CORPORATE GOVERNANCE Caring Sharing Companies – Investing in investor relations

It’s only 40 years or so since the secretary of New Zealand’s largest listed company would motor into downtown Auckland city to hand deliver the company’s annual results to the stock exchange, NZ Herald and the Auckland Star.
The company played straight bat. One year morning papers got first break with the news, the following year the results would be announced at time that enabled evening newspapers to publish first.
Simple days. The infancy of investor relations and public relations. And whole world away from today’s plethora of competitive financial media, 24/7 electronic news and information availability, and leading share prices and exchange rates every night on the telly.
Propelled by the short-lived glamour of the ’80s, leading business people and their companies have achieved household name status, thanks partly to the communications efforts of the companies themselves, the emergence of more specialist financial and business journalists, and the growth of business and financial publications, radio and TV programmes, electronic newsletters, websites and broker reports.
The frantic privatisation era of the ’90s saw hundreds of thousands of New Zealanders becoming shareholders for the first time and boards and executives of newly created public companies adapting to the information needs of the market.
About one New Zealander in four now owns shares directly, many more are investors via vehicles such as managed funds, or work for listed companies.
The emergence of the Small Shareholders Association has provided new voice and new pressure, and institutional investors, analysts and brokers are now much more confident and relaxed about commenting to the media.
The New Zealand Exchange’s website is one of the most visited in the country with some 70,000 hits each month as potential investors and their advisers check out the daily action.
Strong investor interest coupled with uncertainty about the future and the attraction of investing offshore at time when the Kiwi dollar is widely predicted to fall, suggest New Zealand listed companies would benefit from sustained investor relations programmes.
The introduction of continuous disclosure regime few years ago has given healthy new focus to the importance of ensuring that the entire investment community has simultaneous access to important information. New Zealand companies have generally responded well to quite stringent disclosure requirements. The New Zealand Exchange receives about 50 statements from listed companies each trading day.
One obvious outcome is more conservative approach to performance forecasting by boards that realise the extent to which the markets can savage the share price of company which fails to meet prospectus forecast or has to issue performance downgrade. It’s not just about performance, it’s also about credibility.
The communication expectations on public companies and their directors are now greater than at any time in New Zealand’s history.
The board and management of listed company have simple choice – actively and professionally manage the communication of news about their company, or face the consequences of being misunderstood and undervalued.
And make no mistake, investor relations is not about manipulating reputations and share prices, neither of which can be sustained long term unless they are deserved. It is about ensuring that investors, advisers and commentators understand the company thoroughly and can therefore value its shares and its prospects appropriately.
The benefits of competent investor relations programme are well recognised, but not necessarily valued equally by all companies. Some of the benefits are: –
• The market has good understanding of the company’s history, activities, plans and prospects. It understands its position in its particular industry sector and the issues/prospects of that sector. It has view on the competence of the board and senior management. It has view on the ability of these people to see and respond to the future and to meet forecasts.
• More specifically, the market understands how the company is performing in relation to its competitors, has access to all the necessary financial information, understands the dividend policy and the company’s ability to pay fully imputed dividends.
• The market knows it can access accurate and up-to-date information from the company’s website and other sources, or from board management, consistent with continuous disclosure obligations.
• Those sections of the market, which value these attributes, can determine how well the company is meeting community, environmental and social goals. Ethical investors are significant force.
• If the above is achieved through sustained effort, then it will be reflected to some degree in media coverage and analysts’ reports.
• All of the above will contribute towards the company having share price which accurately reflects its current value and prospects, valuable outcome in its own right, but also defence against takeover and good starting point from which to launch scrip-based takeover offer for another company. Undervalued and not well-understood companies are prime takeover prospects and in weak position to mount credible defence in the short time frame available.
• By contrast, well-planned and well-executed investor relations programme will help create supportive shareholder base and supportive attitudes among commentators and advisers, helpful situation when marketing takeover defence, or making cash issue or offer to shareholders.
• Finally, good investor relations programme creates positivity which spills over into other aspects of companys business – to suppliers, customers, staff and communities. Your actions and messages, and the comments of others, are what go towards creating your reputation with variety of stakeholders.
So is investor relations alive and well in New Zealand? Well, yes and no. Yes, in the sense that most listed companies at least have some understanding of its importance. No, in the sense that only handful of these companies have even one person dedicated to investor relations. It’s partly an outcome of being tiny country whose sharemarket is made up of some sophisticated international players and many more small local companies, which may see the costs of an investor relations programme as outweighing its benefits. Some small listed companies are hardly covered by analysts at all.
There are just over 200 listed companies, with combined market capitalisation approaching $70 billion. On an average day shares just over $100 million are traded. These seem like big numbers, but they are truly miniscule by comparison with international markets where sophisticated and well-resourced investor relations programmes are routinely adopted by listed companies.
Given this situation, where most New Zealand companies have no dedicated investor relations resource inhouse, you would expect to see the accelerating need for comprehensive investor relations programmes in New Zealand met by the emergence of specialised investor relations consultancies, but this has not really been the case. There are only few of them, and they do not appear to the growing.
A number of the larger public relations consultancies have traditionally offered investor relations services and some specialise in it. This is logical, since the core business of consultancies is building and safeguarding the reputation of corporate clients through wide range of communication techniques inducing media relations, functions and sponsorship to government relations and issues/crisis management.
Information about companies cannot be kept in separate boxes for different audiences. Some stakeholders belong in several boxes. customer may be shareholder and also journalist.
It is logical to involve the same consulting firm for assistance with an IPO, merger and acquisition activity, performance announcements or other spasmodic work if they have th