reduce stock price volatility 8-5

The Investor Relations Professional seeks to: Win shareholder support through timely and valuable communications. Serve as their link to the organization. Provide information according to SEC regulations. Uphold ethical and professional guidelines.

IR Directly Impacts Stock Price Corporate Investor Relations activity could account for as much as a 25% variance in a company’s stock price, according to a recent study Study surveyed 243 buy-side investment professionals from leading mutual funds, pension funds and insurance firms 82% believe good investor relations affects a company’s valuation “Superb” IR is associated with creating a median stock price premium of 10% “Poor” IR is associated with a median stock price discount of 15% Source: Holmes Report, “Investment Professionals Believe Communications Adds -or Subtracts- Value,” July, 2007. 8-7

Investor Relations Framework Company’s IR Strategy Investors Institutional Investors Individual Investors Intermediaries Financial Analysts Financial & Mainstream Media Industry Groups Stock Price Cost of Capital Volatility Reputation 8-8

IR Has Many Responsibilities IR is responsible for a wide variety of investor activities, some regularly scheduled and others that arise on an as-needed basis Regularly scheduled activities include: Marketing the Brand to Investors Annual Report Investor Meetings/Conferences Internal Valuation Models Quarterly Reports & Conference Calls Maintenance of Website Event-driven activities include: Investor Targeting Crisis Communications Merger & Acquisition Issues Cross Border IR 8-9

Materiality Materiality refers to corporate decisions that cause an investor to buy, sell, or hold company stock. Companies must disclose information that is considered to be material.

Examples of Material Proposed mergers or acquisitions Change in dividend policy, capital investments Determination of earnings Acquisition or loss of significant business contract Major management changes Purchase or sale of significant assets Major discoveries or inventions Marketing new products

To be in compliance with the Securities and Exchange Commission (SEC) Organizations must engage in timely and full disclosure

Full Disclosure Full disclosure refers to all investors being informed quickly, fully, and fairly about material corporate information. An issue that has come up recently has been selective disclosure—that is, providing information to some investors but not all investors.

The SEC tries to limit: Insider trading While at the same time it tries to facilitate Disclosure This way, information reaches all, not just a few who would have unfair advantage.

The New York Stock Exchange (NYSE) Governs large companies that are members.

Question…… Do you remember who resigned as Tyco’s CEO under the allegations of tax evasion? First name Hint: Mr. Wilson’s young neighbor— always carried a slingshot, hung around with Joey. Answer: Dennis Kozlowski

Investor Relations Professionals Deal with the stock market analyst Analysts are responsible for determining the value of stock based on its current value in the market and their expectations of the company’s future earnings per share. There are two types of analysts: sell side and buy side analysts

Analysts Breakdown Sell-side analysts research stocks and attempt to predict future earnings and place recommendations on each stock to buy, sell, or hold. Buy-side analysts work for large institutional firms, such as mutual funds, investment advisers, family trusts, and pension funds. They find stocks and their institutions can purchase them and make a profit.

Internet Investor Relations Organizations today use the Internet to reach investors. They must provide information to the investors that is honest and trustworthy.

Internet Communications: Homepage providing information Web site serves as a service to new, as well as seasoned, investors and attracts potential investors Information can be controlled through an integrated site rather than distributed randomly Investments can be done online and investors can research investments on the Internet

Nike’s Investor Relations Website Links to company and investor information are accessible and simple Ability for investors to customize their own page based on the info they want to see Strong use of Nike’s branding reinforces the brand image with investors Use of videos allows investors to get a better sense of senior management Recent updates are clearly highlighted Investor press releases are easy to access and up-to-date Real-time stock quote Source: Nike Corporate Website, www.nike.com, accessed August, 2007. 8-24