As sell-side declines, go direct on the Web

By Dominic Jones

LAST week’s surprising announcement from Prudential Financial (NYSE: PRU) that is was closing its equity research business and axing more than 400 employees has many wondering what the future has in store for the sell-side.

BusinessWeek ran a good article on the subject which noted that while the sell-side’s business model is threatened, demand for good analysts is strong from buy-side firms like money managers, hedge funds and private equity.

And that’s a problem for IR departments in a very practical way. There are many more buy-side firms than there are sell-side firms. Whereas before companies could speak to a small group of sell-side analysts to reach a broad audience, increasingly companies are under pressure to provide access to a broader array of interested investors and analysts.

Harder for IR to play gatekeeper

In such an environment, it becomes much more difficult for investor relations departments to act as gatekeepers. The chances of rubbing someone the wrong way increase dramatically. Who gets to talk directly with management? Who should be invited to the analyst day? Who should be able to ask questions on conference calls?

And this fragmentation doesn’t stop with analysts and investors. The financial media, too, is fragmenting. Finance bloggers, such as those whose posts appear on Yahoo! Finance, Google Finance and AOL, are gaining influence. Should you take calls from them, or only speak to the Wall Street Journal and the Financial Times?

One way for IR departments to alleviate the pressures on management’s time and reduce the risks of alienating investors is to make better use of the Web. They can use technology to facilitate access to management to broader audiences and also provide investors and analysts with better and more relevant information.

Now combine these pressures from investors with developments on the regulatory and technology fronts, and I predict that having a web communications manager on the IR team will soon be a necessity for every public company.

See: Equity Research: What’s Next? (BusinessWeek)

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