A Review of IR Practices in Bahrain. Mohamed Sr. Isa

financial community more effectively. These technologies including Really-Simple Syndication (RSS), presentation slides, video/audio files and functional search facility for the website visitors. There are many good IR companies’ websites that Bahraini listed companies could emulate to improve their respective websites.

      Finally, the entire financial community constituents are required to join efforts in upgrading the IR awareness and practices in Bahrain otherwise companies’ efforts of improving their respective IR practices might be lost in the mist of naivety of their shareholders and other market constituents that do not appreciate the value or the importance of IR activities.

      The author strongly believes that the findings and lessons learned could be easily exported to other Arabian Gulf States (GCC) as they are likely to have the similar IR practices due to the geographical factor, common social culture and the economic development level.

      INTRODUCTION

      Objectives of this book

      The main objective of this book is to examine Investor Relations (IR) Practices of Bahraini Listed Companies and offer recommendations to improve the local IR Practices.

      The main questions to be addressed by the book are the following:

      •What are the IR practices of Bahraini companies listed on Bahrain Stock Exchange?

      •What are the main drivers that affect the local IR activities?

      •What are the current IR practices of companies around the world?

      Significance of this book

      Bahrain as a Financial Center is well regarded when it comes to its regulatory financial system. It has been the undisputed financial capital of the Middle East for more than 40 years. The main contributor to this position is the Central Bank of Bahrain (CBB). The CBB is the most successful regulatory authority in the Arab World in areas beyond Financial Services and Capital Markets regulations (Bahrain Economic Development Board, 2008). This book is significant because it will offer some recommendations to improve the currently prevailing IR practices to maintain Bahrain position as the leading Financial Center in the Middle East.

      According to Thomson Reuters (2009), International Investors are keen to invest in the Middle East Region due to its promising growth prospect. However, transparency and disclosure by companies remain a deterrent for those prospective investors to engage with companies in the region. Companies in Bahrain should take the lead in improving their IR practices to attract and engage those prospective investors to bring more Foreign Direct Investments (FDI), which are likely to stimulate more growth in the different economic sectors.

      The internet plays a pivotal role in the globalization of the world economy by facilitating the process of disseminating of information. This book will shed light on how companies could utilize the internet to communicate with their existing and prospective investors.

      Finally, this book is vital because more and more Bahraini Nationals started to invest in shares over the past few years and moved away from traditional investments mainly real estate. The subject of IR is interesting because it is a multidisciplinary field that integrates marketing, communication, finance and securities laws.

      Structure of the Book

      This book is divided into six chapters. The following is a brief description of each chapter.

      Chapter 1 is the Review of IR Literature where the author discusses key areas on the concept of Investor Relations such as its definition, evolution, and importance.

      Chapter 2 highlights the research Methodology employed in this book and the data to be collected.

      The author documents the analysis, findings, and discussions in Chapters 3, 4 and 5. In Chapter 3, the author documents his analysis, findings and discussions of the website analysis conducted. Whereas in Chapter 4, he laid out the analyses, findings, and discussion of the interviews conducted. Finally, in Chapter 5, he discusses the International Investor Relations Best Practices using USA as an example. These three chapters provide the answer to the three research questions of this book.

      The last chapter in this book is Chapter 6, which provides a summary and a conclusion of the entire book.

      The book provides extensive, informative, and useful appendices for companies that are serious about improving their IR Practices.

      CHAPTER 1

      REVIEW OF IR LITERATURE

      1.1 Introduction

      In this Chapter the author will provide the reader with some literature on Investor Relations (IR). He will first examine what is IR. Then, he will discuss the importance of IR to the financial community. After that, he will touch upon how the function of IR is organized within different companies. Then, he will provide an overview of the role of IR Department within companies. Finally, he will discuss the great impact of the internet on IR Practices for companies around the world.

      1.2 Definition of Investor Relations (IR)

      According to the National Investor Relations Institute (2004) in USA:

      “Investor relations is defined as a strategic management responsibility that integrates finance, communication, marketing and securities law compliance to enable the most effective two-way communication between a company and the financial community and other constituencies, which ultimately contributes to a company’s securities achieving fair valuation.

      The process of marketing a company’s stock involves identification of the target audiences who might have an interest in investing in or analyzing the company’s securities and presenting historical and prospective information about the company to enable them to make an informed investment decision or recommendation. Marketing in this context does not mean “selling” a company’s securities to investors, but rather a process of identifying target audiences and educating them about the present and potential value of those securities so they can make educated investment decisions.”

      IR is considered a new phenomenon that developed most rapidly in USA and then followed by the United Kingdom (Marston and Straker, 2001). It emerged in USA in the 1960’s (Silver, 2004). One of the most important driving forces that developed IR in USA was the Institutionalization of its Capital Markets. In 1996, Pension Funds, Mutual Funds and Insurance Companies had the largest asset holdings in listed companies’ securities. Due to their legal fiduciary responsibilities to their clients and their power; they insisted on having detailed and timely strategic information disclosure from listed companies (Higgins, 2000). Accordingly, companies had to match their IR capabilities and activities to the increased information requirements.

      The author developed a simplified model to explain the dynamics of the Fiduciary Responsibility of Institutional Investors towards Small Investors, see Figure 1.1.

      Figure 1.1: The Fiduciary Responsibility of Institutional Investors

      In basic terms, retail investors or subscribers invest their money with institutional investors so as the latter manage their money with the aim of maximizing the wealth of small investors. Since Institutional Investors have the required human resources from research analysts to fund managers, and since they have larger pools of funds to invest, they are in a position to force listed companies to disclose more information to them as part of their investment due diligence process to avoid questioning and lawsuits from small investors if investments losses are incurred. A bad example of fiduciary responsibility would be without question is Bernard Madoff who received a 150 years jail sentence for making thousands of his clients lose billions of Dollars using a fraudulent investment scheme (Reuters, 2009).

      1.3 Importance of Investor Relations (IR)