IR Magazine | Inside Investor Relations, May 13, 2013 article and National Investor Relations Institute (NIRI), May 9, 2013 report

Sources: IR Magazine | Inside Investor Relations, May 13, 2013 article and National Investor Relations Institute (NIRI), May 9, 2013 report

Managing shareholder expectations: 97 percent of IROs do it
by Garnet Roach	13 May 2013

Face to face, phone calls, email and other informal methods prove most popular, says NIRI research

Almost all IR departments work to manage shareholder expectations, according to new research from NIRI, with 80 percent looking to set the financial performance expectations of their investors.

National Investor Relations Institute

May 9, 2013

Jeffrey D. Morgan, FASAE, CAE
President and CEO
National Investor Relations Institute

Managing Shareholder Expectations-2013 Results

Key Findings

97% of respondents report attempting to manage shareholder expectations.

IROs determine the expectations of their shareholders through informal methods (in-person, phone calls, emails), by reviewing sell-side research, comparing company stock metrics to peers, and perception surveys.

Respondents report attempting to set shareholder expectations for company financial performance, economic-related issues, product-related issues, regulatory, and corporate governance-related issues.

With regard to timeframes, the most common goals set were for the current year (61%), followed by three to five year goals (31%), two year goals (9%), and five years or longer (4%). (Participants were permitted to select more than one response.)

IRO respondents reported that the near-term goals their companies provide are more detailed and specific, as opposed to the more strategic, broad, and general nature of any long-term goals provided.

In addition to metrics, respondents specified other information provided in order to manage shareholder expectations including qualitative findings, product strategy, marketing information, and revenue.

The CEO, CFO, and IRO are all (81% each) equally involved in determining messaging for managing shareholder expectations.

Respondents provided specific activities that have been most successful in managing shareholder expectations, and identified activities to avoid.

Read the full report: Managing Shareholder Expectations-2013 Results [available only to NIRI members]

About the National Investor Relations Institute (NIRI)

Founded in 1969, NIRI (www.NIRI.org) is the professional association of corporate officers and investor relations consultants responsible for communication among corporate management, shareholders, securities analysts and other financial community constituents. NIRI is the largest professional investor relations association in the world with more than 3,300 members representing 1,600 publicly held companies and $9 trillion in stock market capitalization.

After informal methods of managing shareholder expectations, which are used by 87 percent of IROs, NIRI’s 2013 report Managing Shareholder Expectations shows that reviewing sell-side research reports is also popular, with 81 percent of IROs using these reports to set investor expectations. Comparing company stock market metrics with peers, and perception audits or formal investor surveys are also used by 44 percent and 30 percent of respondents, respectively.

It’s not just IROs who are working to set investor expectations, either: the CEO, CFO and IROs are all equally involved (81 percent each) in creating company messages used to manage shareholder assumptions. ‘Respondents report attempting to set shareholder expectations for company financial performance, economy-related issues, product-related issues, regulatory and corporate governance-related issues,’ explains NIRI.

Most IROs (61 percent) look to manage shareholder expectations for the coming year, while 31 percent set a three to five-year goal. NIRI explains that respondents were allowed to choose more than one option, with a further 9 percent focusing on two-year goals and 4 percent looking ahead five years or more.

These timeframes affect the type of information companies use to manage expectations, explains NIRI. ‘The near-term goals companies provide are more detailed and specific, as opposed to the more strategic, broad and general nature of any long-term goals provided,’ it says in a press statement.

‘Financial goals for growth and profitability are quite specific for one year but further out the compound rates of growth and margin expectations are in broad ranges,’ says one small-cap healthcare and social assistance firm. ‘We discuss the long-term implications of regulatory effects and the pros/cons of expected legislation on the trajectory of the business.’

As well as the financial metrics used to set shareholder expectations, NIRI says IROs also use qualitative findings, product strategy, marketing information and revenue.

Respondent IROs also mention what to avoid when trying to manage expectations: ‘Avoid using language that is ambiguous if you are moving financial expectations,’ says one mid-cap company. ‘[Terms like] ‘moderate’, ‘significant’, and so on do not work nearly as well as specific ranges of potential outcomes.’

Another micro-cap company in the arts, entertainment and recreation sector makes a simpler point: ‘When managing shareholder expectations, you should avoid over-promising and under-delivering.’