The Investor Base You Have Is the One You Chose

Here is a confession most IR programmes have not made out loud: we do not really know who we are targeting.

Walk into the office of any senior IR practitioner and ask. The answer arrives quickly and confidently. Institutional investors. Long-only funds. ESG-tilted holders. Generalists who appreciate the story. The right index inclusions. The list is correct in the sense that nobody on it is wrong. It is also, when you look at it carefully, a list of everyone who buys stocks. Which is to say it is not really a targeting strategy. It is a set of audience categories the IR team is comfortable not actively repelling.

This is not anyone’s fault. The IR practitioner tradition has built itself around the idea that the goal of investor targeting is more. More institutional ownership. More analyst coverage. More fund inclusion. More foreign capital. More of everything than last quarter. The competency frameworks, the body-of-knowledge texts, the operational guidebooks all teach this. The implicit theory is that a broader institutional base is structurally better than a narrower one, and that the marginal additional shareholder, whoever they are, is an asset.

There is one major piece of the literature that disagrees explicitly, and a couple of others that disagree by implication. Lawrence Cunningham’s Quality Shareholders, published in 2020, makes the disagreement so direct that it functions as a counter-thesis to the entire mainstream targeting tradition. The case Cunningham makes is hard to engage with neutrally, because it suggests that almost all of us, the IROs and the advisors who teach them, have been optimising for the wrong variable for a long time.

I want to walk through what Cunningham argues, what the IR practitioner tradition argues, where the dispute gets concrete, and what to do if you take both sides seriously. I will be the first to say that I have practised some of these things the way the consensus teaches them, and I do not think the IR consensus is wrong about everything. But on the question of who to target, the consensus has a problem. That problem is why this essay opens the Divergence series: five pieces on the questions where the IR practitioner consensus and the broader literature pull in genuinely different directions, and where the difference changes what you do at the desk.

What the consensus teaches about investor targeting

The IR practitioner literature on targeting is remarkably consistent. NIRI’s Body of Knowledge prescribes targeting across “all relevant institutional investor segments.” The operational guidebooks, from Mahoney’s 1990 Professional’s Guide onward, treat targeting as a breadth exercise: grow the institutional base, diversify across investor types, capture index inclusion, build analyst coverage. Marcus’s Competing for Capital makes the same argument inside an explicit marketing frame, and the European best-practice texts and the newer playbooks take the breadth framing as given.

The tradition has been teaching this for decades, across jurisdictions, through practitioners with real credibility in the field. They cannot all be wrong. And mostly, they are not. The mechanics they teach work. Perception studies, investor-targeting databases, analyst-day formats, conference participation calendars: these are the operational vocabulary of the discipline. The question is what they all assume without arguing for it. The unargued assumption is that more institutional ownership of more types is structurally better than less. The book that does argue against this is Cunningham’s.

Cunningham’s counter-thesis, and why it is uncomfortable

Cunningham starts from a definition. A quality shareholder is one whose holdings are characterised by two measurable properties: concentration (a large position relative to the holder’s portfolio) and duration (held for a long time relative to typical institutional turnover). The two properties together distinguish quality shareholders from every other type. Indexers hold long but never concentrate. Transients may concentrate occasionally but rarely for long. Activists concentrate but with short horizons and combative engagement.

The book’s central claim is that the operational measurable goal of an IR programme should be the cultivation of quality shareholders specifically, at the explicit expense of broad institutional diversification. The cultivation mechanism is what Cunningham calls the clientele effect: a company’s policies, communication style, capital allocation decisions, and disclosure practices organically attract shareholders whose preferences match the company’s actual approach and repel those who don’t. Buffett’s paraphrase, managers get the shareholders they deserve, turns into the operational consequence. The shareholder base is not exogenously determined by markets. It is endogenously chosen by management’s communication and operating decisions, whether management realises this or not.

The reason this is uncomfortable is not that it is wrong. It is that it implies most of what the IR practitioner tradition teaches about targeting is at best beside the point and at worst counterproductive. If concentration and duration are the operational variables that matter, then growing the institutional base broadly is not a neutral activity. It is a positive choice to dilute the shareholder properties that the literature on long-run governance, narrative coherence, and intrinsic-value pricing suggests are correlated with corporate success.

Cunningham backs the framing with empirical case studies. Berkshire Hathaway, Markel, Constellation Software, Costco, Capital One: companies whose shareholder bases score high on the concentration-and-duration dimensions tend to compound advantage over long horizons in ways that the broader-targeted peer set does not. Capital One’s six largest quality shareholders together command nearly one-fourth of the vote. Genuine Parts’s three largest indexers command 27 percent against 11 percent from three dozen quality shareholders. The two structures produce different governance outcomes and different intrinsic-value trajectories.

Where the cross-disciplinary support comes from

Cunningham is not arguing this alone. Aswath Damodaran, working from the valuation side, arrives at a similar place through different reasoning. His framing is that narrative-aligned holders, investors who understand and price the company’s specific value story, hold positions through cycles and update their models on the company’s actual disclosures. Broadly targeted shareholders, in Damodaran’s framework, often price on momentum, screens, or index-inclusion mechanics rather than intrinsic value. They are not bad shareholders. They are different shareholders, and they react differently to the same disclosures. A company that has built its base around narrative-aligned holders has a base that converts the company’s communication discipline into pricing accuracy over time — the same machinery the Bedrock series essay What Reassurance Actually Costs describes as a credibility ledger, here running at the level of the whole register. A company that has not has a base that responds to whatever signals are most salient in the current quarter.

Lynn Stout adds the governance angle. The Shareholder Value Myth, a separate critique of share-price-maximisation as a corporate objective that gets its own essay later in this series, Stock Price Is the Outcome, Not the Objective, touches the targeting question through the proxy-vote concentration mechanism. The three largest indexers in major markets own meaningful stakes in essentially every large listed company. They access about a third of governance-related public filings. Their proxy-vote weight is structurally large and structurally under-informed. A concentrated quality-shareholder base partially offsets indexer dominance in governance votes. A diffuse base does not. The companies that survive activist challenges, complete sensible capital allocation, and reject value-destroying acquisition pressure tend to be those with shareholder bases that include enough engaged long-duration holders to outvote the indexers when it counts. Targeting decisions, in Stout’s framing, are governance decisions in disguise.

The three do not agree on everything. Damodaran is more comfortable with breadth-targeting than Cunningham. Stout is more critical of the entire shareholder-primacy model than either. But on the specific question of whether the IR-practitioner tradition’s breadth-targeting default is correct, all three push back, from independent directions, with substantive frameworks behind them.

Five investor-targeting decisions that change

Most disputes in the literature on IR practice are abstract enough that they do not really change what happens on Monday morning. This one is different. The IR consensus and the Cunningham counter-thesis produce concretely different decisions about the same operational questions.

Perception studies. A breadth-targeting IR programme runs a perception study to understand how the broad institutional universe views the company and identify which segments are underweight. A quality-shareholder programme runs the same study with a narrower aim: understand how the existing concentrated holders view the company, and identify the small set of additional concentrated long-duration holders who might be receptive to becoming such. It accepts that the broader universe is not the relevant audience.

Investor meeting calendars. A breadth programme allocates one-on-one meetings across the institutional universe roughly in proportion to fund AUM and existing-or-prospective ownership. A quality-shareholder programme allocates disproportionate time to the existing concentrated long-duration holders, and to a small, deliberately curated list of potential additions, and accepts a thinner meeting calendar overall.

Earnings-call language. A breadth programme writes calls to be intelligible to the broadest plausible audience: analysts of varying sophistication, fund managers with varying time horizons, retail observers. A quality-shareholder programme writes calls that assume the audience already understands the business in depth, and uses the call to communicate the kind of specific operational and capital-allocation detail that quality shareholders need but generalists do not.

Disclosure decisions. A breadth programme weighs disclosure against general institutional expectations. A quality-shareholder programme weighs disclosure against what concentrated long-duration holders specifically need to maintain their conviction in the position. The two often, but not always, lead to the same answer. The cases where they diverge are the ones where the strategy decision becomes consequential.

Capital allocation. This is where the targeting decision bites hardest. A breadth-targeting programme treats capital allocation as a question of optimising for the broad shareholder base’s preferences, which often means defending the share price, returning cash through buybacks at whatever price, and avoiding capital decisions that might temporarily disappoint the multiple. A quality-shareholder programme treats capital allocation as a question of intrinsic-value compounding, with the explicit understanding that some quality shareholders will tolerate, even reward, decisions that temporarily move the multiple if the underlying value calculus is sound. The Berkshire shareholder-letter discipline is the operational expression: capital decisions are explained at length, the value calculus is shown explicitly, and the audience the letter is written for is assumed to be sophisticated and patient.

The five operational decisions above are made differently under each framing. A company running broad targeting is making decisions a quality-shareholder programme would not make, and vice versa. There is no neutral middle position that satisfies both frameworks simultaneously.

The Asian register is already concentrated

The Asian-market context makes the dispute particularly sharp, in two directions at once.

Most Asian listed companies have de-facto concentrated shareholder bases as a regional default. Family controlling stakes, state holdings, founder positions, long-standing strategic investors: these produce share registers that look more like Cunningham’s quality-shareholder construct than like the diffuse US-large-cap pattern. In Indonesia, Malaysia, the Philippines, and Vietnam, the median listed company has a controlling shareholder structure that already has the concentration property without management having engineered it.

And yet. Most regional IR programmes, when consulted, are still pursuing broad-targeting strategies. The targeting goal is to attract foreign institutional investors broadly, to increase float in the public hands, to reduce the apparent dependence on the controlling shareholder, to capture more index inclusion, to grow the analyst-coverage list. The implicit assumption is that the existing concentrated base is somehow embarrassing: a relic of regional capital-market immaturity to be diluted toward a more international-looking register over time.

Cunningham’s framing inverts this read. The concentrated structure the region’s issuers already have is not a bug. It is the asset class that produces the long-run governance and intrinsic-value-compounding benefits Cunningham documents. The IR work is not to dilute it. It is to add a small, deliberately curated set of additional concentrated long-duration holders, institutional investors and family offices, regional and international, who can extend the existing register’s quality properties without diluting them.

This is not the advice most of them are receiving. It is what the cross-disciplinary literature on shareholder cultivation argues for. The gap between regional practice and the literature creates a specific opening for the small set of companies willing to read the literature carefully and adjust accordingly.

On being wrong about this for a while

I want to be honest about something. I have advised on IR programmes that ran broad-targeting strategies. The strategies produced outputs the clients liked: growing institutional ownership, expanding analyst coverage, broader investor recognition. The strategies were also, by Cunningham’s measure, optimising for the wrong variables. The shareholders attracted were not, in concentration-and-duration terms, the shareholders the companies actually needed. When the businesses subsequently went through difficult quarters, and most businesses do, the broad shareholder base behaved exactly as the cross-disciplinary literature predicted. It trimmed. It exited. It pressed for short-cycle changes. The companies that recovered did so partly by re-cultivating concentrated long-duration holders to anchor the register through the difficulty.

I do not think the IR consensus is malicious or careless on this. The consensus is built on operational experience, and the experience teaches that more institutional ownership is, on most measurable surface metrics, better. The literature that disagrees is recent, comes from outside the practitioner-association tradition, and points to outcomes that play out over longer horizons than IR effectiveness is typically evaluated against. It is easy to miss. I missed it for a long time.

It is also, when you look at it carefully, a list of everyone who buys stocks.

What I think the practitioner consensus has gotten wrong, specifically, is the assumption that the targeting goal is more. The targeting goal, if we take the cross-disciplinary literature seriously, is more of the right kind. And the right kind, measured in concentration and duration, is a small set of holders that no broad-targeting programme will produce by default.

If you take both sides seriously

Three practical moves.

There is no soft way to recommend this. It implies that decades of practitioner-tradition advice has been optimising for the wrong variable, and the remediation involves slowing down some of the activity the existing IR programme has been measured on. But the literature is what it is. The dispute is real. The companies that engage it produce different decisions, attract different shareholders, and end up with registers their unconvinced peers cannot assemble quickly.

The opportunity, framed regionally

Most Asian listed companies will not change their targeting practice. The incentives all point the consensus way: IR budgets justified by broad-targeting activity metrics, advisor relationships built on the broad-targeting paradigm, board reporting structured around broad-targeting outputs. The cost of the misalignment never shows up in a board paper, because it is paid in the long-duration holders who never quite arrive.

The small number of Asian listed companies that engage Cunningham’s framing seriously will produce different shareholder bases over the next three to five years. The bases will be more concentrated, longer-duration, more strategically aligned with the underlying business. The pricing of those companies will reflect the base. Slower to move on quarterly noise, faster to reprice on intrinsic-value progress, more resilient through cycles.

The literature has been pointing to this for a while. The IR consensus has not engaged it seriously. The opening for the companies that do is meaningful, and the cost of staying with the consensus default is already being paid across the region, in shareholder churn companies cannot quite explain and in pricing volatility they cannot quite control.

The good news, such as it is, is that the diagnostic is straightforward, the framing is well-documented, and the remediation does not require firing anyone. The harder news is that running it well means accepting that one of the operational principles most IR practitioners, including me, were taught to optimise for has been the wrong target.

This is the first place where the IR practitioner consensus and the broader literature disagree concretely enough to change what happens in the office on Monday. It is not the only one. The next essay in the Divergence series, Conservative Guidance Is a Habit, Not a Discipline, takes up another: the practitioner default toward conservative guidance, and what the literature on disclosure and credibility says about whether that default produces the outcomes it is supposed to.