What is the state of investor relations in the United States and globally? IR professionals say they are increasingly seeking investors abroad, communicating more non-financial information, using social media more often, and playing a bigger role in the C-suite and boardroom.

A recent survey conducted by Bank of New York Mellon of 817 IR professionals finds that companies are taking an active but cautious approach to reaching out to investors and to communicate their strategies and, increasingly, their corporate governance policies.

According to the study, investor relations is taking more time to communicate to existing investors, rather than courting new ones. The survey found that 27 percent of respondents in 2012 said they wanted to focus more time on existing shareholders, compared to 18 percent who said they did in 2011. (In the interest of full disclosure, I played a role in conducting the survey.)

When companies do seek new investors, they are increasingly looking outside their home markets. According to Mellon, 33 percent say expanding the shareholder base internationally is a top goal, compared to 20 percent in 2011 and 17 percent in 2010. Companies are targeting traditional capital markets the most over the next five years, with 67 percent focused on U.S. listings, followed by 37 percent in the United Kingdom. The third and fourth most strategic markets are Mainland China and Hong Kong.

Companies also continue to increase their focus on sovereign wealth funds as prospective long-term investors, with 62 percent contacting these funds in 2012. Western European companies were the most active with 79 percent engaging with SWFs in 2012. Just under half of North American companies target SWFs, the lowest of all global regions.

Like many, IR professionals are concerned about stability in Europe. Eurozone stability was cited as the top concern for 2012 by 76 percent of companies, yet only ten percent overall have Eurozone contingency plans in place, while 24 percent of Western European companies adopted such plans.

Respondents were also concerned about regulation. Over one-third of companies globally have concerns that additional regulatory oversight will decrease market liquidity, with only 16 percent believing any additional regulation could positively influence liquidity.

What Investors Want

On the buy-side, 64 percent of U.S. companies say investors are asking for more information on cash-flow projections and 62 percent say future funding is the next priority, while inquiries into debt profiles have also increased, possibly reflecting concern over the complexity of leverage.

The survey shows that disclosure has been growing at the highest rate in the category of non-financial goals, with 56 percent of companies making these disclosures in 2012, up from 35 percent in 2010. Environmental, social, and governance (ESG) factors comprise the major component of these disclosures. In the past, I have urged companies to focus on these disclosures, given strong indications, including evidence from the Governance and Accountability Institute, that these factors weigh heavily on investment decisions. I believe proactive communications underscoring what the company is doing is very much in order.

IR professionals say they are increasingly seeking investors abroad, communicating more non-financial information, using social media more often, and playing a bigger role in the C-suite and boardroom.

 Still, the survey finds that 59 percent of companies do not engage with investors on ESG issues, while 39 percent say their companies are engaging in ESG activities. So, what's happening? Most IR officers wait for investors to ask about their program rather than being proactive in making these factors part of their presentations to their major shareholders.

Access to senior management, largely through one-on-one meetings, is another top priority for investors. Contrary to reported trends that portfolio managers are moving toward passive management, the majority of U.S. respondents report that their top 50 institutions are actively managing their portfolios.

Another trend—one that is hardly surprising—is that companies continue to focus almost exclusively on institutional investors. Only a few companies have a retail investor program, largely executed through selected brokerage firms to target high-net-worth individuals. The retail investor has, for the most part, abandoned the market during several market crashes that sent a strong message that investing in individual companies in a market environment of high-speed trading and a lack of transparency, due to trading in dark pools and off-market venues, is no longer a fair game.

Access to Investors

Eighty percent of IROs use meetings set up by brokerage firms using their relationships with institutional investors for which they receive some soft-dollar compensation or the opportunity to expand the institutional holdings in the targeted company. For the most part, IROs do not see a potential conflict of interest in this arrangement whereby a brokerage firm is more likely to arrange meetings with investors where they potentially can expect future business. Most companies, however, retain the option to strike certain investors from the brokerage firm's list. In North America, IROs say 69 percent of brokers do a “very good job” on event logistics. At the same time, 35 percent of North American companies say brokerage firms do a “very poor” job in tracking investor positions. In some instances, IROs of larger-cap companies will directly target investors of their choosing based on their own criteria for selection and arrange their meetings directly with the institutional firm.

While broker-sponsored meetings and conferences continue to be important, companies report fewer invitations to conferences outside their home markets, and they are being more strategic in choosing the conferences they attend. Eighty percent use brokers to arrange their non-deal roadshows. The highest priorities for selecting brokers is to gain access to the appropriate decision makers in the investment funds, according to 79 percent, and 71 percent seek access to new investment management firms.

IR professionals are also increasingly communicating with shareholders on social media. IROs report their use of social media is increasing significantly, although from a low base. In the 2010 survey, only nine percent used some form of social media to connect with investors. It grew to 20 percent in 20ll and 26 percent in the current survey.  The leading reason for the relatively slow use of social media, particularly when compared with the aggressive use in marketing communications, was the lack of investor demand cited by 67 percent and the lack of message control. The increase in use was attributed to development of a formal social media policy, according to 42 percent of respondents. Given the recent notice from the Securities and Exchange Commission that companies can make material announcements on social media sites as long as they have prepared investors for what channels they will use, that is likely set to rise.

Increasing Influence of IR

IROs have long sought greater access to the C-suite and the board of directors and, according to the Mellon report, they are getting it. More than half of those in the United States say they meet with the CFO on a daily or weekly basis to provide counsel, and 35 percent meet with the CEO on a daily or weekly basis to provide insight into what's going on in the capital markets. More than half of senior IROs are attending board meetings, up from 52 percent in 2011, and 48 percent now present to the board on an ad hoc basis. They are providing the board, as well as senior management, market intelligence, including sell-side opinions on the company, stock performance metrics, investment community feedback, and peer information.

These indicators point to the rising value of the role of investor relations. The majority of IROs say that their performance is measured by informal feedback from the investment community, followed by the quality of information in analyst reports and recommendations. The next most important metric is the quality of one-on-one meetings with investors, which rank higher than the absolute number of meetings. Another encouraging factor, reflecting senior management's confidence in their IRO, is that 30 percent of one-on-one meetings with institutional investors are conducted by the IRO alone.

The Mellon survey provides evidence that the state of IR is expanding in its influence in the C-suite, with the board of directors, and in managing changes in the capital markets, particularly with the decline of the influence of sell-side recommendations to institutional investors resulting in the brokerage firms becoming meeting arrangers and the buy-side being the primary audience for corporate messages. Other challenges facing IROs are high speed trading and more frequent turnover in buy-side portfolios. IROs are managing these changes reasonably well, thus adding to their value to senior management and the board of directors.