What Is Investor Relations?

A CEO holds a meeting with investors.
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DEFINITION

Investor relations (commonly abbreviated as "IR") is a division of a publicly-traded company that focuses on communicating with institutional and individual investors, members of the financial community such as stock analysts and investment banks, and government agencies.

Definition and Example of Investor Relations

Investor relations is the department within a company that’s responsible for communicating with the investment world, which includes those who have invested in the company individually or institutionally, as well as investment analysts and government agencies.

For example, Nike’s investor relations department shares insights on its corporate governance guidelines, board candidate requirements, sustainability efforts, and broader social goals on its IR page. Microsoft, Alphabet, Amazon, and many other companies do the same.

How Investor Relations Works

Companies typically develop an IR team prior to an initial public offering (IPO). A primary role of an IR representative is to address investor concerns, from the IPO through the various stages of a company’s growth, to help build the company’s image and maximize its share price.

IR responsibilities include:

  • Represent the company at investor presentations and meetings, as well as with media
  • Provide information on company performance in a timely fashion
  • Provide non-financial information that addresses investor questions regarding corporate governance and overall mission
  • Provide regular reporting to the board of directors
  • Communicate investor concerns to company executives
  • Provide a fair business valuation for the company
  • Field questions and feedback from investors
  • Instilling investor confidence in the long-term future of a company despite negative company news

In general, IR departments communicate with the investing community through a variety of means, including social media, press releases, conference calls, roadshows, and websites.

Because the IR team interacts with a number of departments within a company, it must have clear lines of communication with each. This includes the CEO, chief financial officer, public relations department, and various product divisions.

While IR is a different department than media relations (IR focuses on the investing universe, not the general public), the two may work together for news releases. For example, when Peloton announced in February 2022 that co-founder John Foley would step down as CEO, a position he has held since the company was formed, the company’s IR team was the first point of contact listed in the company’s press release, and the release was posted in the IR section of the Peloton website.

Depending on the size of a company, an IR department may be one person or a team of employees.

Notable Happenings

Instilling investor confidence in the long-term future of a company is a primary function of IR teams. That role became significantly more important with the passing of the Public Company Accounting Reform and Investor Protection Act of 2002 (PCARIPA).

Corporate scandals that occurred over the past two decades, including the collapse of Enron, Corp. in the early 2000s, led lawmakers to approve more stringent oversight and financial reporting requirements via the Public Company Accounting Reform and Investor Protection Act of 2002. The legislation strengthened the independence and financial literacy of corporate boards while also holding the CEO and CFO responsible for the accuracy of information given to investors.

The Sarbanes-Oxley Act increased the importance of investor relations. IR practitioners must be knowledgeable of legal requirements and help management meet these requirements.

What It Means for Individual Investors

An IR team helps you become more informed about key areas such as big changes that may affect stock prices and quarterly financial reports.

Because IR departments have become more important over the years, individual investors who are researching investment opportunities should be able to easily access information on a company’s past performance, future plans for growth, and responses to any corporate events that made headlines. Getting more information is usually better when making investment decisions. IR teams make that possible.

Key Takeaways

  • The role of investor relations within a company is to provide information regarding a company’s past performance, future growth strategies, corporate policies, and to respond to corporate events that could impact share value.
  • IR departments have increased in importance over the last two decades because new laws have increased transparency of corporate governance and large, activist investors have demanded the same.
  • An IR department must work closely with several different components of a company, including corporate executives, public relations, and legal oversight.
  • The increased emphasis on IR benefits individual investors by making information on past performance, future strategies, and other corporate thinking more accessible.

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