An IR lesson from bailout crisis: Main Street matters

I’VE been otherwise occupied the last two weeks, so blogging has taken a backseat during what is probably the most interesting period in the financial markets that many of us are likely to experience in our lifetimes.

One of the benefits of not being in the thick of every new development is that you tend to see the news from a more detached perspective. For me, the single most important lesson we all can learn from the current crisis is this:

Main Street matters.

It’s a lesson every CEO and every business communicator everywhere in the world would do well to remember and act on. Investor relations shouldn’t only be about hobnobbing with analysts and portfolio managers, it must also support strategically important retail investor communications.

Right now, Wall Street and the business community are standing on Main Street cap in hand asking to be bailed out — and they’re getting a lot of turned-up noses and nasty snipes from the passersby.

No one should be surprised. By being wholly unaccountable to shareholders or the public, CEOs on Wall Street and the broader business community have failed to earn the necessary public goodwill to sell the bailout plan of Treasury Secretary Henry Paulson.

Not even the President of the country was able to convince skeptical Americans and their elected representatives that his bailout plan is a necessary evil.

Main Street doesn’t grok the connection

A big part of the problem is not just voter antagonism to fat cat financial and business elites, but a fundamental lack of appreciation on Main Street for how the financial markets work.

Despite all the warnings from Paulson and Fed chairman Ben Bernanke, few ordinary citizens or their elected representatives can fathom the likely fallout that will follow if a deal is not done soon.

Worse, they can’t see how they will be affected by it. Earlier in the week I caught a clip of Paulson expressing frustration during his testimony that his questioners did not seem to understand that taxpayers would be worse off without his bailout package. I figure to most Americans, he looked and sounded like Chicken Licken.

In fact, I was just reading the latest about the protracted negotiations in Washington between lawmakers and the administration. I see that Republican presidential contender John McCain issued a statement last night saying, “the plan that has been put forth by the administration does not enjoy the confidence of the American people as it will not protect the taxpayers and will sacrifice Main Street in favor of Wall Street.”

You have to figure that a guy who is out there meeting “the American people” probably has a good handle on where their heads are at right now.

Financial markets are a foreign and abstract concept to most average citizens. They don’t consider themselves players in the system, even though it is mostly their money that oils the gears of Wall Street.

Financial literacy rates are generally low and kids still leave school never learning about such basic concepts as the difference between equity and debt, asset allocation or — even less likely — time value of money.

Consequently, ordinary people don’t see how they have a stake in bailing out Wall Street.

When Paulson tries to explain how a credit collapse on Wall Street will lead to severe damage on Main Street, people can’t make the connection. They see only Gordon Gekkos with big houses and fancy cars and watches that cost more than the average worker makes in a year.

Most IR departments ignore Main Street

And who’s to blame for this disconnect between the capital markets and the public? You are, in part.

For the past several years in the investor relations profession, the focus has been almost exclusively on institutional investors. Main Street retail investors are widely scoffed at by IR departments.

Even this week, a prominent IRO at a blue-chip company was reported as saying that in uncertain times like these IROs should do more one-on-one meetings with institutional investors and analysts.

Hello? Why are you still not getting that this crisis is out of the hands of institutional investors and analysts, who are actually being laid off in droves?

As a communicator, I have spent a good portion of the past 12 years working to bridge the divide between the financial markets and business on one side, and retail investors on the other.

In our founding statement for IR Web Report seven years ago, I wrote that effective online IR communications could “help to empower individuals to be active participants in the capital markets and to take charge of their financial futures.” And among the benefits of better IR websites, we listed contributing “to a fair and vibrant capital market.”

It has been a tough sell to IR departments, in part because making sure your company is reaching out to retail investors doesn’t have immediate paybacks the same way securing a big new institutional investor does. Retail investor communications is Big Picture stuff when most IR departments are too busy focusing on the small details.

A collective responsibility

Effective retail investor relations is an important strategic issue on a collective basis. Every IR, PR and HR department has to ensure that they have good retail investor communications programs in place for the good of the entire business community.

I know there are companies that take their retail investor communications seriously. I’ve worked with many of them, but they are too few and far between to make an impact on their own.

Making a difference requires coordinated efforts at national and international levels. Someone has to constantly reinforce for IR professionals that part of their responsibility is to ensure the overall credibility of the capital market system as a whole, and that the best way to do that is to engage people in the system.

This is where boards and CEOs hold the key because it is they who define the IR role and ensure their departments have the necessary resources to meet measurable retail IR objectives.

IR departments of one, two or three people are inadequate for the task. Companies that don’t have dedicated IR website managers in-house can’t take advantage of even a fraction of the opportunities available to them to build and maintain relationships with their investors.

Of course, it’s probably wishful thinking on my part to think that Directors, CEOs or IR departments will learn anything from this crisis and get together to commit to finding solutions that will bring Main Street and Wall Street closer together.

Just as Main Street doesn’t get the connection between Wall Street and their daily lives, Wall Street and big business don’t get that Main Street really does matter.

Dominic Jones

Dominic Jones (bio) created IR Web Report in 2001. He is a consultant to leading public companies and investor relations service providers worldwide. You can contact him via the contacts page.