Public Relations so What Is a Business?

Public Relations

So what is a business? A business is an organization that operates to generate profits, usually for its owners. Those owners may be a private individual or individuals, a group of individuals who form a partnership, or a wider group of people with a financial interest in the business and its profits because they are shareholders or members. The things a business does to generate those profits are varied. It may manufacture goods for sale or trade, import or sell goods and products, or provide services to people or other businesses (Davidson, 2011). Public relations have several important roles in a business. It can make people aware of what the business is able to provide (goods and services), help the business communicate with the people who have an interest in it (owners, customers, employees and the community), and help the business develop an image and reputation within its environment. Public relations practitioners are in constant contact with publics that affect the activities of an organization (Payne, 2009). Because of this, public relations practitioners can be important influencers of how people regard the business and its activities. This is part of the boundary-spanning role of public relations. A boundary spanner is an individual who creates links between different publics and the organization. They metaphorically span a boundary between an organization and other groups of people through facilitating communication (Adams, 2012).

There are special publics that are vital to business operations because they directly affect profits through financial transactions. These are investors (or shareholders) and customers. Of equal importance, are publics who influence profits indirectly through opinion and action, such as employees, the community and the media (Cameron, et Al. 2008).

Investors as special publics

For some businesses (notably privately owned ones and small businesses), it can be said that the most important public to consider for the continued life of the business is the people who engage in trade with the organization through the purchase of products or services -- suppliers or customers. However, when a company becomes 'public' through listing shares for sale on the country or region's stock exchange, there is another public -- investors (Payne, 2009) which demands regular communication. This field of public relations is increasing in professional importance and is generally called investor relations, or IR.

Businesses are responsible to owners. Owners need information about the business operations of the organization on a regular basis. For companies listed on the stock exchange, their wealth and operating viability are determined by judgments about their performance. Reports to the financial community help to form those judgments. These judgments and opinions can affect the prices of the shares that are owned and traded through the stock market (Milliman, et al. 2008). For example, in mid-2008, the share price of both BHP Steel and Rio Tinto surged on reports that they had locked in deals to sell steel for higher than expected prices to the burgeoning Chinese market (Cameron, et Al. 2008; The Economist Intelligence Unit, 2009). When people (individuals or corporate investors) own shares in a company, a proportion of the organizational profit is divided up among all shareholders periodically, giving them a dividend. The more net profit a company makes, the higher the dividend is likely to be. If a company is performing well or is judged to have the potential to perform well and make healthy profits, it is likely that the shares will become popular to purchase. Investors will want to buy them, and the share price will rise through competitive trading. As share prices rise, more investors are attracted to them, sometimes purely for the purpose of buying the shares at one price and selling them for a higher price later on. Share trading, when it leads to higher share prices, creates greater revenue for the company. The converse is also true: if a company performs poorly, the opposite is likely to happen and the share prices drop (Davidson, 2011; Porter, et al. 2011; Strauss, 2010).

Although the stock market is far more complicated than this simple description, it is easy to see that opinion and commentary play an important role in influencing how people respond to trading shares in various companies (Milliman, et al. 2008; Strauss, 2010). Many sources of information can be used by investors to make judgments about buying and selling shares. Company information, the opinions of financial specialists, the knowledge of the share brokers and media commentary together paint a picture of how the business is performing. And the work of the public relations practitioner is crucial to all of them (Cameron, et Al. 2008; The Economist Intelligence Unit, 2009).

It is critical to many companies' long-term goals to ensure that financial publics are informed about business activities. Investors, potential investors, financial analysts and financial media need specialized information about the organization in order to judge the performance of their investment and the company's potential for future investment (The Economist Intelligence Unit, 2009). These financial publics are what would be called active or information-seeking (Dozier & Broom, 2006). They will look for specific information on which to base their opinions and decisions.

Financial media, financial analysts and investors constitute specialist publics and they have special information needs. Agenda-setting theory is useful to understand in order to put a client or company's interest on the media agenda. Financial information must be comprehensive and deal with the complexities of fiscal performance in a competitive national and international market (Basu & Palazzo, 2008). This requires detailed information for a target public that has a special understanding of finance and uses a special language. Like other highly specialized areas of public relations, the practitioner needs to know the meaning of a variety of special terms and to be able to talk to experts in their own language (Dozier & Broom, 2006). Unlike communicating with a more generalized public or group of publics, where simple and easy-to-understand words should be used, certain types of jargon can be included in specialized areas like finance. In order to share understandings with experts, practitioners can develop their background knowledge in finance and economics to more effectively specialize in financial public relations (Davidson, 2011; The Economist Intelligence Unit, 2009).

In Australia, the Australian Securities and Investment Commission (ASIC) is the authority that administers the rules pertaining to public companies and, among other things, the annual reports they produce (discussed below). In New Zealand, it is the Securities Commission. In 2008 the two countries brought into effect the Mutual Recognition of Securities Offerings (MRSO), introduced to simplify and streamline the issuing of shares across both countries (Cutlip, et al. 2012). Both countries had previously brought in new laws and regulations to make the MRSO happen. This illustrates why public relations practitioners need to be appraised of legislative changes that may affect shareholders -- in this case, those relating to trans-Tasman corporations (Eisenhardt, 2009).

Annual reports

One of the most direct ways of communicating with investor publics is through the company's annual report. Every company listed on the stock exchange must publish an account of its performance during the year. This must include a detailed audited balance sheet of all the income and expenditure of the company, names of the principal officers of the company, and details of where and when an annual meeting of investors and other interested parties is to be held (Goshal & Bartlett, 2010; Kim, et al. 2009).

Practitioners should always keep up-to-date with any changes to legislation that will affect the production of the annual report or any other financial documents or information (Payne, 2009). For instance, there are regulations governing the type (font) size of financial statements that must be adhered to, and certain headings and information must be included. It is wise to check these regulations on an annual basis or before the production of any major financial publication (Kamm, 2011).

In addition to the requirement of a financial summary of business operations and other mandatory statements, almost all annual reports incorporate a narrative description of yearly events (Milliman, et al. 2008; Strauss, 2010). This trend began in the 1950s and has continued to the present, with the annual report assuming often elaborate and expensive forms -- sometimes involving over 100 pages of text, full-color glossy printing, sophisticated photography and lengthy descriptions of company activities. It is now an established practice to make the annual report accessible on the company website (Basu & Palazzo, 2008).

The annual report is a challenging document to write and publish. It is generally considered to be one of the most important documents produced by the company (Postmes, et al. 2011). It typically involves coordinating written material from many sectors of the organization; liaising with graphic designers and printers; establishing message and theme strategies in conjunction with senior management; and managing a tight and complicated time schedule and deadlines (Goshal & Bartlett, 2010).

Because it is such an important communication vehicle, one of the difficulties of writing and producing an annual report involves taking other people's ideas and different writing styles and unifying them into a single coherent document to be read by a very wide audience. Juggling the demands of a wide variety of contributors to the annual report can also be a management challenge for public relations practitioners. It is a good idea to gain agreement and consensus on the directions of the annual report right from the start. This can avoid too many deadline-halting changes down the track (Cutlip, et al. 2012).

Public relations often use targeting strategies to hone a message to special differentiated publics. However, for an annual report, the audience is so diverse that it must appeal to a very 'general' public. Alternately many companies now produce the annual report in a number of versions, providing a different annual report for each different audience. Australia Post produces a special employee annual report, which is simpler, shorter and cheaper to produce than the main annual report (Kim, et al. 2009). Other companies produce summary annual reports, which give brief yet comprehensive financial information without too much description of yearly events. This can be helpful for publics whose only interest is in the bottom line. Others make two publications: one of the narrative description of events, and one of the financial statements (Cutlip, et al. 2012).

Large annual reports can often take a full year to prepare, so managing the deadlines and flow of information that constitutes the annual report is a difficult job. The tenets of production management apply to this as they do to any other communication product: build deadlines from the finished delivery date backwards, factoring in contingencies to allow for unexpected problems and judging deadlines for contributors accordingly (Goshal & Bartlett, 2010).

It is no longer a legal requirement in Australia that companies produce a printed hard copy version of the annual report. The Corporations Legislation Amendment (Simpler Regulatory System) Act 2007 states that mailing hard copies of annual reports to shareholders is no longer compulsory. It is accepted that interested parties and shareholders will access annual e-reports online (Grunig, 2008; The Economist Intelligence Unit, 2009). However, the company must alert shareholders if it plans to change the format of reporting to electronic instead of hard copy, and this notification should be sent directly to shareholders by post unless an individual has previously elected to receive notifications by email. It is up to the company to make the report available and easily accessible online, and to notify shareholders of the direct URL. Shareholders may still elect to receive a free hard copy if they wish. (Brown, 2009)

While most companies still produce a printed version of the annual report, many organizations are experimenting with online formats. Annual reports translate, with varying success, to newer media. For many large corporations, online annual e-reports are now the norm. Obvious savings are evident in reducing the print run of an expensive high-end document, not just in budget terms but in terms of resource awareness and environmental impact (Curtin, 2008). However, some organizations do little more than put the text and images of the printed report into a web format (often referred to as 'brochure-ware'), which is not necessarily good use of web-based media. The more successful versions of online annual reports embrace interactive components that make full use of the online environment. Newer programming languages like Extensible Business Reporting Language (XBRL) will help enhance the structure and delivery of annual e-reports. Online formats may not always be the best choice for all audiences and publics. Despite the rise of annual e-reports, the print-based version is unlikely to disappear too soon (Adams, 2012; Strauss, 2010) or at least until reader preferences shift away from hard copies. Public relations practitioners need to be able to work across both formats and liaise with relevant professionals in both online and print-based design and production to successfully meet the challenges of traditional and newer media, including building in better searchability and interactivity (Davidson, 2011).

Annual general meetings

Another obligation of a public company is to hold an annual meeting of shareholders. This meeting gives investors a chance to ask questions of management and to vote on changes to company rules, and gives them a voice within the company (Kim, et al. 2009; Postmes, et al. 2011). Annual general meetings (AGMs) and other special or extraordinary meetings of shareholders are usually organized and coordinated by public relations staff. They plan the venue, estimate numbers and liaise with interested media and shareholders. AGMs can also be webcast to allow for virtual attendance at multiple locations, and hence attract a greater number of attendees (Brown, 2009; Grunig & Hunt, 2007).

While many annual general meetings are considered a formality, public relations practitioners should not treat them lightly. There are many examples of AGMs causing imminent crises for companies when a board is confronted with angry or disgruntled investors, who may be assisted by groups such as the Australian Share holders' Association (ASA), which seeks to increase shareholders "influence on corporate behavior and shareholder rights in Australia' (ASA 2008). Sometimes potentially difficult AGMs can be predicted by the occurrence of other organizational events. Companies need to be prepared for such events, to deal strategically with negative media opinions, handle shareholder questions openly and frankly, and provide explanations for management's actions (Postmes, et al. 2011). This involves extensive briefing of all executive staff involved, usually with the advice of legal counsel. Where possible, thorough media briefings should form a part of the communication strategy.

Financial analysts and the media

In addition to communicating with potential shareholders, it is crucial to keep the financial media well informed about share issues and organizational actions that might affect share prices. Financial analysts are independent specialists who can assess the 'paper' or share value of a company that can subsequently be reflected in its share prices. These assessments are very important when a company first lists its shares on the stock market and to support continued trading (Grunig & Hunt, 2007). A bad assessment from influential analysts can cause immediate and sometimes dramatic drops in share prices. Maintaining a good relationship with both financial analysts and the financial media is an excellent way of keeping a responsive and high-volume flow of information out in the marketplace for existing and potential shareholders to read and assess while making their share-buying decisions. The basic principles of media relations are just as applicable to financial specialists as they are to other specialist media sectors (Adams, 2012).

Consumers and customers as special publics

Businesses generate profits through trade. A necessary component in the trade equation involves the consumer or customer who wants to buy the products or services produced or delivered by the company. While organizations have many publics to consider in the day-to-day running of their business -- the community, employees, investors and so on (Curtin, 2008) there must be customers to enter into some sort of purchasing relationship with the business or it will fail. Customers as publics have different needs, which the business must cater for. They have quality demands about products and services; they can exercise choice in their purchasing decisions; and they can complain and litigate. They can decide to return to the business for further purchases or try some other similar product or service. Whether the transaction is a one-off purchase or an ongoing relationship, one of the responsibilities of public relations practitioners in business is to ensure that the lines of communication are open between the organization and its customers, and that the needs of those customers are known and can be met (Harlow, 1976; Ray, 2011).

Marketing public relations

The ability to understand and relate to customer publics is the part of public relations practice that is inextricably linked to marketing (Wood, 2012). Marketing has at its core the need to manage customer relationships for the purpose of generating profits. Any marketing textbook contains reference to the 'four Ps' of marketing (Curtin, 2008) product, price, place and promotion. Promotion is where public relations have links to marketing. In addition to advertising, point-of-sale material and other forms of promotion, the specialist talents of public relations practitioners in media and public liaison are important to the marketing mix (Harlow, 2010).