Investor Relations - The communication to the target group. The emphasis of trust with the example of Sage plc

Bachelor Thesis, 2003

58 Pages, Grade: 1.00


Table of content

List of Figures

List of Tables



Chapter 1
1. Introduction
1.1 The importance of investor relations
1.2 Project Outline

Chapter 2
2. Methodology
2.1 Primary Data
2.1.1 Why the investor relations department?
2.1.2 Interview Advantages Disadvantages
2.2 Secondary Data
2.2.1 Advantages
2.2.2 Disadvantages
2.4 Limitations

Chapter 3
3.0 Literature Review
3.1 What is investor relations?
3.1.1 What are the aims and their benefits?
3.1.2 Why are investor relations so important? Pentagon of restructure
3.2 Investor relations and the closeness of marketing
3.3 Investor relations principles

4. The Target groups of investor relations
4.1 Institutional Investors
4.2 Analysts
4.3 The Media itself and as a instrument

5. The instruments used in investor relations
5.1 The annual report
5.2 The one to one meeting
5.3 The internet

6. Aims and importance of the indirect financial aim; trust
6.1 Concept of trust
6.1.2 What is trust?
6.2 The importance of trust?
6.2.1 The financial benefits
6.3 Loyalty and Trust
6.4 A synchronised trust chain - a generic model
6.4.1 A synchronised trust chain
6.4.2 The importance of a synchronised trust chain – examples
6.4.3 Seven Steps of Implication

Chapter 4 Findings
7.0 Sage- The part of the investor relations
7.1 The role of Sage
7.2 Needs and wants of the target group
7.3 Instruments of communication
7.3.1 Annual Report
7.3.2 One to one meeting Framework of the meeting
7.4 Attitudes within an relationship
7.5 How does Sage evaluate the success of its work?

Chapter 5 Analysis
8. The comparison
8.2 A synchronised trust chain- in relation to Sage

Chapter 6 Conclusion
9. Conclusion
9.1 Future
9.2 Recommendations for further study



Appendix A
Appendix B
Appendix C
Appendix D
Appendix E

Last Page

List of Figures

Figure 1: Pentagon of restructure

Figure 2: Target groups of the investor relations

Figure 3: Investor relations instruments

Figure 4: A generic model of the synchronised trust chain

List of Tables

Table 1: Importance of the aims of investor relations when comparing 2002 with 2001 (in %)

Table 2: The position of the investor relations function

Table 3 Importance of investor relations: present day

Table 4: Importance of investor relations: ten years ago

Table 5: Company respondents perceptions of the relative importance of disclosure of different types of information on past performance at meetings with analyst and institutional investors

Table 6: Company respondents perceptions of the relative importance of disclosure of different types of information on future prospect at meetings with analyst and institutional investors

Table 7: Expect increasing of spending for the year 2003 (in %)

Table 8 Methods of communication with sell-side analysts

Table 9: Methods of communication with fund managers and buy-side analysts


The area of the investor relations as well as the capital markets have changed dramatically in the recent years. It is now an independent department, which has to balance the regulation aspect with the needs and wants of the stakeholders. Therefore, this department is now much closer to the field of marketing. There are several instruments available for the investor relations to be able to communicate with the target group as well as the main stakeholders and also to achieve the aims of the investor relations work. The literature review takes this into consideration by identifying the one of the main aims – trust. As a result of several recent major events, for example the Enron case, the internet bubble and the 11th September, to reach this aim is now of greater importance than ever before.

The synchronised trust chain should, in this connection, serve to show how the importance of trust in relation to the main stakeholders. In this research paper, the investor relations department of the IT company Sage has been chosen as an example and this helps to come to the conclusion that trust is not the only importance factor in this relationship, but factors such as loyalty and credibility are also vital.


The author would like to thank the following for their co operation in helping with this report:

Phil Branston from Sage plc for his support and efforts. My brilliant flatmates Matin and Edmund for their corrections. Kristina for her special word and excel skills.

And of course many thanks to my supervisor Ron Beadle for his guidance and our conversation.

Chapter 1

1. Introduction

Factors within the market require a business to think and act in relation to it, however actions taken must not just take into account the sales market. A firm’s actions must also consider the relationship with customers, suppliers, co-operation partners, as well as financial marketing, or in other words, the relationship with investors.

1.1 The importance of investor relations

Regardless of whether a company has a good investor relations department, if it is generally badly managed, it will experience little success on the stock market. On the other hand a company will be unable to reach it’s full potential without effective communication. Therefore a company which has a sound management team, but a poor investor relations department will never achieve the success they deserve. A management team which is value orientated will actively, regularly and extensively communicate its visions, strategy, organisation and permanent business and profit situation to the capital market. This will be reflected in the share price (Breuer, 1998). As a result, it is critical to effectively manage the capital market expectations and build up trust in the company’s development. The following examples show the importance of trust in investor relations. The internet bubble has resulted in investors being critical of companies´ business strategy or using them as sources of revenue (Judge, 2003). The case of Enron lead to a crisis of trust and credibility in the market (Risman, 2001). The bearish market and the war-situation today have also affected investors´ confidence and trust (Burgess, 2003). All of this has lead to the conclusion that for the company of today, not only profit and expansion are important, but also the necessity to build up trust-based relationships. The building up of trust is essential as it forms the basis for other factors such as loyalty and familiarity. As a PLC, Sage has to communicate with its share- to its stakeholders. As a IT company in the new economy, Sage has suffered more than companies from the old economy in the current times under the economic basic conditions. More in the bad than in the good times, the investor relations department has to keep up the communication exchange and therefore to keep up the trust from the share respectively its stakeholders as well. The importance of building up trust and maintaining loyalty within the share- respectively to stakeholders relationships belongs to the work field of the investor relations department. To maintain the loyalty to investors and to increase the trust of the stakeholders into the long term success and the business model of the company are guarantors of the success of the company. Through the bad times Sage did not suffer any profit warnings and is experiencing continual growth and the staying as the last IT company in the FTSE (Hunt, 2002) highlighted the importance of trust and the open communication it has with it’s main stakeholders.

The purpose of this project is to present the main features and characteristics of investor relations. Part of this involves identifying the main instruments required to achieve the aims of investor relations, especially the importance of building trust in the relationship with the main stakeholders. This research paper will also present a comparison of the theoretical base with the company Sage.

1.2 Project Outline

Chapter 2: This chapter will present the methodology, which includes both the primary and secondary research used. The advantages and disadvantages of interviews and secondary research will be included, as well as the reasons why investor relations was chosen.

Chapter 3: The literature review about the main investor relations work field will be presented here. This includes the main instruments and the main stakeholders of a company. A trust theory of a synchronised trust chain is also included.

Chapter 4: The findings chapter is based on the information about and for Sage. Chapter 5: The analysis compares the elements of the literature review with the findings, which leads to several assumptions about this field of research being mentioned. The analysis includes the synchronised trust chain in relation to Sage. Chapter 6: This chapter presents the main points of the analysis and the literature review and provides a view of the future as well as some recommendations for further study.

Chapter 2

2. Methodology

In order to present the information, I will explain in this chapter the methods that were used to collect data for this dissertation. It also includes the criteria used in selecting the case, the method of data collection and analysis. A methodology is “a general approach to studying research topics” (Silverman, 1999: 88) and the choice of method should reflect the overall research strategy (Mason, 1996). The methodology should show how a particular problem was investigated and what techniques were used to solve this problem.

2.1 Primary Data

The primary data was collected and acquired in co operation with the software development company Sage in Newcastle. The research was undertaken through interviews and a visit of the general annual meeting as well as direct e-mail contact.

2.1.1 Why the investor relations department?

The Head of the Investor Relations Department, Phil Branston, and his team belong to the Young Investor Relations department of Sage. The department is independent but is linked to finance department and the Chief Executive for a permanent information exchange. The investor relations department provides the exact range of information needed for this study. This includes information about the communication between the company and their main stakeholders. See Appendix A for further reasons why primary and secondary research were chosen.

2.1.2 Interview

An interview is “a conversation directed to a definite purpose other than satisfactory in the conversation itself (Chrisnall, P. 2001: 170) ”. The interviews were always face to face and helped the author formulate basic secondary observations. They were semi and unstructured interviews as well as non- standardised interviews. Advantages

Face to face interviews with the company has many benefits over telephone or e-mail interviews. This form of interview offers the possibility to support the answers through a presentation and the author has a feeling of the location. The answers are spontaneous which saves money and time. With every meeting greater trust and familiarity was build up which made it easier to both ask and respond to sensitive questions. Observations about how the questions were answered was vital. Disadvantages

The main disadvantage of primary research such as conducting interviews is that it takes much more time and money than getting information from secondary data. This includes the preparation for and after the interview. The lack of professionalism or bad preparation can lead to misunderstandings or wrong answers.

2.2 Secondary Data

Secondary information has been collected from books, e-mails, web pages, annual reports, presentations and online resources. These are all classified as documentary, written secondary data, by Saunders, Lewis and Thornhill (2000). In several cases the author also used multiple source secondary data. Saunders, Lewis and Thornhill (2000:193) define this as being "based entirely on documentary or on survey data or can be an amalgam of the two. The key factor is that different data sets have been combined to form another data set prior to you accessing the data".

2.2.1 Advantages

The main advantage of secondary research is that it saves time and money which helped as the time limit for the project was fairly short. Secondary data made it possible to compare current data with the primary data collected, as well as providing some unforeseen insights into the subject. In comparison with the primary data, the secondary data can lead to unforeseen or unexpected new discoveries.

2.2.2 Disadvantages

The data that was collected did not always match the author's objectives or the definitions provided were not entirely suitable. This meant that the author had to be very selective in what data to use. Finally the author had to take special care to note who had provided the secondary data, as in some cases they may have had a bias (Saunders, Lewis and Thornhill, 2000).

2.4 Limitations

A lot of information was available about the topic Investor Relations. Therefore, the topic is limited to the core aspects. Information primarily from Sage and the results of the secondary data were used. The information from secondary data was appropriately linked to points like credibility and loyalty. It was not possible to find trust models in this context and therefore a trust model was taken from a similar area of investor relations. Unfortunately, there are no interviews with shareholders and therefore information comes from the point of view from Sage and the from the literature about this topic.

Chapter 3

3.0 Literature Review

3.1 What is investor relations?

According to Friedman (1970), “in a capitalist economy there is one and only one social responsibility of business, to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud". In the case of corporations, this is known as the shareholder-value approach. The corporation’s main objective is to maximise shareholder wealth and the management’s main responsibility is to act in the shareholders′ interest. One of the major parts for this aim is to communicate with the stakeholders. This interchange is carried out in the investor relations department. Investor relations has been defined as, aim oriented, systematic and continued communication of the relationship with existing and potential investors as well as analyst and institutional investors about the last, present and the future business of the company (DIRK, 2003)

3.1.1 What are the aims and their benefits?

In order to achieve high shareholder value, the company must maximize the stock price in the long term and reduce capital cost or risk premium. This shows the potential of the company in the future (Handelsblatt/IRES 2000, 2002; Bittner, 1996, Umlauff, 1993).

Table 1: Importance of the aims of investor relations when comparing 2002 with 2001 (in %)

Abbildung in dieser Leseprobe nicht enthalten

Source: Handelsblatt/IRES survey, 2002

Marcus (2001) said that transparency attracts customers, suppliers, and investors. It increases the market's confidence in the quality of the company’s strategy and it’s trust in the company’s ability to execute that strategy. Corporate communication (Goodman, 1994, 1997) (as found in: Goodman, M., 2000) is a basic management function in contemporary organisations, which is demanded by investors (Gray, Mc Sweeney, Shaw, 1984). It is the creation and maintenance of strong internal and external relationships. Integrity and credibility are pillars of strategic communication. An act of refining the corporate image and impact on the share price is the communication between the company and its main institutional shareholders, analyst and the stock market in general. This communication should be an interactive process to move up a learning curve to desirable states of knowledge and confidence. Knowledge is reflected in the share and market price. This aims to create a corporate broadcasting capability to the market and to improve the responsiveness of the market to corporate communication (Holland, 1997).

3.1.2 Why are investor relations so important?

In the past, an investor relations employee was a public relations person (Kotler 1995, Meffert 1998, Becker 1998, Marcus and Wallace 1997). Today they are competent in finance, with additional skills in communication and marketing.

Table 2 : The position of the investor relations function

Abbildung in dieser Leseprobe nicht enthalten

Source: Marston and Straker, 2001

Marcus and Wallace (1997) added that investor relations is now a mature practice. Marston and Straker (2001) found in a survey the position of investor relations and also that the investor relations function is much more important today than it was ten years ago, particularly when linked to the financial community and also because the size of the audience is increasing.

Table 3 : Importance of investor relations: present day

Abbildung in dieser Leseprobe nicht enthalten

Sources: Marston and Straker, 2001

Financial markets have become more and more complex which has resulted in different worldwide accounting standards (Umlauff, 1993). Organisations feel under pressure not only to stand out in a very concentrated communication environment saturated with competing messages but also, and more significantly, to present and express themselves in their surroundings in coherent and legitimate ways (Argenti, 1998). The source of this pressure is manifold. While legal restrictions force organisations to disclose information about their actions and plans, including the publishing of annual reports (van Riel, 2000), business practices are increasingly scrutinised by media and business analysts (Deephouse, 2000) (as found in: Christensen, 2002). In the current business environment, internal and external stakeholders not only expect to have unrestricted access to corporate information but also demand that organisations are held accountable for their strategic choices. External audiences in general want or even demand organisational transparency. And, since this transparency is established through the means of communication, external audiences demand more and more communication (van Riel, 2000). Communication is typically seen as equivalent with information. It is assumed that more information helps such audiences develop more sophisticated images of the organisation in question. Information availability, it is believed, breeds trust and credibility and reduces alienation (Fombrun and Rindova, 2000) (as found in: Christensen, 2002). Mc Bride and Mc Bride (2002:5) state that “in such a crowded and hectic environment, even the most compelling investment story can easily go unnoticed. It is no longer adequate for a company simply to manage well, grow predictably, and report good financial results. It must, in addition, actively communicate its competitive strengths to current shareholders, to a huge audience of potential shareholders, and to its partners and vendors as well.” This point was backed up by Piwinger (2000). Low (2002) stated that in order to attract wealthier investors, it is necessary to provide more information. Analysis of the target market has become more essential. Investor relations have to look deeper into the reasons behind investor’s needs. The financial community requires a higher standard and quality of information from the investor relations department. Increasing competition and a greater interest in shares have increased the challenge of the investor relations department and therefore an understated strategy will not work. New conditions has made new and other communication necessary. Marston and Straker (2001) added that c apital markets have become more competitive. Mc Bride and Mc Bride (2002) stated that equity analysts, fund managers, market makers, brokers, and individual investors have more investment choices today than ever before.


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Investor Relations - The communication to the target group. The emphasis of trust with the example of Sage plc
Northumbria University
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The area of the investor relations as well as the capital markets have changed dramatically in the recent years. It is now an independent department, which has to balance the regulation aspect with the needs and wants of the stakeholders. Therefore, this department is now much closer to the field of marketing. There are several instruments available for the investor relations to be able to communicate with the target group as well as the main stakeholders and also to achieve the aims of the IR.
Investor, Relations, Sage
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Robert Nagel (Author), 2003, Investor Relations - The communication to the target group. The emphasis of trust with the example of Sage plc, Munich, GRIN Verlag,


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