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David has been writing and publishing since 2006.  

This post was written and published prior to September 2023 when David and his prior firm, Family Capital Strategy, merged with Greycourt.  Views expressed reflected David’s personal views at the time and do not necessarily reflect the views of Greycourt.  Posts and information may be out of date and should not be relied upon for investment advice.

1 Critical Skill Family Offices Can Learn From Public Companies

Dec 10, 2020 | Family Wealth

Families have a lot to learn from their publicly-held peers about investor relations

Photo by Nathan Dumlao on Unsplash

When speaking with a group of family business owners / operators recently, the conversation turned to the topic of communication.  Offhandedly, I remarked that every family business needs a formalized investor relations program, the same way a public company does.  We have discussed on this blog before how communication is one of the hardest things for family enterprises to do well.  The challenge stems from the fact that because communication is everyone’s responsibility, it becomes no ones.  As well, the legacy of privacy of many closely held businesses means this is an area of learning for the family and likely a place where there is not a whole lot of existing ‘muscle’ present.

Investor relations is one form of communication that the average person or family like does not interact with a lot.  That said, having spent 7 years as a sell-side analyst writing research on public companies for investors, I interacted extensively with investor relations teams from many different companies.  I will try to summarize below what I saw the best teams do, though I admit I am much less skilled than the full-time professionals.

First – good investor relations people know how to craft the investment narrative.  They take what is going on in a company’s end market and marry that with the company’s strategy and develop a story of how that leads to the long-term growth and success of the business.  At our core, humans are storytellers, and professional investors are no different.  Story is why a company like Tesla can be valued more highly than the combined value of all the other automakers on the globe – investors for good or ill have bought into their narrative. (Not securities advice…)

Second – good IR people are great listeners.  After every quarterly earnings release, the IR team, and often management, have calls with analysts to answer their questions.  Then during the quarter, IR and management will often host roadshows to meet with investors – both current and potential shareholders.  Good IR teams are listening carefully to what the market is focusing on with the company – both good and bad.  This feedback becomes directly reflected in the communication that the company delivers to Wall Street.  It is common practice for management teams to have binders full of questions and prepared answers, go through mock conference calls, and the like to make sure that they understand and know how to respond to what Wall Street is concerned about.

Third – good IR is part of management.  For many companies, IR is viewed as an after-thought.  It may be a service provided by a third party, or in many cases, you could even sense that management felt like IR was not really bringing much to the table.  The great companies, and in my experience, ones who saw better stock performance recognized that without shareholders bought into management’s vision, nothing happens.  IR people were viewed as a trusted member of the team, and were well informed with the activities of the company.  In many cases, they had compensation tied to the performance of the stock – same as any senior executive.

So, what can family businesses learn from this?  First, even if the family cannot easily sell their shares, they need to know that story of the business and how its positioned for success.   Second, communication is a two-way street.  Ad hoc conversations around the table during holidays, water cooler chat, etc. are inadequate.  Such communication is most often focused on front burner operating concerns.  There must be venues where the family feels free to be its most skeptical self.  There must be a mechanism by which the business can learn the concerns of the family.  Third, this is an on-going effort – not a single event.  IR must be part of the culture of the business and some thing that happens year in and year out. 

As we all know in the modern world, information is a valuable currency.  Hoarding data or hiding behind secrecy may be expedient in the short-term, but detrimental in the long.  Great families and their businesses recognize that their family members are investors too, not just family – and accordingly should receive excellent communication.  Management teams that do so are rewarded with greater trust in their efforts, and likely a longer-term time horizon from their shareholder constituents.


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