Investor Relations

From Public Relations to Finance to IMC and Back Again

Part of the difficulty with getting a generally accepted definition is that investor relations is a work in progress.

Communications professionals agree that investor relations is the offspring of public relations and finance. Its maturation has been nurtured by the thoughtful and strategic responses to the dynamics occurring virtually daily in the marketplace and corporate America.

IR's Development Path

We have to go back to the Great Depression to find IR's finance parent. Part of the reason for the stock market crash in 1929 was the practice of using puffery to feature stocks. Tycoons, reporters, and public relations persons often claimed that the share values of their companies were worth well beyond their actual value.

Newspaper reporters representing some of America's most respected journals sometimes wrote stories that falsely lauded the investment value of companies. For example, George Gunton was a popular economist who championed the free enterprise systems in his capacity as editor of Gunton's Magazine. While in that position, he received a $15,000 annual retainer from Standard Oil.

Such practices led newly elected president Franklin D. Roosevelt to urge Congress to address the need for federal securities laws governing publicly held companies. Congress passed the Securities Act of 1933, which required that a company going public file a prospectus and that the information contained within be complete and truthful. Congress then passed the Securities Act of 1934, which required public companies to periodically report on their financial condition. This Act created the Securities and Exchange Commission (SEC), a powerful federal agency that has more than lived up to its billing as the watchdog of Wall Street, striking fear in the hearts of big and small investors alike for more than six decades.

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