Why private family companies need investor relations
The purpose of the investor relations function in a public company is to promote effective communication between the company and its current and prospective investors. The Securities and Exchange Commission requires public companies to make certain disclosures.
The ultimate goal of investor relations for public companies is to contribute to a stock price that fairly reflects the value of the company. If investors don’t perceive that the company has a clearly articulated strategy or transparent metrics that relate to that strategy, they are more likely to sell shares.
Although privately held family businesses don’t have a share price that is subject to the perceptions of investors, a formal investor relations program offers four valuable benefits for family firms:
1. Developing an informed shareholder base. One benefit of a family business investor relations program is to help family shareholders better understand what may well be their single largest asset.
2. Demonstrating management accountability. A structured investor relations program forces managers to refine their strategy so it can be readily communicated to family members of varied ages and backgrounds. This process of refining the message can ultimately contribute to a more focused and more effective corporate strategy.
3. Understanding shareholder preferences and needs. The results of a shareholder survey can help directors and managers move away from abstract objectives like “maximizing shareholder value” toward more concrete objectives. For example, what are the shareholders’ views on near-term liquidity, current distributions and capital appreciation? Seeking out these opinions enables directors and management to craft a coherent strategy to address shareholders’ needs.
4. Preserving family harmony. Lack of communication naturally breeds distrust. Over time, distrust breeds disaffection and broken family relationships.