Investor Relations & Financial Communications for Corporations: Investing Like a Marriage

Investor Relations & Financial Communications for Corporations: Investing Like a Marriage

If you’re someone who’s already married, you know how much work it takes to keep communication going so you keep a good relationship going. Dealing with a major financial investment for your corporation is no different, even if you normally think you should keep investments strictly business.

You’ll find a lot of “tips” articles talking about how to create better financial communication with a married partner. In the corporate world, you can easily apply the same principles, though with even more transparency.

This isn’t to say you should do this in a suspicious way since any kind of investment you’re dealing with needs to establish trust. If it looks like you’re too non-trusting, another corporation may feel likewise.

Let’s take a look at best practices on investor relations and how to communicate better with your corporate investment partners.

Maintaining a Level of Simplicity

When conducting an investment deal with a company partner, keeping it simple is one of the best ways to communicate. This is always the best way to approach financial communications when working with another corporation new to investing.

We’re already living in a time when the constant flow of data can easily become misinterpreted. Making an investment deal can become confusing as well when using arcane terms, especially with millions of dollars at stake.

So make all communications as straightforward as possible to avoid misunderstandings. In the corporate world, they’ll likely already have financial advisors who speak your investment language with clarity.

Putting Your Foot Forward On Communication

Don’t decide to outsource when communicating with a corporate investment partner. Creating a fruitful partnership is going to mean you starting communication first with an invitation to meet in person. By meeting executives for lunch and getting to know one another, you’re nurturing immediate trust.

Being as honest as possible about your investment you’re doing together is going to make a huge difference in the long-term relationship. During times when you can’t meet in person, it’s important to at least communicate by phone or mobile device.

Conference calls often help to get everyone on the same page, especially when you have multiple corporate investors involved.

Sending Financial Reports

Some investments take time to finalize, so communicating with investors is going to mean keeping them in the know about financial details. It may require sending profit and loss statements to assure everyone the health of the investment is still sound.

Mobile devices easily enable financial statement sharing so you get everyone on the same page. During times when you run into delays on finalizing an investment, sending financial reports at least every month keeps everyone informed without panic setting in.

One good way to put these together is providing a summary on the first page so everyone involved gets the gist of what’s going on. When there’s multiple corporations involved, doing this is another way to avoid snowballing confusion.

Understanding the Corporation Being Invested In

To enhance your communication further, it’s essential for all investors to learn about the company being purchased. Investing in a company requires considerable research on the business’s financial health to assure future profit. In other words, taking time to understand the corporation is imperative.

As with the group of investors, it pays to meet in person with executives running the company and bring some transparency to the table. They should provide all their financial sheets and give a definitive timeline of all they’ve accomplished financially.

You’re going to need a good investment management firm to ringmaster all of this.

The Federal Reserve and Setting Rates

The Federal Reserve and Setting Rates

The Federal Reserve is one of the most powerful institutions in the country, but very few people know what they actually do. The Fed, as it is called, is lead by a board of economists chaired by Janet Yellen. The Fed was set up to help control the financial system with the goal of keeping employment low and inflation under control. The main way they seek to do this is by setting short-term inter-bank lending rates, which is an obscure yet extremely powerful way to impact virtually every economic transaction in the country.

The federal interbank rate is the percentage rate that banks lend money to each other. The Federal Reserve has the power to lower or raise these rates at will which they regularly do base on their analysis of the economy. This has a profound effect on the economy and financial transactions.

In particular, a low fed funds rate means that banks can lend money to each other cheaply and can then lend it out to customers cheaply. That, in turn, encourages businesses to borrow more money because the cost is less. Theoretically, if they borrow more money they will invest more in their businesses and hire more workers which will stimulate the economy. So the effect of lowering interest rates should be to improve the economy’s capacity.

On the flip side, anyone that saves money will be hurt by lowering interest rates. Because banks will be lending at lower rates, they will have lower profits and will not be able to pay depositors a higher rate. The people that have diligently saved funds in the bank will not be rewarded with interest on their money. They will have to take cash out of the bank and invest it into more aggressive opportunities such as municipal bonds, corporate bonds or equities. Again, this should serve to juice the economy by providing businesses with more cash to fund expansion. That produces more capital goods orders and more jobs.

So if lowering rates provides so many benefits, why would the Fed ever raise rates? The answer is that the Fed is keeping a balance between inflation and employment. If there is “over-investment” from too many loans and investments, then inflation will increase too quickly. The cost of gas, food, housing and everything else will rise and the poorest will be punished. Additionally, the if there is too much investment, the prices of assets could rise too quickly and eventually lead to a crash which causes far worse damage. For that reason, the Federal Reserve tries to keep the economy in relative balance by raising the interbank rate during periods of economic expansion.

Historically, the interbank rate has fluctuated wildly. During the 1980s, there was tremendous inflation and Fed Chairman Paul Volcker decided to raise the rate into the teens. In the short-term, that caused tremendous pain for businesses and other borrowers. In the long-term, it broke the curse of inflation and put the US economy on a path for massive expansion.

During the 2008 financial crisis, the economy went into a tailspin with all financial assets crashing towards zero. The Federal Reserve was in a bind and ended up dropping interbank rates all the way to zero. Chair Ben Bernanke knew that with an economy on the brink, interbank rates should not be holding any individual or company from borrowing and investing the proceeds.

Today, the Fed is slowly raising the rates again as the economy is expanding and has a low unemployment rate. Inflation is under control but has the potential to rise again. Only time will tell what the result of these interbanks rate changes will be.

Apollo Consulting is a leading investor relations firm, helping some of the most dynamic companies achieve strong communications with all types of investors. For more information, please contact us.