Book Reviews
Martin S. Fridson
Investor Relations for the Emerging Company
By Ralph A. Rieves and John Lefebvre.
John Wiley & Sons, Inc., 605 Third Avenue, New York,
NY 10158-0012, 212-850-6336 or 800-225-5945,
www.wiley.com. 208 pages, $69.95.
Reviewed by Martin S. Fridson, CFA.
In "Investor Relations for the Emerging Compan", Ralph A. Rieves and John Lefebvre focus on corporations within the microcap universe that have gone public relatively recently. Such companies have gained new prominence in recent years with the proliferation of mutual funds focusing on the category. Unlike their large-cap counterparts, microcaps lack the market depth demanded by large, institutional investors. Therefore, Rieves, a senior analyst at the Emerging Companies Research Institute, and Lefebvre, president of the consulting firm Shareholder Relations, outline an investor relations (IR) strategy custom-tailored to the needs of emerging companies. They recommend bypassing broker/dealer research departments and going directly to the buy side. In addition, say Rieves and Lefebvre, micro-cap IR chiefs should zero in on growth managers rather than value managers, indexers, or users of purely quantitative selection methods. The authors also encourage emerging companies to appeal to individual investors by courting seasoned stockbrokers who cater to high-net-worth clients. They flesh out this general strategy with numerous tips on IR mechanics, right down to writing a press release from start save headline space by omitting "Inc." from the company's name to finish end with a triple pound sign (i.e., ###).
Rieves and Lefebvre deal forthrightly with a second challenge posed by the microcaps' small floats, namely, vulnerability to stock-price manipulation. They warn that when companies cooperate with perpetuators of "pump-and-dump" schemes (aggressive promotions designed to create temporary runups in share prices), their reputations never recover. In a contemporary vein, the authors admonish IR heads not to enter chat rooms to refute false rumors but, instead, to respond through press releases, teleconferences, and other appropriate channels.
Maintaining the same lofty ethical tone, Rieves and Lefebvre stay off the IR moral tightrope of arranging facts to impart the most favorable spin but stopping short of outright misrepresentation. The authors also reject classic excuses that companies offer for minimizing disclosure. For example, calling this risk "highly exaggerated," they dismiss the objection that competitors may exploit the information to the corporation's disadvantage. Even though investors are not the book's target market, they may profit from Investor Relations for the Emerging Company by benchmarking the candor and completeness of companies' disclosures against Rieves and Lefebvre's commendably high standards.
Thanks in part to Rieves' prior experience as executive editor for capital markets books at Dow-Jones lrwin. Investors Relations for the Emerging Company is well conceived and professionally executed. The inevitable imperfections are limited to trifles, such as a now irrelevant discussion of pooling-of-interests accounting, which was abolished by the Financial Accounting Standards Board in 2001, and an erroneous equation of working capital (current assets minus current liabilities) with the current ratio (current assets divided by current liabilities). One subheading improperly substitutes "who" for "whom," even though it is clear from other evidence in the text that the authors understand the pronouns' correct usage. There is also a smattering of the unidiomatic ("aspire for") and the redundant ("revert back"), as well as two failures to replace the draft memorandum "[endnote omitted]" with endnote numbers. Regrettably, the authors also perpetuate a common misquotation by suggesting that the West African proverb popularized by Theodore Roosevelt recommends walking (rather than speaking) softly and carrying a big stick.
Rieves and Lefebvre more than compensate for these glitches with discreet touches of humor. For instance, they urge press release writers to avoid such gaffes as (a real-life example, they say): "The company expects next quarter's earnings to be more in line with management's expectations." An IR professional who avoids penning one embarrassing line of that sort will have justified the outlay for Investor Relations for the Emerging Company.
M.S.F.
Copyright 2002, Association for Investment Management and Research. Reproduced and republished from Financial Analysts Journal with permission from the Association for Investment Management and Research. All Rights Reserved.