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S E T T I N G T H E S TA G E

AN INTRODUCTION TO INVESTOR R E L AT I O N S Approximately 35,000 publicly traded corporations are listed on North American stock exchanges today, each competing for investment capital to commence or expand their corporate operations. Billions of dollars worth of their securities are traded each day as investors bet on which corporations they perceive to represent the most outstanding investment value. The result of this competition for investment capital is that it has become more transient, as the investors who provide capital to corporations search the globe for those investment opportunities they perceive to represent outstanding value. Investors provide capital to corporations when they purchase the securities of those corporations they perceive to represent outstanding investment value. They do so by either purchasing New-Issue securities directly from the Corporation for cash, or by purchasing Issued securities in the open markets to affect the corporations Market Capitalization or Value. The way in which they most commonly assess Investment Value, relative to their respective perceptions of Value, is by determining a corporations Shareholder Value.
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D O E S YO U R C O R P O R AT I O N R E P R E S E N T O U T S TA N D I N G I N V E S T M E N T VA L U E ?

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SETTING THE S TA G E

Shareholder Value is derivative of management s ability to manage and invest the corporations capital to provide investors above-average returns. It is represented within the public market context as the Market Value of corporate securities which are bought, sold or traded by investors in response to their Perceived Value. Perceived Value of corporate securities is derivative of management s ability to communicate it s success in having managed and invested the corporations capital to provide investors those above-average returns. It is represented within the public market context as differentials between Shareholder and Market Value or Gaps. Gaps are resultant of informational disparities that fail to close any perceived differentials between Shareholder and Market Value of securities. Gaps are usually lled when Market Participants receive enough information to make informed determinations of a corporations Value. The way in which Market Participants receive that information, to make those determinations of value, is by having it delivered to them by the corporation, their investment advisors and/or the media or Advocates.
H OW M U C H D O I N V E S T O R S K N OW A B O U T YO U R C O R P O R AT I O N S S H A R E H O L D E R VA L U E ?

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Advocates are those individuals or rms with a vested interest in buying, selling and/or covering the securities of specic corporations, and they are generally characterized as either Direct or Indirect Advocates. Direct Advocates are those individuals or rms that are directly associated with a corporation, whose vested interest it is to sell the corporations securities to maximize returns, increase capital and/or ease the effort required for procuring nancing. (i.e. Officers, Directors, Investor Relations Professionals and Shareholders) Indirect Advocates are those individuals or rms that are indirectly associated with a corporation, whose vested interest it is to sell the corporations securities to earn fees and/or sell investment advisory services. (i.e. Brokers, Analysts and the various forms of nancial and common Media) The common interest that binds all forms of Advocates is the desire to prompt investor purchases of those specic securities that the Advocates are advocating.
H OW M U C H D O YO U R A DVO C AT E S K N OW A B O U T YO U R S H A R E H O L D E R VA L U E ?

To prompt investors into making those specic purchases of securities, Advocates must pass proper corporate information on to investors for them to make informed investment decisions. The process of passing that information to investors to prompt securities purchases, is what is known as Corporate Advocacy. Corporate Advocacy is the process of providing proper corporate information to investors in such a manner, as to enhance the probabilities of having specic securities purchased by specic investors. It is estimated that eighty to ninety per cent (80-90%) of investment decisions being made today, are being made on the basis of having investors receive information, recommendations and/or favorable coverage from the corporations Advocates.
M A R K E T PA R T I C I PA N T S R A R E LY B U Y S E C U R I T I E S , R AT H E R T H E Y A R E S O L D S E C U R I T I E S !

As Advocates succeed in selling investors the specic securities they are actively advocating, the Market Demand for those securities will usually increase. As the Market Demand for those securities increases, so too does the Market Value of those securities and that of the issuing corporation. As the Market Value for the corporations securities increases, so too does available capital for the corporation to create Shareholder Value. Therefore, it can be said that Shareholder Value and available capital are affected by Effective Corporate Advocacy.

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A R E M A R K E T PA R T I C I PA N T S B U Y I N G YO U R C O R P O R AT E S E C U R I T I E S ?

Effective Corporate Advocacy originates with the corporation and the Direct Advocates whose interest it is to increase the corporations capital. For Direct Advocates to become effective Advocates, the corporation must provide the proper tools that Advocates will need to become effective. The tools that the corporation must provide to make it s Advocates effective, are those that combine the corporations need to disseminate proper corporate information with it s desire to expand Advocacy. Proper Corporate Information is that corporate information that makes a corporation transparent to Market Participants. It is clear, concise, accurate, reliable, veriable and articulated in a manner that allows relatively easy analysis and comparison of information with that of other corporations. Expanding Advocacy, beyond the corporations capacity to Advocate itself, means penetrating a Vicious Circle of Information Dependency that exists among Market Participants today. The Circle represents the barrier within which a corporation must circulate it s information for investors to consider it s securities for investment.
D O YO U R A DVO C AT E S H AV E T H E P R O P E R T O O L S T O B E E F F E C T I V E A DVO C AT E S ?

The process of creating those tools that make a corporations Advocates effective, is what is known as Investor Relations (I.R.) Effective Investor Relations creates the tools of Advocacy by combining elements of nancial analysis, corporate communications and direct marketing to deliver proper corporate information to Market Participants, in a manner that expands the Corporations Market Prole and it s probabilities of procuring nancing in the future.

I N V E S T O R R E L AT I O N S I S M O R E T H A N A N SW E R I N G T E L E P H O N E C A L L S A N D D I S T R I B U T I N G A N N UA L R E P O R T S .

Beyond a corporations need to disseminate information and expand Advocacy, effective Investor Relations plays a more fundamental role within the capital market context. That being to mitigate or overcome a dreaded, and often fatal, corporate affliction known as Market Anonymity.

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Market Anonymity is characterized by the Market s chronic apathy for a corporation and/or it s performance. It is usually attributable to a corporations lack and/or inappropriate use of proper corporate information, proper personnel and/or proper communications faculties that would otherwise be used to reach appreciative Market Participants. What differentiates outstanding public corporations from lesser market performers, as measured by securities price stability and nancing success, is the extent to which they employ Investor Relations to mitigate or overcome the effects of Market Anonymity.
E F F E C T I V E I N V E S T O R R E L AT I O N S C A N OV E R C O M E T H E E F F E C T S O F M A R K E T A N O N Y M I T Y.

Most corporations that suffer from Anonymity are usually not aware of their affliction. These types of corporations typically assume that an exchange listing, press releases and the occasional distribution of quarterly/annual reports will tacitly accrue to them the market cognizance, investor support and nance capabilities that they will need to survive. They are wrong. Corporations must constantly undertake to apprise Market Participants of the investment value that it s new and issued securities represent. To illustrate the potential danger of being afflicted by Market Anonymity, and not doing anything to mitigate it s affects, we provide the following ctionalized account of an actual investors experience with just such an afflicted corporation.

CASE IN POINT: AN INVESTORS EXPERIENCE Mr. X, an experienced private investor, invested $50,000 into a small-cap resource corporation that was seeking to finance the exploration of a promising new mineral property it had recently acquired. Mr. X bought his securities on the open market, with the intent to increasing his investment by subscribing to a private placement that was being offered by the corporation. Mr. X bought his securities after noticing some unusual trading anomalies in the corporations stock uncharacteristically heavy trading and price movement. Mr. X was alerted to the corporation by an associate who claimed to be familiar with the management of the corporation. The associate claimed that management was first rate, the property commercially viable and that the securities were worth more than the market was indicating. The associate was a geologist.

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Mr. X wanted some tangible information to assuage any doubts that he might have and to confirm the corporations fundamentals. He called his broker for some information about the corporation who said he had none. He called the associate for information who also said he had nothing. He called several friends, whom he knew to have also invested, and they had nothing. All anyone could recall was having been provided some verbal information from an obscure party who claimed to be associated with the corporation. Mr. X decided to call the Investor Relations Contact of the corporation who happened to be a director of the corporation as well. The contact confirmed that a financing was in the works, but he said he could not provide any details for reasons of propriety. Besides, he said, he was too busy to talk. The contact suggested that Mr. X wait for an imminent announcement that would clarify any questions Mr. X would have about the corporation. As a gesture he would send Mr. X an information package for the interim. Having received the package, it consisted of some photo-copied financial statements (it was a new company after all) and some mandatory press releases that provided little useful information about the corporation, the management or the project. Mr. X waited for the announcement before making any decisions about his holdings. To ensure that he would receive all available information from the corporation, he called to leave his phone, fax and cellular numbers, mailing and e-mail addresses, and all of the same for his broker. He waited a week, then two, and then three weeks until finally a month went by without having receive any more information. Mr. X called back to ask about the delay but was repeatedly snubbed by the corporations staff, none of whom seemed to know what was going on. Being an experienced investor Mr. X promptly sold his stock at a loss. He felt that the corporations attitude and behavior had indicated an investor ignorant management, which in and of itself usually indicates incompetence. He doubted that they would ever amount to anything other than a promotional play. Having sold his stock, Mr. X promptly told several friends and associates of his experience which prompted them to sell their holdings as well. To sell quickly, Mr. Xs friends sold their positions at the market which overwhelmed the buy-side of trading to stop a rally that was developing in the stock. The overwhelming sell pressure caused a precipitous drop in price back to the stock s all-time lows. The divestiture eliminated $4.5 million (or 80%) of the corporations previous market cap, leaving the corporation with angry shareholders and an apparent end to it s financing prospect. Mr. X happened to have a friend who was part of the banking syndicate that was considering the financing for the corporation. The banker confirmed that discussions had taken place, and that preliminary negotiations had commenced. But , he claimed, the deal fell apart prior to the drop in share price and capitalization.
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He explained that the syndicate was getting increasingly more frustrated with the corporations management, because they refused to disclose certain information that the syndicate insisted he made public. The management claimed that the information was proprietary and for their eyes only . They were arrogant by stating that they (the syndicate) were lucky to have been chosen to finance their deal, given that it could probably finance itself . Then they got belligerent by asserting that it was they (management) that the syndicate had to satisfy to get the deal done, not any investors as the syndicate was claiming. After all, they said, this deal is so good that investors will be begging to finance this deal, under the terms and conditions that we want! Just look at our stock, investors are clamoring to come aboard already. They love us! At that point the syndicate packed their briefcases and walked away from the deal. The banker explained that the problem with the deal was not the project, its commercial viability or even management s ability to bring it to fruition they all appeared to be fine. Rather he said it was management s inability to comprehend that it was investors, not them, that the syndicate had to satisfy to provide financing. Management had categorically refused to consider anyone elses needs but their own. They claimed that the disclosures that the syndicate was insisting on, as well as any further provisions for Investor Relations, were a waste of their time and their money . That statement, coupled with the corporations already non-existent I.R. provisions, left the syndicate to assume (correctly) that any investor buying this stock to provide the financing, would have been killed in the after-market because there wasnt the slightest hope of any support for the stock subsequent to closing. That kind of investor drumming would have reflected on the syndicate and it s ability to finance any further deals. The deal was pulled, even as the stock continued to rise in price and volume, because the syndicate had a fiduciary duty to protect their investors interests. The deal would have been done simply to earn a fee, leaving their investors holding the bag. Under those circumstances they had no choice but to walk from the deal. Mr. Xs friend explained that management s reluctance to disclose information at the prospectus stage would have probably carried on to the after-market. Information, he said, was money and the only way to provide investors the information they will need to support the stock in the after-market, is with proper Investor Relations. Investor Relations, he said, represents information and without a continuous supply of that information, the after-market for the corporations stock would have dried up. Nobody knows about this company now, so how would anyone know anything about it later without an effective I.R. Program. Management s attitude precluded any prospect of after-market support, therefore they refused to provide the financing.

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Further , the banker explained, I.R. had implications beyond those of just financing and after-market support. Effective I.R. adds multiples to a corporations valuations which makes it more valuable to investors. Companies with good Investor Relations are assigned premiums because good I.R. provides investors the information they will need to support the stock, and it mitigates the Market s worst fear surprises. The banker concluded with Mr. X by stating that in the end the syndicate had an obligation to protect the investor s interest, as did the corporation. If the corporation refused to consider it s obligation to investors, the syndicate could not provide financing. That was why the financing failed. The lesson to be learned from this fictionalized account is:
IF YOU CANT KEEP YOUR CURRENT SHAREHOLDERS, YOU DONT DESERVE NEW ONES.

Investors are the capital market Kings of corporate finance. To attract capital from those investors, corporations had better satisfy their informational needs. The consequence of ignoring those needs is banishment, from investor portfolios to capital market exile, leaving those corporations with undervalued securities, discontented shareholders and weak to non-existent finance capabilities.
KEEP INVESTORS INFORMED TO MAINTAIN YOUR CAPITAL MARKET ACCESS.

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