And the winners are Diamond Bank, FCMB, GTBank, Intercontinental Bank, Oando and UBA: How some Nigerian companies have taken the lead in online investor relations (1).

Jan
10
2009

And the winners are Diamond Bank, FCMB, GTBank, Intercontinental Bank, Oando and UBA: How some Nigerian companies have taken the lead in online investor relations (1).

A survey of Nigerian public company websites shows that those with dual-listings in developed country markets pay the most attention to their websites, and the investor relations section in particular. While any progress is good progress and should be applauded as such, it also raises concerns about the attitudes of Nigerian companies toward local investors. It would seem that the primary motivation for allocating the resources to create and maintain a regularly updated, information rich IR section has been the need for compliance rather than a desire to facilitate access to trading data, company performance, financing and governance information. Six companies stand apart: Oando, the integrated energy solutions group, Diamond Bank, FCMB, GTBank, Intercontinental and UBA, the financial services groups. These companies have demonstrated an impressive commitment to providing investors with easy navigation to IR content, comprehensive information and the tools to process the information. In this post, we examine the IR section of each company's website, and proffer ways for innovation.

In the first conference call of the FCMB Group, and a first for any Nigerian company, Ladi Balogun, CEO, begun by asking his audience for bear with him if he was a ‘bit rusty’ since he was new to the medium. He assured his listeners that his performance would improve with practice.

In a sense, his statement represents the new attitude among a few Nigerian companies to foster transparency, disclosure and communications with the investment community. Balogun’s admission contrasts sharply with the prevailing attitude in most Nigerian companies, which continue to regard any type of investor communications beyond the minimum stipulated by regulators as anathema. Contrary to the common view that these companies do not have the resources to staff IR functions or that IR is an unnecessary luxury, they continue to commit significant resources on client-customer facing marketing campaigns and functions, which vital as these are, do not address the information needs of providers of capital.

There is a growing trend of thought in Nigeria that conceives investor relations as the internal extension of shareholder services, that is, the registar’s administrative role. In fact, even UBA lists UBA Registrars, its subsidiary, as the primary investor relations contact. We feel that this is a legacy liability of the investor relations profession in Nigeria, which was conceived as expediting the dispatch of share certificates and dividend warrants. So when many people think of IR, they persist in thinking of it as a panacea to these problems which defined its beginnings. Examples of this can be seen on the GTBank, Intercontinental Bank and UBA Group investor contact pages.

It is not unusual to read Nigerian papers with a weekly ‘Agony Aunt’ section for investors asking about the status of their offering purchase applications and stock certificates long after the offering has ended. To deal with this embarassing publicity, management at these companies devised a solution for an internal person to handle these queries. Often, this was in addition to a ‘real day job’ in the customer relations department or company secretary’s office. Essentially, the individual charged with the investor relations role was really a ‘runner,’ whose primary role was to do follow-up at the registrar’s office.

There are a couple of points to note here:

First, executive management in Nigerian public companies do not appreciate the need for an investor relations function in their organizations largely because there are self-proclaimed, albeit unprofessional, alternative providers of the results that IR could provide such as the financial press, stock brokers, analysts and issuing houses.
Second, since the role of the investor relations officer was not advertised internally or externally for the most qualified candidate, but filled by any ‘at hand’ employee, no consideration was given to the qualifications required of the investor relations officers. The job description had none of the stature or responsibilities commensurate with the US National Investor Relations Institute’s (NIRI) definition of investor relations as ‘a strategic management responsibility that integrates finance, communication, marketing and securities law compliance to enable the most effective two-way communication between a company, the financial community, and other constituencies, which ultimately contributes to a company’s securities achieving fair valuation.’
Third, the pseudo-investor relations officer role was filled by a junior person in the organization with all the internal and external limitations that imposed .
Fourth, the ’service’, as defined, was targeted at low end retail investors , the type of individual who would express a grievance on the Investor Issues page of the newspaper.
Fifth, the organization had a nil structure for receiving, processing and responding to investor requests for management access or information.
Sixth, even in cases where there was a soi-disant investor relations unit, it did not signify a commitment to best practice disclosure by the executive management. Even then there was usually no more than a single individual staffing this unit, which further illustrated executive management’s prioritization of that function.
Seventh, due to the absence of support for the establishment of a full investor relations function within these organizations, it is impossible for IR to deliver on any of the measurable results expected of the profession in developed markets, including increase in institutional holding, growth in analysts coverage, improved stock liquidity, higher disclosure standards, advice to the board on investor concerns, etc. The case here being that one cannot even speak of a failure of IR, since those expectations were never even set in the first place.

An understanding of its origins and historic position in companies is vital for the appreciation of the minor regard IR receives in many Nigerian companies. The perception of IR as an extension of the registrar’s role, and not as knowledgeable counsel to management on investment community matters or a credible channel of information with the authority to engage with analysts, institutional investors, regulators and the financial press weighs on the legitimacy of the profession. These attitudes explain the limited resources that management has been willing to commit to raising its visibility or responsibility.

We briefly discuss:

The role of investor relations and its relationship to the cost of capital and market value of the firm.
The importance of online IR to firms’ IR efforts.
A comparison of the IR sections of the websites of six companies.

According to a results from a NIRI survey released in January 2005, the primary goal of investor relations policy is to ensure that the market prices of a firm’s shares accurately reflect the values of its assets and the expectations of future earnings. At its core, investor relations is a disclosure service with the interlinked objectives of reducing the risk premium associated with information asymetry, which in turn should lower the firm’s cost of equity. Disclosure refers to the extent of compliance with statutory reporting requirements as well as additional voluntary communications to financial markets by issuers.

In an efficient capital market, the value of the firm would be determined by the present value of expected future net cashflows discounted at the appropriate risk adjusted rate of return. The primary purpose of disclosure to the investor, as provider of risk capital, is to make available information that would be useful for the assessment of the amount, timing and uncertainty of these anticipated future cashflows. In the present case, usefulness is defined by the relevance, reliability, comparability, timeliness and understandability of the information.

The internet has unique value with regard to usefulness of disclosed information because of its three characteristics:

As a medium, the internet is the most effective channel for the instant and broad dissemination of disclosure.
As a platform, the internet allows for the provision of analytical tools that can aid the processing of disclosed information.
As a contextual library, the internet allows users to quickly make references to other sites and sources to enhance the user’s understanding of the material. It is easier to open five tabs on a browser than to have an hard copies of three annual reports, an industry journal and an analyst research note open on one’s desk.

The need for disclosure is predicated on the information asymetry that privileges managers-as-agents over investors-as-owners on the true condition of the firm and its cash generating prospects. As we said, investors use estimates of the certainty, amount and timing of this future cash generation to assess the riskiness of the firm vis-a-vis a riskless investment with fully known and certain timing and amount of cash flows.

When investors feel that managers are withholding, falsifying or misrepresenting information (as well as in cases where managers disclose information for self-serving reasons, such as in the run up to a public offering so as to give a boost to the average share price in the preceding months), they will refuse to invest, demand a higher risk premium or provide suboptimal resources, which in all cases are detrimental to the economy at large and the firm in particular. Clearly, responsible managers have a self-interest in ensuring disclosure by the most efficient means available.

The ubiquity of the internet has made the instant and mass dissemination of disclosure possible at minimal costs to firms. Importantly, it has made possible the ‘mass-customization’ of information in ways that were previously impossible with printed documents such as annual reports. For instance, the incorporation of hypertext in web-based financial reports permits document designers and users to create infinite permutations of independent contexts and perspectives over the same hypertext network. In this way, both casual and expert users of disclosed information selectively and conveniently review the same body of material in various ways, at minimal or no cost, freeing document designers from the task of tailoring the material for different audiences and saving firms significant printing costs.

Before going further, it is necessary to caution that disclosure is not a tick box affair. Simply commissioning a new website with an investor relations section that has all the ‘correct’ sections does not signal a commitment to disclosure nor a credible investor relations program. While this is commendable in a market where less than 40% of the quoted companies have websites, less than 20% update their sites monthly, and less than 15% have relevant investor relations sections, there remains a lot of work to be done before public companies in Nigeria can claim to have robust and responsive investor relations functions.

The US Securities and Exchange Commission (SEC) describes a company’s web site as ‘an obvious place for investors to find information about the company’ adding that ‘technological advances and the reduced costs associated with the implementation of technologies over time, now allow companies to include more “interactive” and current information on their web sites than was the case previously, thereby moving web sites away from the filing cabinet or “static” paradigm to a “dynamic” paradigm, one shaped by the market’s desire for more searchable and interactive information.’

In fact, the SEC characterizes the web as ‘a valuable channel of distribution for information about a company, its business, financial condition and operations’ and expresses urges companies to ‘develop their web sites in compliance with the federal securities laws so that they can serve as effective information and analytical tools for investors.’

A number of Nigerian companies have already taken steps in this direction. Let us now review their investor relations sections to see how.

…To be concluded in Part 2.

Author:	Obi T. Onyeaso
Categories:	Investor relations
Tags:	analyst coverage, business strategy, Corporate communications, Diamond Bank, FCMB, Financial communications, Financial institutions, First City Monument Bank, GT Bank, GTB, Guaranty Trust Bank, Intercontinental Bank, Investor relations, Nigerian investor relations, Nigerian Stock Exchange, Oando, online IR, shareholder communications, Shareholder engagement, UBA, United Bank of Africa

Customs Street Advisors is a full service investor relations firm based in Lagos, Nigeria.

And the winners are Diamond Bank, FCMB, GTBank, Intercontinental Bank, Oando and UBA: How some Nigerian companies have taken the lead in online investor relations (1).

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