Investor Relations as Strategy with Shiva Rajgopal

It's highly underappreciated, but a hugely important function in most public companies. Broadly, there are three or four or five things IR people do. A lot of it is about messaging. It's about communicating your company's story. It's about finding the right investor clientele. It's about dealing with shareholder activism and engagement with proxy consulting firms, staying on top of regulatory changes, worrying about the liquidity of the firm, and the general sense of perception the brand has in the minds of investors and potential investors. It's a little bit like a branding exercise for shareholders, as opposed to the branding exercise you see in marketing in the product market.

The Lyft case is a classic cautionary tale. For people outside of the United States, Lyft is basically a clone of Uber. Every quarter in the US, you report earnings and file a press release with the SEC—an 8-K, which is jargon for a market-moving event the SEC needs to know about. In this case, a big typo crept into the press release. It said adjusted EBITDA margin expansion was approximately 500 basis points year over year. That means 5 percent—so, read literally, the margin went from about 1.6 percent to 6.6 percent, which is an incredible increase and highly unusual. In reality, the margin had only gone up by 50 basis points—0.5 percent—which is a big difference.

The markets went crazy. Many announcements are after market close, but there's still after-hours trading. The stock went from something like $12 to $20 a share in 30–40 minutes. The market thought Lyft had figured out some magic formula to raise margins by 500 basis points, ultimately impacting shareholder value.

The difficult part for IR here was that it looked like the company didn't immediately know there was a problem. After the press release, there's a conference call—a stress interview where analysts ask questions and the CFO (and usually the CEO) take them. An analyst, Nikhil Devnani, asked the CFO, “Was it 500 or 50?” The CFO said, “It's 50.” A corrected release came later—around 6 p.m. It doesn't sound like a lot, but it is, because the market traded for a while thinking Lyft had suddenly become a highly profitable company.

There were many issues. Thirty-five analyst reports went out right after the announcement. Why didn't someone question such a massive increase? Are we all so worried about speed that we've forgotten accuracy and relevance? There was also significant short interest in Lyft—about 12% of outstanding shares—versus roughly 2% for Uber. After-hours trading was mostly shorts covering; they lost a tremendous amount of money. Predictably, a class action was filed. The case settled; nothing major happened to Lyft, but it's an important cautionary tale.

There’s a CNBC clip where CEO David Risher does a brilliant job: he comes out and says, “It's on me,” and quickly brings the focus back to customers and employees. There's also a fun thread about Taylor Swift concerts temporarily boosting rides. That raises a classic IR issue: separating transitory or one-time boosts from something systematic or persistent. The market assigns a higher multiple to what repeats and a multiple of one to what's transitory. Expectations management—what is core versus one-time—is part of IR's job.

Earnings errors are, unfortunately, not rare. There was even a Bloomberg headline: “Earnings Gaffes Pile Up a Week After Lyft Typo Roiled Shares.”

Releases and shareholder meetings are stressful and very visible, especially for companies with high short interest. The margin of error is thin. An effective investor relations strategy should:

• Worry about the details. Small mistakes move markets.
• “Pens down” 48 hours before the release. Last-minute changes—often well-intentioned—are counterproductive and can be deadly.
• Shrink the room. Especially for newly public companies, too many people involved in the earnings process increases risk. Keep the core team small and protected in the final 48 hours.
• Align PR, legal, finance, and compliance. These events have compliance and regulatory consequences, and lawsuits can follow.
• Single source of truth. Many companies are at different points in their information-systems journey—some on spreadsheets, some on ERP. If systems aren't talking to one another, you get into trouble. Legacy “band-aid” stacks persist; there's usually under-investment because it's hard to rip and replace. Don't underinvest here.

Prevention is better than cure: obsess about details; pens down; shrink the room; align teams; and make sure there's one source of truth.

You know, again, I like talking about case studies because I can quantify, as my profession expects me to—I'm a professor, after all. The best crisis case I've heard is Johnson & Johnson’s Tylenol incident. There was a rogue worker who inserted—if I recall correctly—arsenic, a deadly poison, in Tylenol pills back in the day. You can imagine this is a mega-disaster for the brand. People actually died—you pop a Tylenol and you die. J&J handled it brilliantly: swiftly recall the product; be transparent; be authentic; own up; don't try to cover up. Do this through various mediums—press conferences, media interviews—and address investor concerns and reassure the broader investment community it's a one-time thing: there was a problem, we fixed it, it won't happen again. It's consistent, repeated, transparent, authentic, credible communication; that's basically investor relations in my mind, particularly when considering the broader industry landscape.

Obviously, you need a plan in advance. It's a little like cyber: I often joke it's like COVID—you're going to get it; it's a matter of when. So, have a crisis management plan figured out ahead of time. Have a company strategy playbook—when a crisis happens, many of us lose our cool, so it's helpful to have written instructions to follow.

Things have changed since the Tylenol days. Now there are multiple outlets: press, social media, conference calls, online forums, and webcasts. You have to squash rumors and miscommunication, which is a new problem in our world. Somebody is going to write something malicious, bizarre, or crazy on X or elsewhere. Factually, without getting super emotional, squash the rumor and kill the miscommunication. Worry about regulatory implications—is there something here the SEC can go after that could affect your position? There will almost certainly be a class action to think through. Manage stock-price volatility—that itself becomes the basis for a lawsuit.

For growth, it's relatively easier because you're not fighting a fire. Communicating good news is always more pleasant than bad news. But don't overpromise; don't overhype, as this is crucial for long-term success. Find the drivers of growth. Clearly articulate the secret sauce, the competitive advantage, and how big the addressable market is. Have transparent and justifiable forecasts. It might help to give ranges; I'm not a big fan of specific numbers because that puts pressure on management to meet them. Scenarios are better. Nobody knows the future; management may know a bit more than the investor, but leveling up is important—always come across as transparent and honest, without giving away confidential information.

Oversharing is the first thing that comes to mind—the more you say, the less you're heard. Worry about Regulation Fair Disclosure (Reg FD). It's a US rule that says you cannot communicate different things to different stakeholders and not make it public. You can't share new, market-moving information in a small forum without a press release. It's a tricky balance—people aren't computers and things slip, especially in the high-pressure environment of Wall Street.

Avoid overhyping. Avoid inconsistent disclosures. Don't come across as though you're not listening to concerns. A lot of this is common sense when considering investor perception —but common sense isn't always common.

Lyft is both a hit and a miss: a massive screw-up (500 basis points vs. 50), but a master communicator CEO who helped paper over things and, more importantly, better fundamentals to point to.

A standout hit is Jensen Huang of NVIDIA—phenomenal communicator, very authentic. He's like a single-handed IR machine for NVIDIA—selling AI, selling vision in a believable way, getting people excited about the area, the company, the product. He's probably not even trained as an IR guy. I don't know whether he got awards, but there are IR magazines that give awards; I couldn't think of a better example.

There are too many these days. You have to decide how selective or aggressive to be on X, how much webcasting to do, and what to do with online forums. One-on-one communications with large investors matter in this industry, but be careful not to violate Reg FD.

Having an IR strategy is important. Start with your website—it's something you can control. Can someone Google and get to what they need? It sounds bizarre, but it's super important. Use press releases; use social media (LinkedIn, Twitter, Facebook, depending on your audience). Remember you're communicating to multiple audiences—shareholders, customers, employees, and regulators, while also considering investor feedback. Consider investor newsletters, webinars, branding podcasts (e.g., NVIDIA putting out lessons on how to learn AI), blog posts, analyst conference calls, presentations, road shows, and targeted email campaigns.

Yes. Elon Musk is the standout example. You cannot keep tweeting about the company and talking about private discussions on social media. If your CEO is too social-media-savvy, that's a problem for controlling the message. Most companies keep a presence—company handles and pages—and put out high-level data (e.g., “earnings were X,” or “the call is at Y time”). Very few go beyond that because IR is careful. The bigger risk is a CEO who loves to talk publicly and gets ahead of the message—unless your CEO is the prime messenger (a Musk or a Jensen Huang).

Bad word right after what happened on January 30th. It's a complicated time to be in ESG. Go back to the basics—values and value intersecting. Are there ways to stick by your values as a company and make the case it affects cash flows or cost of capital? That's the easiest space given the political environment over the next few years. I'd venture that being boring is good here, rather than being adventurous.

DEI is a hot-button issue. Just today, activists have gone after J.P.Morgan and maybe Goldman Sachs about diversity efforts. If you're making climate pledges with numbers or targets, be careful—you want to make sure you can deliver. I'm guessing a lot of companies will simply stop making pledges. Some banks have gotten out of the Net-Zero Banking Alliance. So I'd summarize: focus on the values-and-value intersection, be boring, don't draw too much attention to yourself, and keep doing what you were doing if it's good for your brand and business.

With the Leveraging Investor Relations: Unlock Your Business’s Potential program, you won't just hear a pointy-headed professor go on and on. We bring people from practice: the heads of IR from KKR and AT&T; we're trying to get Morgan Stanley; and the ex-CFO of Visa. Columbia is all about theory meets practice—there's a lot for both professors and people in the trenches who do this for a living to simultaneously be on the same forum in the same classroom. That to me is the best form of pedagogy. Fewer lectures; more discussion and debate. We want good conversations, tough conversations, but respectful.