What Is Public Relations?

Understanding public relations

Public relations helps a business manage its public perception. This might be by working with marketing teams to promote the company through channels important to consumers or investors, or by controlling the flow of information to media outlets. Public relations also analyzes how changes within the company will be received by the public in order to anticipate the impact.

When a company is caught in a scandal, you can be sure that a public relations team is there to help manage the situation. A PR team also can frequently be responsible for writing speeches and managing press conferences. And when a company releases a new product or makes another big announcement, public relations is often involved to help ensure the change is hyped in the press and on social media and that the brand’s reputation remains intact or is improved by the change.

Why does public relations matter to investors?

When public relations departments are at their best, they keep the public engaged with the company, which can help it grow. By helping to promote new products and offerings through media channels, public relations also keep potential investors interested in a company.

But most importantly, when things go very wrong -- for example, when there’s a faulty product or a negative personnel issue -- public relations can help the business find a softer landing than it might have experienced if speculation ran amok. This also generally helps to prevent stock prices from plunging.

The news about a business can be a huge influence on large and small investors. What’s written or said today can ripple across markets for weeks or months. A company’s recovery from bad news often depends on the actions of its PR team.

Understanding PR can help you be a better investor

When the news surrounding one of your favorite companies swings wildly one way or another, it can be tempting to make big changes to your portfolio, but it’s important to stick to your investing thesis. The job of public relations is to keep the buzzworthy stuff in the news and tamp down any scary things.

As an investor, it helps to understand that PR is a vital part of the public face of any company and can help you make the best decisions about your investments. But rather than relying on sensational news stories or biased press releases, you should go to the source and read about the issue yourself.

The impact of public relations in the real world

Large companies can often see major effects due to public relations work -- or the lack of public relations work. Tesla (TSLA +4.08%) has recently been an example of what can happen when the public relations department isn’t properly engaged in changes under a larger umbrella.

When Tesla CEO Elon Musk acquired Twitter and essentially began trolling his own platform with general “mean girl” behavior, for example, Tesla stock bore the brunt of the backlash. Twitter has been withdrawn from public trading, but Tesla is still traded, and investors were not happy with the behavior of their shared CEO.

After Musk acquired Twitter in October 2022, Tesla went into a tailspin, and its stock dropped from a little more than $300 per share to less than $200 by early 2023. Nothing fundamentally changed about the electric vehicle company, but public perception turned the tide on the stock. Its recovery will almost certainly require the help of the public relations team.

Of course, public relations is about more than disasters. When public relations go well, most people barely even notice, and that’s by design. But the impact of public relations on the perceived value of businesses to consumers and investors cannot be overstated.