Carolina Bridi, the author, contacted Obi Onyeaso, managing director of Customs Street Advisors, on his assessment of the contributions of social media to the practice.

His views may be read in the last paragraph of the story (Portuguese only).

The Capital Aberto website is here: http://www.capitalaberto.com/english/index.php

Related posts:

1. Social Media and Investor Relations Trends Webinar by Q4 Web Systems Engaging and insightful webinar on Social Media and Investor Relations...
2. You’re so vain, I bet you think this song is about You, don’t you: How social media breaks the corporate ego Last week, the CEO of a public company told me...
3. Virtual SADness (Self Assured Destruction) on Social Media ‘I will not give people a tool to harm me....

I think such an opportunity beckons to corporate communicators right now. Whether they recognize that history is offering them an invitation card to move from the tactical to the strategic is another matter entirely. Frankly, I think they have a once-in-a-lifetime chance to redefine their role in the hierarchy of corporate relevance.

A perfect analogy would be with IT professionals around the Y2K bug panic who leveraged a need for their skills to rise on the pole of corporate value. Suddenly, these guys – they were mostly male – who were seen as just geeks tinkering away in poorly lit air-conditioned rooms came to be accorded the respect of critical business infrastructure engineers.

Last year, I heard the most scalding comment ever made by a CEO on his company’s communications team. He said that they were ‘harmless data gatherers and speech writers. I only employ them because they know the press people.’ How insulting and unfair.

When I asked him if he had ever given them the opportunity to be anything more, he asked aloud ‘why should I?’ I left his office in a daze. Yet I wonder how much of this erroneous impression had been fostered by his communications people.

In spite of his dismissal, I persist in the belief that his words reflect a deep-seated frustration at the inability of that department to measure up to his expectations of what it ought to be doing to support the business goals of the company.

This week, Lamido Sanusi, governor of the Central Bank of Nigeria, echoed some of those views at 19th Financial Market Dealers’ Association (FMDA) Conference in Abuja. Speaking of the performance of the Central Bank’s corporate communications department, the governor recognized that:

Communication is a big problem and it is something we are working on. A lot of what we have said here should be said here should be something you click on the Central Bank website and find easily. So what we are trying to do is to source a communications adviser. I think what has happened is that a lot of corporate communications at the Central Bank has been dedicated to dealing with the press. . . Two hours after press conferences, I have to check to see if the communiqué is out because somebody who is supposed to do it automatically needs to be alerted before he goes and puts it up.’

A case in point would be waiting for the CBN’s web administrator to put up a transcript of the governor’s speech given at the Professor Sylvester Monye Foundation on July 9, 2010 two weeks after the event.

In this networked age, when news travels across the world at the blinking speed and virality of a 140-character tweet, the importance of a rapid response corporate communications function has never been more urgent. No organization, and that includes listed companies, regulatory agencies, government departments, private companies and non-profits, can afford to move at different pace in the on- and offline worlds.

In fact, to regard of the web as the ‘far and away’ and the 3-dimensional real world as the ‘here and now’ is as archaic as relics in the National Museum. The Great Cyber Divide no longer exists. In responding to customers, dealing with stakeholders, updating investors, communicating in a crisis and reaching employees it is an own goal not to synchronize the two acts.

Speaking of web-lag, First Bank, which has been in the news lately over the resignation of three executive directors on a single day, July 16, provided further evidence of the frustration described by Lamido Sanusi at the CBN.

For the full weekend after the departure of the executives, First Bank did not put up the release on the Media Section of its website at http://www.firstbanknigeria.com/MediaCentre/PressRoom/tabid/371/Default.aspx till July 19.

I have cited the cases of web usage, not because the speed of updating an organization’s website makes a communications professional of great value in itself. That would be too simplistic.

Rather I used the web to illustrate that if on a simple matter, and it really is a basic issue, as logging in to a content management system (CMS) and updating information, they are found wanting, then they still have a long way to go. I cannot recall a time when the fates of organizations depended more on the competence of their communications officers. They will have no one else to blame if they do not rise to the challenge.

The original article may be read here on the NEXT website.

Related posts:

1. The place to be: Why the Internet is integral to investor communications I am appalled at the failure of most companies on...
2. When speech is golden and silence is dross: Proactive value communications is the key to sustaining investor faith in the economic downturn. In a July 2007 interview that would haunt him, Charles...
3. Under-used & Under-rated: Are Corporate Websites Wasting Assets? Everybody I know remembers where they were and what they...

True to form, the next day, headlines in the business section duly announce that ‘Company A Beats Expectations.’ With this, the manufacturing loop is closed to be repeated during the next reporting period. And this is exactly the problem. The near-verbatim transfer of financial PR copy sent to newspapers often gets regurgitated for readers with only a modicum of analysis.

In his widely cited paper, ‘What is Financial Journalism For? Ethics and Responsibility in a Time of Crisis and Change,’ Professor Damian Tambini has given an excellent treatment of the potential of captive financial journalism to reinforce ‘capital market dysfunctionality.’ This condition gives investors, especially those at the retail end, a false sense of security and magnifies their distrust of the markets when the carefully crafted spin edifice comes crashing down.

The scale of permissiveness and passive acquiescence by financial journalists who are either too lazy, too ignorant or too compromised to move away from the Kool-Aid fountain to ask hard questions is imperiling the foundation of faith that readers place in the press and by extension, the efficiency of markets. Participants at a seminar organized by City University, London on the role of the media in the financial crisis were unanimous in their verdict that financial journalists must ‘quit cheerleading to become industry watchdogs.’

Returning to the factory floor illustration, I would say that the financial journalist is the weakest link in that chain. She is not there to serve the companies she reports on but her readers.

Speaking at the Covering the Crisis conference organized by the European Journalism Centre in December 2009, Dean Starkman, editor of The Audit at Columbia Journalism Review  damned the sellout: ‘Journalists have become embedded in elite structures, in the culture of Wall Street.’

While equity analysts author more in-depth reports, their very quality of technical prose intimidates the man-in-the-street. In fact, one may argue that the financial journalist wields more influence than many very talented equity analysts. After all, for how many individual investors do the names of star analysts like Kato Mukuru of Renaissance Capital, Muyiwa Oni of Stanbic IBTC, Saeed Bashir of Meristem, Abimbola Smith of Chapel Hill Denham and Kemi Owonubi of Vetiva ring a bell? Besides, if a couple of influential analysts get it wrong, that is not so bad as when a few influential financial journalists lose the plot. Like the big money center banks, these journalists are systemically important and ‘too big to fail.’

We are now fully aware of the impact that a failed financial system can have on our lives. This has raised the responsibility of financial journalists to keep the public informed on salient issues about the markets and wider economy. In a real sense, they are the guardians of the new financial republic.

Therefore, the announcement in June by Diamond Bank, the upper-midsize bank, that it has created an award for Excellence in Financial Reporting is to be welcomed. According to the bank, the annual prize ‘would go a long way towards motivating these exceptional individuals to continuously aspire to give their utmost best in pursuance of excellence in their chosen profession; and by extension help improve the standard of journalism in Nigeria.’ By bringing the output of these reporters into the arena of contest, Diamond Bank is sending a strong message on what objective financial reporting should aspire to be.

My only comment is that the prize’s limit to pecuniary rewards does not offer enough. Sponsors of awards of this nature, like the Marjorie Deane Financial Journalism Foundation, always include a training or study component at a leading global paper or academy to help these reporters raise the quality of their production and cascade the knowledge transfer within their organizations.

Current fears of a double dip recession have pushed financial reporting to the forefront again. Readers are counting on these reporters to be more than copper conductors for releases drafted by companies and sent to them by the wire services. If they missed the crisis and its effects the first time, they better not miss it the second time around. As Richard Rescigno, managing editor, Barron’s, the finance magazine, has noted, this crisis is ‘too important to entrust to the bankers. So we need financial journalists.’

The original article can be read here on the NEXT website.

_______________________________________________________________

Addenda:

The paper below published in March 2009 by Weihua Huang, an assistant professor at the University of Maastricht, is pertinent to the debate on the perverse role that bad eggs in the financial journalism profession can play in reinforcing the dysfunctionality of markets.

In the video below, Juliane Reppert von Bismarck discusses the role of the financial media in the crisis at the Covering the Crisis Conference convened by the European Journalism Centre, Brussels, Belgium in December 2009.

Transcript of Jon Stewart’s infamous March 12, 2009 interview with Jim Cramer, host of CNBC’s Mad Money.

Related posts:

1. Vacuumistan: The State of Business and Financial Information in Africa Africa: Conquering The Last Frontier sounds like a befitting movie...
2. The place to be: Why the Internet is integral to investor communications I am appalled at the failure of most companies on...
3. The Value Additive Content of Executive Media Interviews Most public company executives regard media interviews as a distraction....

To aggravate the problem, on the few occasions that they admit that feedback is important, those saddled with responsibility for investor communications at most public companies, often lack structured processes for monitoring it. In fact, they are often unclear on what feedback should be (the next day’s closing price, share price volatility over the following week, an increase in trading volumes, greater liquidity in the stock, more positive mentions in the press, a spike in visits to the company website, more equity analyst following, bigger attendance at the next shareholder meeting).

But my topic today goes much beyond the creation of dashboards with fancy line and pie charts for the sake of it. It drills right down to value of investor relations to public companies from the board of directors’ point of view.

In the past year, companies on the Nigerian Stock Exchange have taken important steps to improve how they communicate with investors. No doubt, there is still a long way to go but it would be unfair to say that things are not improving. In my interactions with companies, I have started to sense a genuine interest among executives to facilitate the flow of information to investors. Although, this has not always translated to instant action, I put that down to the administrative bogs that are normal in big organizations. One thing that has struck me is the urge to push out more information to investors.

There is a good reason for this. In the past, investors had very little information of relevance with which to assess companies on a prudent basis. Normally, the momentum of a rising share price, enthusiasm of friends and the slick marketing of their stock brokers was all the convincing they needed. Few bothered to ask the hard questions or knew what those questions ought to be. So it is not unexpected that after their post-meltdown Damascene conversion, companies would be willing to go the extra mile in providing information to investors. This is a good thing. But is it everything? No, it is not.

When I look around, I see companies eager to launch investor relations programs with a sole focus on pushing information out to shareholders. This conception of investor relations as information fulfillment probably almost guarantees that they will not reap all the benefits they anticipate because there is no loop for returning information on how the company ought to adapt behaviour to better match investor expectations.

It also explains why investor relations is rarely accorded an appropriate position in the corporate org chart. The US National Investor Relations Institute (NIRI) definition of investor relations is very instructive:

Investor relations is 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.

- US NIRI

The point is that the investor relations function should be serving boards as much as investors with reports, analysis and research on what investors are doing and thinking. A CFO needs to be able to call up his head of investor relations and ask, ‘Why is our sector down this week?’ or ‘On a scale of ten, how do investors in our sector rate revenues in comparison with margins?’

The officer responsible for investor relations must know every analyst covering her sector and have all the research they have published going back 12 months at least. She needs to know why some analysts that cover her sector do not cover her particular company. She has got to understand their valuation methodology and influence among investors.

When woken from sleep, the investor relations officer should know names of her top fifty shareholders, their investment styles, what other companies in the sector they own and their orientation. She also needs to know the top investors in their peers and if they do not own the company’s shares, know the reason why. She needs to know how much time management has to meet with investors three months in advance and schedule meetings accordingly. These are just the beginning. There is so much more.

Doing all this is no mean task. It takes time and resources to produce results. Quite frankly, successful investor relations has the two faces of Janus: one looking out serving investors and the other looking in serving internal clients. Getting all As in pushing out information but not sitting for the paper in providing boards with invaluable insight is still a flunk.

For companies, the message is clear: in all thine giving information, be getting intelligence.

The original article may be read here on the NEXT website.

Related posts:

1. Outlaw Bride Raid: Shotgun Weddings will Backfire The global economic meltdown has thrown up once-in-a-lifetime opportunities for...
2. The place to be: Why the Internet is integral to investor communications I am appalled at the failure of most companies on...
3. This is a medical exam not a striptease: Transparency and access are a must for companies and not a favour to investors I distaste buzzwords. The ease with which they roll off...

Too many good people have been defeated because they tried to substitute substance for style; they forgot to give the public the kind of visible signals that it needs to understand what is happening. . . Essentially, it is my thesis that governing with public approval requires a continuing political campaign.

In effect, Caddell argued that a campaign state of mind for public office holders ought to be a permanent condition and politicians who deviate from this awareness do so at their own peril.

The Position-Posturing (P-P) dichotomy has existed for so long it almost enjoys the status of scientific fact. Positions are the serious stuff like policy- and law-making while posturing is the soft stuff like campaign speeches, sound bites and photogenic opportunities which travel so well in an age of 24-7-365 media coverage. Pundits maintain this cynical divide in their analysis, all the time bemoaning the creeping domination of posturing over position in the last three decades. From the day they are elected to office, politicians become hostages to their re-election campaign in future.

This state of being captive to appearances and consent is well noted by William Safire, the late man of letters, in Bending the Curve, one of his last essays for his On Language column in the New York Times. Safire uses the pseudo-scientific jargon ‘optics’ to describe this condition. He observed that:

“Optics” [drives] politicians to ensure that their policy positions are stated in a way that’s “optically acceptable” to their constituents.

His identification of the consensus principle gives the false impression that being beholden to the latest polls on voter sentiment is a secondary issue which politicians treat as a necessary distraction. In other words, it assumes that politicians can do something about it and exclaim ‘damn! To hell with the optics.’

In spite of the attraction of the P-P divide, there is evidence to show that it has lost a huge part of its relevance. It would be wide off the mark to confuse optics with cheap publicity or crass PR visibility. Optics have become an integral part of ‘doing real business’ because of its influence on the way voters make decisions. There can be no real business, as it were, without obeisance to optics. Furthermore, the coherent blending of perception and substance is not limited to politics. It has extended to the economy, that other sphere of human activity, especially in capital markets.

Intelligent CEOs know that the competition for capital is a constant and fierce one. Consciousness of this reality is not limited to their obsession with internal rates of return and net present values for various projects. Executives must take into account the reaction of their capital market stakeholders to every significant event instigated by them or which affects their company and sector.

This includes financial results, senior appointments, mergers, acquisitions, spinoffs, corporate actions, strategic partnerships and investment programs. So just as much as these corporate actors affect the market, the markets determine their actions as well. This reflexivity is best seen in the tendency of many company executives to focus on the next quarterly results rather than five years out and of investors to pore over company-related information from stock prices to governance codes to CSR policies.

The executives’ obsession with making next quarter’s numbers is a real limit on their flexibility to pursue initiatives they would like to but which place a lien on their shorter-term profitability. This is the permanent campaign of the capital markets.

From the day a company raises debt or sells equity to the public, it is always mindful that it will need to roll over that debt and sell more shares in future. In addition, it knows that it will require the support of bondholders for certain initiatives like restructuring and shareholders for others. Likewise, credit and equity analysts, governance experts, CSR campaigners, environmental and gender activists, employee unions, and regulators must also be kept sweet. As a result, companies must always be considering the reactions of these groups to most major decisions which might have an impact on its future cash generating potential. Balancing the interests of these groups and being seen to do so is not a distraction for the company. It is central to its success.

The most tangible example of this reality can be seen in BP’s Gulf of Mexico oil rig catastrophe. The public actions and statements of Tony Hayward, the BP CEO, are as important to its ability to raise capital now as its success in plugging the damaged well. Public reaction to his recent statement that ‘I want my life back’ when the demands of managing the crisis seemed to overwhelm him, was just as feverish as if BP had announced a new explosion on another rig. In today’s world, not just public officials, but public company executives must always be en garde. Permanent campaigning has become the main business.

The original article may be read here on the Alrroya Aleqtissadiya website.

Related posts:

1. Substance over Style: An Advanced Learners’ Guide to Communicating in the Downturn Bruce Wasserstein, the late chairman of Lazard, the storied investment...
2. The Value Additive Content of Executive Media Interviews Most public company executives regard media interviews as a distraction....
3. Reversal of Fortune: Rethinking Cost Cutting in Corporate Value Narration Cost-cutting may become the silent casualty of BP’s Deepwater Horizon...

Still, given that these preemption rights are now accorded the status of civil rights, it is good to recall that that there might be times when the goal is more than just raising capital, though it is ostensibly framed as such. I will argue that there are cases where the value of the signaling effect of the source of new capital and its expedience makes it the best deal for existing shareholders in spite of themselves.

Permit me to underline my extreme care in putting forth this point of view. There are extenuating circumstances when a new shareholder may actually deliver more to a company beyond the exact figure of capital participation being taken up. In these circumstances, public company attitudes to new shareholder blood are heavily influenced by factors that have more to do with strategic considerations post capital-raising than just a shot in the arm of fresh capital, strictly speaking. At this point I would like to make one clarification. ‘New’ should not be exclusively interpreted to mean that the incoming capital is from a party who has never been a shareholder in the company before. The ‘new’ shareholder may actually be an old shareholder in the company. Their ‘newness’ is defined by the company’s willingness to offer them a unique attractive rate of participation in its ownership which is not extended to other shareholders.

Two obvious examples of the oxygen that some new owners bring were the decision by Goldman Sachs to raise US$5 billion from Warren Buffett’s Berkshire Hathaway vehicle in September 2008 and a month later, Barclays’ choice to raise £5.8 billion from Abu Dhabi and Qatari investors rather than tap the UK government or their own shareholders at the peak of the global financial crisis.

On the conclusion of the Goldman-Buffett deal, a visibly relieved Lloyd Blankfein, the chief executive, announced that ‘we are pleased that given our longstanding relationship, Warren Buffett, arguably the world’s most admired and successful investor, has decided to make such a significant investment in Goldman Sachs. . .  which is a strong validation of our client franchise and future prospects.’ In his own statement, Buffett said that the bank ‘has a proven and deep management team, and the intellectual and financial capital to continue its track record of outperformance.’

Good housekeeping seals of approval do not come better than an investment from the Sage of Omaha. Any wonder that the partners of 85, Broad walked away from a planned US$2.5 billion investment on much better terms by a less gleaming Sumitomo Mitsui Financial Group, the Japanese bank.

One month later, Barclays, the British bank, announced its plans to raise capital from Middle East investors over its own shareholders’ protests.

The Association of British Insurers (ABI) promptly issued a rare ‘red alert’ and called it a matter of ‘grave concern’ that the bank would go over the heads of its shareholders to source capital on materially different terms from new investors. George Dallas, the head of corporate governance at F&C Asset Management called it a ‘clear and egregious breach of their rights.’ Roger Lawson of the UK Shareholders’ Association, the British version of Sir Sunny of ISAN, said he ‘deplored the lack of participation by all shareholders.’

In the midst of this anger, John Varley, Barclays’ CEO, pointed out that the Bank absolutely ‘did not have the luxury of time’ required for all approvals via that route of capital raising. Marcus Agius, the bank’s chairman, was blunter: ‘a rights issue would have subjected our shareholders to an excessive period of uncertainty.’ That would have been much worse. Crucially, what was left unsaid was that an investment from the Gulf funds would open doors for business in the fast growing region which was covetable in itself. Two birds, one stone.

Do not quote me wrongly or out of context. Rights issues have their assured place in capital raising plans. But they should not be an end in themselves. Sometimes, it pays for shareholders to trust a board’s judgment. Forcing boards to do what they know they should not and indulging shareholders by accepting what may not be in their best interest is irresponsible. These two wrongs will never make a right.

The original article can be read here on the NEXT website.

Related posts:

1. Rebel Yodel: Shareholders’ rallying cry in 2010 As the year draws to an end, it is tempting...
2. The last I heard: A look at deal communications in Nigeria Recently, Kraft Foods, the US quick serve meals giant, announced...
3. Do you speak my language: Why shareholders are tone deaf to your company’s message It never ceases to amaze me how companies on the...

But this time its opponent is no tupenny-ha’penny potentate. It is the President of the United States of America, the world’s only superpower. Who can save BP this time? Not the British government whose deputy Prime Minister, Nick Clegg, has cautioned that the matter does not ‘spiral into a tit-for-tat political, diplomatic spat’ or ‘descend into megaphone diplomacy.’ For his part, David Cameron, the British prime minister has been more subtle by calling for a ‘sensible dialogue’ so that ‘BP remains a strong and stable company.’ Smart British pols are not prepared to pick a fight with the US over an oil company.

If the tormentor looking for ‘whose ass to kick’ lives at the White House and relief will not come from 10, Downing Street, then where can BP turn to? From the latest news, it seems that a volunteer troop of shareholders are its best bet. Without putting too simplistic a weave on what is undeniably a complex issue, the mobilization of a BP Shareholders Resistance Army to challenge the ‘shakedown’ of their company signals a big shift in international business diplomacy.

What makes this relevant from a corporate communications-investor relations perspective is how those charged with external communications would need to devise effective means for working with these militiamen and irregulars to achieve company goals in situations of risk. For all their enthusiasm to lend support to companies at moments of crisis, their eager but often poor riflemanship may work at odds with the defined corporate communications plan. Engaging and absorbing them to avoid friendly fire will be an increasingly important part of the corporate communicators’ task list at such times.

In the last couple of weeks, the fury of UK commentators and shareholders over what are perceived as inconsiderate attacks on BP by President Obama has given us the 21^st century equivalent of ‘what is good for General Motors is good for America’ interest equivalence. From the way several leading voices in the UK tell it, what is good for BP is good for Britain. The unabashed trumpeting of jingo-speak reveals volumes not just about the enduring natal identities of multinationals, but the growing tendency for shareholders to adopt independent offensives, ostensibly in support of companies, when they perceive their interests are threatened. Obama’s call that BP freezes its dividend payment has only poured petrol on their rage.

Bearing in mind that BP, which the US president insists on calling British Petroleum, contributes about 11% of dividend income in the UK, Geoffrey Wheatcroft, the British journalist, has warned his co-citizens that:

Every British insurance company, building society and pension fund has large holdings of BP shares in its portfolio. If you have a pension, at present or in prospect, your income falls with every sour word Obama speaks.’ That is counter-accusation at its best.

If the Americans care about sealife and the livelihood of those living in the Gulf region, then the British have an equal right to care about the fates of retirees, savers and shareholders who are dependent on BP substantial and regular payouts.

A letter by John Napier, chairman of RSA, the insurance group, to the US president encapsulates all the bitterness over BP’s alleged victimization and the employment of double standards by the US: ‘There is a sense here that these attacks are being made because BP is British. If you compare the damage inflicted on the economies of the western world by polluted securities from the irresponsible, unchecked greed and avarice of leading USA international banks, there has not been the same personalised response in or from countries beyond the US.’

David Bickerton, BP’s director of communication, would never dare put words of that strength in writing.

Shareholders have become a strident voice, the ‘bad cop’ to the official corporate communicator’s ‘good cop’, in challenging attacks on their company. With skin in the game, but without the diplomatese of corporate communications specialists, these shareholders tell it like it is. If you are going to hit the company, you need to hit us first is their war chant. Expect to see more shareholders refuse to allow their companies to be bullied into quick surrender by regulators. They are vehemently rejecting any horizontal collaboration with the enemy as happened between French women and German soldiers in occupied Vichy France during the Second World War. No sex please, we are shareholders.

Related posts:

1. Not Guilty as Charged: Spare Shareholders the Blame Michel Barnier, the new European Union Commissioner of the Internal...
2. Reversal of Fortune: Rethinking Cost Cutting in Corporate Value Narration Cost-cutting may become the silent casualty of BP’s Deepwater Horizon...
3. When speech is golden and silence is dross: Proactive value communications is the key to sustaining investor faith in the economic downturn. In a July 2007 interview that would haunt him, Charles...

Thinking about this, one realizes that every triumphant idea has its opposite lying fallow somewhere, waiting for an opportune moment to boot up. My current interest is with the prevalent thinking that has teleguided investor expectations for the past three decades, namely that stock prices must always be going up, costs must always be coming down, profits always rising, dividends always higher each year and businesses becoming ever more efficient. In reality, these views, sometimes jeered as anglo-Saxon in origin, are offshoots of a certain idea of markets. It has become so pervasive that we hardly notice it, going so far as to ascribe immoral qualities to business leaders who fail to deliver them and venerate those who do. In contrast to these views, what ideas are lying around?

At the time, Friedman wrote his famous book, Keynesian economics reigned supreme. While Friedman held Maynard Keynes in high esteem, he was revolted by the hypotheses set forth in The General Theory of Employment, Interest and Money. When runaway inflation, labour strikes and the oil shock paralysed developed economies in the late seventies, Friedman’s ideas became a handy alternative to the babysitting State and socialist experiments. Margaret Thatcher, Ronald Reagan, Augusto Pinochet’s Chicago Boys and a newly assertive International Monetary Fund became his most fervent disciples. Their rallying cry was ‘give us free markets or give us death.’

The Chicago School would knock Keynesianism, which had lost its transformative social vigour, off its perch by the middle of the 1980s and kick east European socialism and its mongrel Third World versions down along the way.  In fact, the success of Friedman’s ideas was so thorough that when Francis Fukuyama, the political economist, published The End of History and The Last Man, his ode to liberal hegemony it was taken as settled that ideology, as preached by the Left, was dead. Capitalism, free market economics and its political structures had triumphed over every other idea in history. Grafting a pseudo-Hegelian, mock-Marxian dialectic to buttress his thesis, Fukuyama argued that Capitalist Man was the acme of the species. But nothing is ever settled in history as the Roman and British empires have since learnt.

The question then is this: are there coherent and competing alternatives to the view that companies must always provide investors with all the things they currently expect? How much farther will the tyranny of markets go? When companies fear making new investments because they do not want to miss earnings estimates, executives announce decisions just to give the share price a nudge or two northwards and boards consent to decisions that they know damage the long-term future of companies because they want to pay a bigger dividend? The very risk of being branded a heretic for questioning these practices confirms that we have all become ideologues for this style of capitalism that masquerades as scientific facts without even recognizing it.

As Friedman rightly noted, a crisis is needed for the counter-ideology to become activated. This theme of crisis as the jump off to change was exhaustively examined by Naomi Klein in Shock Doctrine: The Rise of Disaster Capitalism, her iconoclastic take on the Chicago School’s legacy. Since the osmosis of ideas can take years to penetrate the membrane of old worldviews, I cannot help thinking that the alternative to our accepted view of markets and what companies should owe us as investors will change radically in coming years. Do not get me wrong. Capitalism is not broken. But it has stretched to the point when its elasticity could snap if pulled further. I am prepared to wager that after the crisis in global markets of the past three years when things eventually return to ‘normal,’ however that state would look, things will not remain the same. In the time being, I will keep on scratching the ground, searching for ideas lying around. One never knows what one might find but I feel it is nearer the surface and closer to us than we know.

The original article can be read here on the NEXT website.

Related posts:

1. The S Factor: Beyond Strategy, Scale and Strength On May 17, 2007, at its annual shareholders’ meeting, a...
2. Shareholder Engagement and Sustainable Growth Companies often complain that investors and analysts set unfair standards...
3. Rebel Yodel: Shareholders’ rallying cry in 2010 As the year draws to an end, it is tempting...

No one seriously questions that reforms are needed to instill greater transparency and trust into markets. In fact, many items on the reform list have long been campaign issues among governance and investor activists. However, until the market turmoil began, they were either not considered urgent or the political will was lacking. Presently, it is at the top of the legislative agenda. Board member selection, remuneration, risk management, regulatory capital, corporate governance and market monitoring are just some of the mandates bestowed on various government- and regulator-instituted committees.

Reformania raises two questions. How much of the posturing will produce substantive and positive gains for market participants? Second, up to what point will the market bear before too much of a good thing turns bad?

The Nigerian experience is a good example of the risk of reform overload, especially when driven by a rainbow coalition of reformers. It is hard to escape the sentiment that some, not all, of these crusaders only want to be able to say ‘we are doing something about the stock market collapse and executive misconduct’ too. Of course, that may be an unfair judgment. But it is not baseless. To clear their names, they should be telling us what they were doing when these heinous crimes against capitalism were taking place.

The taint of opportunism is unmistakable, almost like artistes and thespians falling over themselves to identify with rescue efforts in the weeks after the Haiti earthquake. But there is one big difference between dilettante celebrities trying to do good by giving publicity to a humanitarian crisis and regulators agitated by a market catastrophe. When the showbiz crowd loses interest, they quietly move on with no damaging baggage left behind. With regulators, the excess luggage of new regulations, costly rules and conflicting laws will weigh down on the necks of companies and investors for years to come. Just ask Mayor Bloomberg how much New York City lost to London in its competitiveness as a harbor of global capital after the passage of Sarbanes-Oxley.

In the past year, different committees have been set up to review the functioning of the country’s capital markets and governance codes. Motivated by occasionally overlapping agendas, each group has set out to work on generic terms of reference such as improving transparency, enhancing disclosure and protecting investors. Only last year, the Dotun Suleiman-led Technical Committee for the Review of the Capital Market Structure and Processes in Nigeria, which was created by the Securities & Exchange Commission, released its report which called for wide-ranging changes in the market.

Before the ink on that document was dry, other inquiries were set up by the Honorable Aliyu Ahmed Wadada-led House Committee on Capital Markets and the Senator Ganiyu Solomon-chaired Senate Committee on Capital Markets. These investigations were in addition to the sweeping changes introduced by Lamido Sanusi, the governor of the Central Bank of Nigeria, aimed at sanitizing the banking sector and Arunma Oteh, the director-general of the Securities and Exchange Commission.

More recently, in May 2010, Remi Babalola, the Minister of State for Finance inaugurated two high powered committees chaired by Fola Adeola, the universally respected former banker and venture capitalist, and Konyinsola Ajayi, a charter member of the Establishment, to review the country’s capital markets and corporate governance rules.

With so much activity going on investors are now beginning to wonder if these groups may not be duplicating each other, or worse, unintentionally working at cross-purposes, creating room for reform arbitrage among participants looking for the lowest cost rules regime. The current re-regulation frenzy may lead to equally high costs for investors in the long run.

At this rate, investors could soon grow weary of new reform initiatives and rather insist on a report card on the implementation of existing rules like the 2003 Atedo Peterside Code of Corporate Governance. Piling on new reforms on top of old ones without showing why the existing ones are congenitally flawed is a waste of time. Reforms are not garments in the wardrobe of a clothes horse where new ones are carelessly heaped on top of older ones. It is blatantly absurd to imagine that merely passing more laws will make a society more law abiding.

The original article can be read here on the NEXT website.

Related posts:

1. SEC’s Appeal – Will the Regulator ever get its mojo back? The Securities and Exchange Commission (SEC) has been in the...
2. Rebel Yodel: Shareholders’ rallying cry in 2010 As the year draws to an end, it is tempting...
3. Killers, not Guns, Pull Triggers: Financial Innovation Must not Die We all know the doomed legend of Icarus. The youth’s...

In fact, it is not unthinkable that rather than issue a Buy recommendation when a company announces several billion worth of cost cuts, in the future, sell-side research analysts would be just as likely to fire off Underweight and Sell marks when such drastic shavings are announced . The cult of rampant cost-cutting with its formulaic stripping could well be entering its decline.

Nonetheless, tempting as it is to finger corporate executives as the evil hand behind muscle cutting, the sobering reality is that capital markets have left them with little choice in the matter. Companies are expected to deliver a certain amount of earnings growth every year and they must find ways to meet those promises under pressure from investors. The punishment for missing these targets include a higher cost of capital, sustained decline in the share price and a drying up in the market for the companies’ securities. In this era of financialization, financial markets, financial institutions and controllers of massive blocs of capital exert an overbearing influence over the design and execution of corporate strategy.

In their provocative book, ‘Financialization and Strategy: Narrative and Numbers,’ the authors, Julie Froud, Sukhdev Johal, Adam Leaver and Karel Williams explain that ‘the intrusion of the capital market, signaled by increasingly vociferous investor demands for “shareholder value” since the late 1980s in both the UK and USA. . . makes the narrative and performative more important because every giant company now needs a story of purpose and achievement that can be rendered more plausible by initiatives.’ Cost-cutting is at the center of that narrative.

The relentless focus on efficiency, which elsewhere is a malleable rhetoric subject to the subjective biases of in situ management, pushes many companies to keep reducing costs even when there is overwhelming internal evidence that it can have dire consequences.

For example, while the initial culprit in the March 2005 explosion at BP’s Texas Refinery was compromised process safety, the Baker Panel Report on the accident identified ‘budgetary challenges’ where ‘the company did not always ensure that adequate resources were effectively allocated to support or sustain a high level of process safety performance’ as the real villain. The unremitting elimination of expenditure to the detriment of the long-term health of the business is an indictment of both the company, on the micro scale, and also the dominant market culture, which demands these sacrifices to deliver on the shareholder value rhetoric.

All of this raises the question: how long before the cost retrenchment orthodoxy is challenged by the most influential voice of all in determining where those cost cuts occur, that is, management? Over the last two decades, the trend towards management compensation and incentivisation with stock awards has tied their interests much closer with non-insider shareowners and the fate of companies. Meanwhile, calls for limitations on the exercise of executive stock options till years after retirement or exit from the company will align their interests even better.

If the goal of shareholder value is to ensure the sustainability of businesses, it is critical that investors understand the importance of reinvestment, plant and property upgrades, capital expenditure and appropriate staffing numbers. Killing the goose that lays the golden eggs through indiscriminate cost cuts damages a company’s ability to throw off financial surpluses to shareholders in the long-term.

Boards and managers face the challenge of revising their narratives from an emphasis on costs cutting for short-term profitability to investment for value in the long-term. Waste will always be waste and has no place in well run operations. However, a unitary obsession with constant reduction in costs is irretrievably hurting businesses as BP, Toyota and so many other companies have learned to their regret. Executives need to drive the discourse towards why it makes good business sense not to cut costs beyond a certain point and how expenditure above a certain point creates long-term shareholder value.

These changes will not happen overnight. Investors who are long used to the catechism of cost cutting will not embrace its revision immediately. But it is the responsible thing for companies to do. It is one thing for companies to recognize that the competition for capital is fierce and quite another to cut corners just to measure up in time for the next few quarters’ earnings estimates. Markets will not come to that realization by themselves. The duty to evangelize this new doctrine lies with the companies themselves. Indefinite weight loss is not dieting. It is a destructive psychosis called bulimia nervosa. Obsessive and eternal cost-cutting is its corporate equivalent.

The original article can be read here on the Alrroya Aleqtissadiya website.

BP March 2010 Strategy Presentation

Related posts:

1. The Scorecard Aesthetic: Rethinking Annual Report Design Collecting annual reports is my pet passion. For Christmas, my...
2. The Value Additive Content of Executive Media Interviews Most public company executives regard media interviews as a distraction....
3. Seating Arrangements: Inviting Corporate Communicators to the Head Table Forget the glamour. It is a hard knock life for...