The role of public relations in business and investor relations

Public Relations

So what is a business? A business is an organization that operates to generate profits, usually for its owners. Those owners may be a private individual or individuals, a group of individuals who form a partnership, or a wider group of people with a financial interest in the business and its profits because they are shareholders or members. The things a business does to generate those profits are varied. It may manufacture goods for sale or trade, import or sell goods and products, or provide services to people or other businesses (Davidson, 2011). Public relations have several important roles in a business. It can make people aware of what the business is able to provide (goods and services), help the business communicate with the people who have an interest in it (owners, customers, employees and the community), and help the business develop an image and reputation within its environment. Public relations practitioners are in constant contact with publics that affect the activities of an organization (Payne, 2009). Because of this, public relations practitioners can be important influencers of how people regard the business and its activities. This is part of the boundary-spanning role of public relations. A boundary spanner is an individual who creates links between different publics and the organization. They metaphorically span a boundary between an organization and other groups of people through facilitating communication (Adams, 2012).

There are special publics that are vital to business operations because they directly affect profits through financial transactions. These are investors (or shareholders) and customers. Of equal importance, are publics who influence profits indirectly through opinion and action, such as employees, the community and the media (Cameron, et Al. 2008).

Investors as special publics

For some businesses (notably privately owned ones and small businesses), it can be said that the most important public to consider for the continued life of the business is the people who engage in trade with the organization through the purchase of products or services -- suppliers or customers. However, when a company becomes 'public' through listing shares for sale on the country or region's stock exchange, there is another public -- investors (Payne, 2009) which demands regular communication. This field of public relations is increasing in professional importance and is generally called investor relations, or IR.

Businesses are responsible to owners. Owners need information about the business operations of the organization on a regular basis. For companies listed on the stock exchange, their wealth and operating viability are determined by judgments about their performance. Reports to the financial community help to form those judgments. These judgments and opinions can affect the prices of the shares that are owned and traded through the stock market (Milliman, et al. 2008). For example, in mid-2008, the share price of both BHP Steel and Rio Tinto surged on reports that they had locked in deals to sell steel for higher than expected prices to the burgeoning Chinese market (Cameron, et Al. 2008; The Economist Intelligence Unit, 2009). When people (individuals or corporate investors) own shares in a company, a proportion of the organizational profit is divided up among all shareholders periodically, giving them a dividend. The more net profit a company makes, the higher the dividend is likely to be. If a company is performing well or is judged to have the potential to perform well and make healthy profits, it is likely that the shares will become popular to purchase. Investors will want to buy them, and the share price will rise through competitive trading. As share prices rise, more investors are attracted to them, sometimes purely for the purpose of buying the shares at one price and selling them for a higher price later on. Share trading, when it leads to higher share prices, creates greater revenue for the company. The converse is also true: if a company performs poorly, the opposite is likely to happen and the share prices drop (Davidson, 2011; Porter, et al. 2011; Strauss, 2010).

Although the stock market is far more complicated than this simple description, it is easy to see that opinion and commentary play an important role in influencing how people respond to trading shares in various companies (Milliman, et al. 2008; Strauss, 2010). Many sources of information can be used by investors to make judgments about buying and selling shares. Company information, the opinions of financial specialists, the knowledge of the share brokers and media commentary together paint a picture of how the business is performing. And the work of the public relations practitioner is crucial to all of them (Cameron, et Al. 2008; The Economist Intelligence Unit, 2009).

It is critical to many companies' long-term goals to ensure that financial publics are informed about business activities. Investors, potential investors, financial analysts and financial media need specialized information about the organization in order to judge the performance of their investment and the company's potential for future investment (The Economist Intelligence Unit, 2009). These financial publics are what would be called active or information-seeking (Dozier & Broom, 2006). They will look for specific information on which to base their opinions and decisions.

Financial media, financial analysts and investors constitute specialist publics and they have special information needs. Agenda-setting theory is useful to understand in order to put a client or company's interest on the media agenda. Financial information must be comprehensive and deal with the complexities of fiscal performance in a competitive national and international market (Basu & Palazzo, 2008). This requires detailed information for a target public that has a special understanding of finance and uses a special language. Like other highly specialized areas of public relations, the practitioner needs to know the meaning of a variety of special terms and to be able to talk to experts in their own language (Dozier & Broom, 2006). Unlike communicating with a more generalized public or group of publics, where simple and easy-to-understand words should be used, certain types of jargon can be included in specialized areas like finance. In order to share understandings with experts, practitioners can develop their background knowledge in finance and economics to more effectively specialize in financial public relations (Davidson, 2011; The Economist Intelligence Unit, 2009).

In Australia, the Australian Securities and Investment Commission (ASIC) is the authority that administers the rules pertaining to public companies and, among other things, the annual reports they produce (discussed below). In New Zealand, it is the Securities Commission. In 2008 the two countries brought into effect the Mutual Recognition of Securities Offerings (MRSO), introduced to simplify and streamline the issuing of shares across both countries (Cutlip, et al. 2012). Both countries had previously brought in new laws and regulations to make the MRSO happen. This illustrates why public relations practitioners need to be appraised of legislative changes that may affect shareholders -- in this case, those relating to trans-Tasman corporations (Eisenhardt, 2009).

Annual general meetings

Another obligation of a public company is to hold an annual meeting of shareholders. This meeting gives investors a chance to ask questions of management and to vote on changes to company rules, and gives them a voice within the company (Kim, et al. 2009; Postmes, et al. 2011). Annual general meetings (AGMs) and other special or extraordinary meetings of shareholders are usually organized and coordinated by public relations staff. They plan the venue, estimate numbers and liaise with interested media and shareholders. AGMs can also be webcast to allow for virtual attendance at multiple locations, and hence attract a greater number of attendees (Brown, 2009; Grunig & Hunt, 2007).

While many annual general meetings are considered a formality, public relations practitioners should not treat them lightly. There are many examples of AGMs causing imminent crises for companies when a board is confronted with angry or disgruntled investors, who may be assisted by groups such as the Australian Share holders' Association (ASA), which seeks to increase shareholders "influence on corporate behavior and shareholder rights in Australia' (ASA 2008). Sometimes potentially difficult AGMs can be predicted by the occurrence of other organizational events. Companies need to be prepared for such events, to deal strategically with negative media opinions, handle shareholder questions openly and frankly, and provide explanations for management's actions (Postmes, et al. 2011). This involves extensive briefing of all executive staff involved, usually with the advice of legal counsel. Where possible, thorough media briefings should form a part of the communication strategy.

Financial analysts and the media

In addition to communicating with potential shareholders, it is crucial to keep the financial media well informed about share issues and organizational actions that might affect share prices. Financial analysts are independent specialists who can assess the 'paper' or share value of a company that can subsequently be reflected in its share prices. These assessments are very important when a company first lists its shares on the stock market and to support continued trading (Grunig & Hunt, 2007). A bad assessment from influential analysts can cause immediate and sometimes dramatic drops in share prices. Maintaining a good relationship with both financial analysts and the financial media is an excellent way of keeping a responsive and high-volume flow of information out in the marketplace for existing and potential shareholders to read and assess while making their share-buying decisions. The basic principles of media relations are just as applicable to financial specialists as they are to other specialist media sectors (Adams, 2012).

Consumers and customers as special publics

Businesses generate profits through trade. A necessary component in the trade equation involves the consumer or customer who wants to buy the products or services produced or delivered by the company. While organizations have many publics to consider in the day-to-day running of their business -- the community, employees, investors and so on (Curtin, 2008) there must be customers to enter into some sort of purchasing relationship with the business or it will fail. Customers as publics have different needs, which the business must cater for. They have quality demands about products and services; they can exercise choice in their purchasing decisions; and they can complain and litigate. They can decide to return to the business for further purchases or try some other similar product or service. Whether the transaction is a one-off purchase or an ongoing relationship, one of the responsibilities of public relations practitioners in business is to ensure that the lines of communication are open between the organization and its customers, and that the needs of those customers are known and can be met (Harlow, 1976; Ray, 2011).

Marketing public relations

The ability to understand and relate to customer publics is the part of public relations practice that is inextricably linked to marketing (Wood, 2012). Marketing has at its core the need to manage customer relationships for the purpose of generating profits. Any marketing textbook contains reference to the 'four Ps' of marketing (Curtin, 2008) product, price, place and promotion. Promotion is where public relations have links to marketing. In addition to advertising, point-of-sale material and other forms of promotion, the specialist talents of public relations practitioners in media and public liaison are important to the marketing mix (Harlow, 2010).

The range of public relations strategies and tactics used to enter into dialogues with publics can be integrated in the information and feedback that surrounds the purchase of products and services. Publicity, special events, launches, sponsorships, endorsements, print work (brochures, flyers, direct mail, etc.) and other tools are all utilized extensively in marketing, and often by public relations practitioners working with, or attached to, marketing departments (Brown, 2009).

The danger (and often the dominant misconception) is that this is all public relations practitioners do within a business environment, and that therefore the public relations function could, or indeed should, be subsumed by marketing. While public relations are important within the marketing function, it has many roles in business that are not marketing related (Curtin, 2008). Obviously marketing departments have management control of marketing campaigns, including all the communications components, and may only call on public relations staff when specific duties need to be performed (for example writing a media release, organizing an event and so on) (Strauss, 2010).

This situation highlights the dichotomy between the 'manager' and 'technician' roles of the public relations practitioner (Curtin, 2008). By treating public relations as purely technical rather than managerial and strategic, marketing can miss out on facilitating the valuable relationship between the organization and external publics that is the core of professional public relations communication. Using only the technical skills of public relations may result in a much longer timeframe for briefing and understanding of the issues. Inevitably, this leads to an inferior approach to overall communication (Strauss, 2010). A preferred approach is to include public relations counsel in the original planning and research of the marketing campaign. This problem can begin to be tackled by the approach of integrated marketing communications (Harlow, 2010).

Conclusion

An individual's ability to tune out mass advertising material has increased substantially in the twenty-first century (Kim, et al. 2009). To reclaim the attention of potential consumers, product placement (sometimes known as embedded marketing) is now a mainstream way of presenting products and services in a user context to encourage familiarity with a brand and the situation in which it is used. Rather than raising brand awareness through paid advertising space, companies negotiate to include their branded products in more 'naturalistic' settings -- or at least, settings that are not clearly identifiable as advertising as we have known it -- and in the process blur the divide between advertising and popular culture (Harlow, 2010). This is sometimes called brand integration. Placing products and commercial messages in movies has been happening since the 1950s, but the practice is now becoming more sophisticated. By placing products into movies, television shows, music videos, video games and novels, companies can avoid the ad break tune-out of television and insert product messages into feature films where none existed, thus colonizing previously unused advertising viewing time. And in return, studios and production companies have realized an untapped source of revenue. Brown, (2009) tells us that Stephen Spielberg's film Minority Report created a branded world and in the process earned one-quarter of the film's U.S.$160 million budget from over fifteen different brands (Hoy, et al. 2007).

The growing field of product placement is prominent internationally, and has also attracted specialist communication companies to handle the process. In November 2002, Universal Studios created a division to work with 'branded entertainment' around the movies it produces (Gotting 2003). Taking the paradigm one step further, advertisers and marketers are also creating the popular culture vehicles for their products, tailoring the programs to what they know their consumers want, believing them to be more appropriate platforms for their brands. Gotting (2003) reports that Johnson and Johnson, Unilever, Ford, Kellogg's and Proctor and Gamble have funded the development of shows like The Gilmore Girls, which has been shown internationally including in the Asia Pacific region. And perhaps the ultimate expression of this trend is the creation of a product purely to fill a role in a movie or on television, as Audi did in 2004 by creating the RSQ car for the movie I Robot (Wood, 2012).