A philosophical Badger is somewhat uncertain with winter coming on and cool economic winds starting to blow. Remembering what Socrates once said “there is nothing stable in human affairs, therefore avoid undue elation in prosperity and undue depression in adversity”, Badger attempted to take stock and gauge the state of the world.
In this environment of uncertainty and volatility shareholders too are attempting to gauge the true state and position of companies. They rely on number of parties for information and communication to tell them about current status and future prospects.
Ultimately, of course, directors are the key source of information and answers. And as matter of good corporate governance they have duty and obligation to keep shareholders and other major stakeholders informed “on timely, regular and appropriate basis” – of major events or material matters affecting an organisation.
The manner and methods directors use impacts on the effectiveness of the communication and the level of good corporate governance board can truthfully say it achieves. The board’s basic duty to provide such information on regular and appropriate basis is embodied as statutory requirement and, if the company is listed, expanded upon by the Continuing Disclosure Requirements of the NZSE.
Companies in the United States and United Kingdom provide, almost without exception, widespread access and availability to all information by regularly posting information and announcements on the company’s website. Not so, unfortunately, in New Zealand. In terms of achieving equal access to information the practice is very effective and efficient way of ensuring widespread availability of information and news.
Communicating in cool winds
Communicating with shareholders effectively, honestly and appropriately has always been an important requirement of corporate governance – no matter what the size or nature of the company and whether it’s listed or unlisted. Those with record of good communication are pretty well respected. Post Enron higher standard of shareholder communication and corporate governance is expected and demanded.
It is an interesting question but, in this tougher operating environment “do directors and management have the courage and confidence to tell stakeholders the bad news as well as the good?” The answer at this point could best be described as unclear.
Shocks and bad surprises are inevitable given the dynamic and volatile business environment and markets in which enterprise now operates. But not to properly inform shareholders and other stakeholders of the incidence and impact of shocks and surprises is an abuse of stakeholders’ rights and an important indictment of the competency and integrity of both directors and management.
An example of sharp contrast in approach was provided recently by two companies that went about informing their shareholders and the market of some pretty bad news. The companies were as different in size and shape as the strategies they adopted. One was Kiwi minnow – Cabletalk Group – the other an Aussie market darling – Mayne Group.
Cabletalk Group came out well ahead of its scheduled profit announcement time and revealed that it would not achieve the level of profitability it had forecast in its original Investment Statement and subsequent Key Transaction Document. While the news wasn’t exactly what shareholders probably wanted to hear, the directors unquestionably informed them in “timely and thorough manner” of the magnitude and nature of the problems and outlined what action had been taken to correct the shortfall. The directors also provided shareholders with their realistic expectations of prospects going forward.
Contrast this with the recent treatment suffered by shareholders at the hands of Mayne Group directors. Mayne recently shocked the market and shareholders with two profit downgrades in the space of just three weeks. In its first announcement it assured the market and shareholders that all the bad news had been disclosed in an earlier earnings downgrade. Having previously stated that they had the situation stabilised and under control, the directors then told shareholders they hadn’t known all the figures and circumstances when they made their previous comments and earnings estimates.
Ensuring information equality for everyone
As matter of good corporate governance practice, and in addition to communicating both good and bad news, directors should endeavour to make all information as accessible as possible to stakeholders interested in, or affected by, significant company announcements.
Normal dissemination of basic public listed company information is through announcement and advice to the New Zealand Stock Exchange. However, additional information is also provided to the NZSE and analysts, which goes beyond the basic information outlined in the official stock exchange press release.
This additional information, including perhaps copies of speeches, presentation material, data books and so on, is normally available, though often at cost, from the NZSE. It is not, however, always readily or widely accessible to all market participants or shareholders. Shareholders and other stakeholders do not attend analysts’ briefings. And they do not read every newspaper or every broker’s research report. This creates form of information exclusivity. The fundamental corporate governance tenet of equal treatment and information to all thus becomes fragile.
Enhancing the widespread availability of all information, particularly presentation material which has been provided to analysts, is an area where New Zealand’s directors and managers remain remiss. An effective company website can provide an ideal communication tool to assist in ensuring that all information and communication – good or bad – is accessible to all and that company is serious about best practice corporate governance processes. M
