The need to adopt international practices in investor relations
Sunday, 6 June 2010
Kingshuk Nag
A small capital leasing company got listed itself in a leading stock exchange in 2005 and since its debut, its market price didn't commensurate with company fundamentals. This company posted strong results for the past 5 years but the stock price didn't match the upward trend of the leasing sector and always underperformed. The reason: Ineffective investor relations caused low visibility and misconceptions in the investment community leading to low percentage of institutional investors.
In 2009, about 18 companies raised more than 125 million dollars from the Bangladeshi public which signals an increasing need for effective investor relations. While companies have cashed on positive market sentiments and raised significant amount of money, surprisingly still around 20 per cent of the listed companies do not maintain a website which is considered the most basic form of communicating information to the shareholders.
Investors in Bangladesh are armed with digital tools today and have an insatiable appetite for information which keeps growing by the day. This phenomenon calls for a change in the mindset of company owners and they should change the signboard on the doors which now read "Share Department" to "Investor Relations" (IR).
Internationally, companies venerate investors as owners of the company and go to great lengths to ensure that investors are well informed not merely to adhere to compliance but because they genuinely wish to. Back home, investors postulate international standards of shareholder commitment and reciprocity which puts immense responsibility on the corporate community to adopt international best practices in their investor relations programmes.
Bare essentials of a successful investor relations programme are:
Enhance the IR website: In this age where technology is almost omnipresent, one of the most cost-effective communication tool where information can be disseminated quickly to stakeholders is a website. It's the simplest way to inform investors on the company's latest corporate plans, proposed dates for annual general meetings and the latest price sensitive data. If companies lack this basic communication device, it might be apt to say that companies could not care less for investors. Also merely having an website is not quite good enough as outdated information can severely damage the reputation of the company for which someone needs to be accountable for updating the website.
Board shareholder engagement: Many investor relations officers in Bangladesh would agree that shareholders are looking for greater interaction with directors of the company and therefore it is important to have a "shareholder engagement policy" that helps in deciding what type of investor queries should go upstairs so as to ensure a greater level of proactive dialogue with the investor community. Therefore directors should be well versed and recognise the kind of questions that are needed to be answered. On the flip side, an unsatisfactory answer to a sticky question by the director might cause deep embarrassment to the company image as well. However, a shareholder engagement policy underlines the board's commitment towards shareholders which goes a long way in enhancing the corporate image of the company.
Quarterly conference meetings: In the west and even in India, companies conduct quarterly conference calls to report their quarterly results. Leading stock analysts are invited who then ask questions to the management about the quarterly performance of the company. With the recent SEC directive where quarterly results have to be announced by listed companies, it would be a welcome change if quarterly conference calls were held which can usher into a new era of transparency and communication with shareholders in the context of Bangladesh. Companies generally haven't looked beyond AGMs and as such investors don't have access to the management for a year. Quarterly conference calls can thus add a new feather as companies in Bangladesh try to embrace internationally accepted IR programmes.
Train employees on prevention of insider trading: The use of undisclosed public information for unauthorised personal profit is a serious offence and can often cause irreparable damage to the image of the company notwithstanding the effect it might have on the company stock price. Employees generally have insufficient knowledge on insider trading and how to ensure publicly sensitive information are kept within the confines of the company itself. As such training sessions should be the order of the day to ensure that employees realise the potential irreversible hazards of working in a publicly listed company.
Managing shareholder activism: An activist shareholder, according to Wikipedia, uses an equity stake in a corporation to put public pressure on its management. Shareholder activism can be a huge issue to tackle if the company reports poor numbers or has delivered numbers not in line with market expectations which generally cause an erosion in shareholder wealth. This wealth erosion can sometimes lead to catastrophic reactions from the broader investment community specially during annual general meetings. Instead of being completely out of place, its wiser to maintain excellent relationships with shareholders and keep them happy by providing excellent investor service. As a result, when companies report lower than expected numbers, the relationships come in handy in diluting any form of shareholder activism.
Webcasts and podcasts: It has always been seen that a fraction of investors make it to the annual general meetings and tend to miss out on important company briefings. It is the responsibility of the IR team to ensure greater interaction between the company and the investor community. As such, embracing newer technologies to reach out to a wider audience like webcasts and podcasts provide innovative solutions in enhancing the dialogue between companies and its investors. Also transcripts of the webcasts can be uploaded in the company investor relations website in case some investors need a detailed description of the issues that were discussed.
Targeting investors than traders: Companies generally like to have long-term investors who believe in the company's future rather than traders who switch among stocks to make short-term profits. It is usually seen that once a company lists itself on the bourses after its IPO, allottees tend to sell their stock and exit after making handsome gains. It is important for the IR team to target the right investors who only believe in your company and is willing to invest for a long-term period.
Train employees on basics of IR: In Bangladesh, investors try to gain extra information on the company from executives of the company to gain an advantage which is later used in fuelling speculation or rumours causing an unwanted volatility in the company stock. While employees might consider information dissemination as "normal disclosure" the ramifications could be damaging. It is therefore important to ensure employees are well trained in SEC disclosure rules and company disclosure rules. Also often employees do not know how to interact with investors appropriately which increases the importance of IR orientation even further so as to avoid any damage in relationships between the company and the investors.
What would you do if you made a visit to your car dealer for urgent repairs and he repaired your flat tyre with another flat one? Not only will you blacklist the dealer showroom but also swear you wouldn't buy that brand of car again in your life. Investor relations is very much like customer service. One bad experience and your company loses one existing or potential investor for life. It is therefore vital for companies in Bangladesh to recognise investor relations as an important cog in the wheel to achieve greater success. While companies across the world strive for improved investor relations programmes and become more transparent, in Bangladesh we are still struggling to provide investors with the basic of rudimentary services.
The writer is works with an MNC listed company
A small capital leasing company got listed itself in a leading stock exchange in 2005 and since its debut, its market price didn't commensurate with company fundamentals. This company posted strong results for the past 5 years but the stock price didn't match the upward trend of the leasing sector and always underperformed. The reason: Ineffective investor relations caused low visibility and misconceptions in the investment community leading to low percentage of institutional investors.
In 2009, about 18 companies raised more than 125 million dollars from the Bangladeshi public which signals an increasing need for effective investor relations. While companies have cashed on positive market sentiments and raised significant amount of money, surprisingly still around 20 per cent of the listed companies do not maintain a website which is considered the most basic form of communicating information to the shareholders.
Investors in Bangladesh are armed with digital tools today and have an insatiable appetite for information which keeps growing by the day. This phenomenon calls for a change in the mindset of company owners and they should change the signboard on the doors which now read "Share Department" to "Investor Relations" (IR).
Internationally, companies venerate investors as owners of the company and go to great lengths to ensure that investors are well informed not merely to adhere to compliance but because they genuinely wish to. Back home, investors postulate international standards of shareholder commitment and reciprocity which puts immense responsibility on the corporate community to adopt international best practices in their investor relations programmes.
Bare essentials of a successful investor relations programme are:
Enhance the IR website: In this age where technology is almost omnipresent, one of the most cost-effective communication tool where information can be disseminated quickly to stakeholders is a website. It's the simplest way to inform investors on the company's latest corporate plans, proposed dates for annual general meetings and the latest price sensitive data. If companies lack this basic communication device, it might be apt to say that companies could not care less for investors. Also merely having an website is not quite good enough as outdated information can severely damage the reputation of the company for which someone needs to be accountable for updating the website.
Board shareholder engagement: Many investor relations officers in Bangladesh would agree that shareholders are looking for greater interaction with directors of the company and therefore it is important to have a "shareholder engagement policy" that helps in deciding what type of investor queries should go upstairs so as to ensure a greater level of proactive dialogue with the investor community. Therefore directors should be well versed and recognise the kind of questions that are needed to be answered. On the flip side, an unsatisfactory answer to a sticky question by the director might cause deep embarrassment to the company image as well. However, a shareholder engagement policy underlines the board's commitment towards shareholders which goes a long way in enhancing the corporate image of the company.
Quarterly conference meetings: In the west and even in India, companies conduct quarterly conference calls to report their quarterly results. Leading stock analysts are invited who then ask questions to the management about the quarterly performance of the company. With the recent SEC directive where quarterly results have to be announced by listed companies, it would be a welcome change if quarterly conference calls were held which can usher into a new era of transparency and communication with shareholders in the context of Bangladesh. Companies generally haven't looked beyond AGMs and as such investors don't have access to the management for a year. Quarterly conference calls can thus add a new feather as companies in Bangladesh try to embrace internationally accepted IR programmes.
Train employees on prevention of insider trading: The use of undisclosed public information for unauthorised personal profit is a serious offence and can often cause irreparable damage to the image of the company notwithstanding the effect it might have on the company stock price. Employees generally have insufficient knowledge on insider trading and how to ensure publicly sensitive information are kept within the confines of the company itself. As such training sessions should be the order of the day to ensure that employees realise the potential irreversible hazards of working in a publicly listed company.
Managing shareholder activism: An activist shareholder, according to Wikipedia, uses an equity stake in a corporation to put public pressure on its management. Shareholder activism can be a huge issue to tackle if the company reports poor numbers or has delivered numbers not in line with market expectations which generally cause an erosion in shareholder wealth. This wealth erosion can sometimes lead to catastrophic reactions from the broader investment community specially during annual general meetings. Instead of being completely out of place, its wiser to maintain excellent relationships with shareholders and keep them happy by providing excellent investor service. As a result, when companies report lower than expected numbers, the relationships come in handy in diluting any form of shareholder activism.
Webcasts and podcasts: It has always been seen that a fraction of investors make it to the annual general meetings and tend to miss out on important company briefings. It is the responsibility of the IR team to ensure greater interaction between the company and the investor community. As such, embracing newer technologies to reach out to a wider audience like webcasts and podcasts provide innovative solutions in enhancing the dialogue between companies and its investors. Also transcripts of the webcasts can be uploaded in the company investor relations website in case some investors need a detailed description of the issues that were discussed.
Targeting investors than traders: Companies generally like to have long-term investors who believe in the company's future rather than traders who switch among stocks to make short-term profits. It is usually seen that once a company lists itself on the bourses after its IPO, allottees tend to sell their stock and exit after making handsome gains. It is important for the IR team to target the right investors who only believe in your company and is willing to invest for a long-term period.
Train employees on basics of IR: In Bangladesh, investors try to gain extra information on the company from executives of the company to gain an advantage which is later used in fuelling speculation or rumours causing an unwanted volatility in the company stock. While employees might consider information dissemination as "normal disclosure" the ramifications could be damaging. It is therefore important to ensure employees are well trained in SEC disclosure rules and company disclosure rules. Also often employees do not know how to interact with investors appropriately which increases the importance of IR orientation even further so as to avoid any damage in relationships between the company and the investors.
What would you do if you made a visit to your car dealer for urgent repairs and he repaired your flat tyre with another flat one? Not only will you blacklist the dealer showroom but also swear you wouldn't buy that brand of car again in your life. Investor relations is very much like customer service. One bad experience and your company loses one existing or potential investor for life. It is therefore vital for companies in Bangladesh to recognise investor relations as an important cog in the wheel to achieve greater success. While companies across the world strive for improved investor relations programmes and become more transparent, in Bangladesh we are still struggling to provide investors with the basic of rudimentary services.
The writer is works with an MNC listed company