What is public relations (PR) in business?

Public relations can greatly impact the public perception of a company, to the extent that stock prices can be influenced by good or bad PR.

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Virtually every modern business has a public relations (PR) department or representative. PR can greatly impact public perception of a publicly traded company, even to the extent that stock prices can be influenced by either good or bad PR.

What is public relations?

Public relations, or PR, helps a company 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 analyses 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 can also write speeches and organise 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. Public relations also keep potential investors interested in a company by helping to promote new products and offerings through media channels.

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 significantly influence 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 favourite 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 strategy. 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.

Has the company released a new, world-changing product? Maybe it's not that dynamic once you really look beyond the hype. Is the current CEO's scandal a bigger deal than the company is letting on? Again, the job of the public relations team is to keep consumers and investors engaged, so sometimes, they will do all they can to round out the jagged corners of a scandal.

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 Inc (NASDAQ: TSLA) 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' behaviour, for example, Tesla shares 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 behaviour of their shared CEO.

After Musk acquired Twitter in October 2022, Tesla went into a tailspin. By early 2023, its stock has dropped from a little more than $300 per share to less than $200. 

Nothing has 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. Most people barely notice when public relations go well, and that's by design. But the impact of PR on the perceived value of businesses to consumers and investors cannot be overstated.

This article contains general educational content only and does not take into account your personal financial situation. Before investing, your individual circumstances should be considered, and you may need to seek independent financial advice.

To the best of our knowledge, all information in this article is accurate as of time of posting. In our educational articles, a 'top share' is always defined by the largest market cap at the time of last update. On this page, neither the author nor The Motley Fool have chosen a 'top share' by personal opinion.

As always, remember that when investing, the value of your investment may rise or fall, and your capital is at risk.

The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Tesla. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.