Lawyers do it all the time. It is second nature for accountants and auditors. Investment bankers, private equity investors and traders snap to it at the drop of a hat. Over the past decade, these professionals have all been quick to state their case whenever a significant market regulation – be it SOX, Dodd-Frank, Basel capital requirements, IFRS or the various EU market directives – has been proposed or implemented.

To read the full article, please visit the InsideInvestorRelations.com, the IR Magazine website.  The article is free to read after a brief site registration procedure.

Related posts:

1. Looking into Transparency – Africa Investor Survey on Transparency and Shareholder Identification Africa is playing catch-up in the transparency and business reporting...
2. The Evolution of IR in Nigeria Recently, the CEO of a mid-size company on the Nigerian...
3. Africa Investor Magazine Survey Results on Investor Relations in Africa – March 2010 Catherine Wright of Africa Investor’s Johannesburg office co-ordinated the survey....

His answer deserves verbatim repetition.

One word: consequences. These days, investors and analysts simply won’t let us get by with token spurts of information. The feedback is instant around results release dates and strategic announcements.

They want more information on performance, strategy, governance, our competition – you name it, they claim a right to know. Not just that, they want it delivered right to them, and faster, too.’

To read the full article, please visit the InsideInvestorRelations.com, the IR Magazine website.  The article is free to read after a brief site registration procedure.

Related posts:

1. One man’s meat, another man’s poison: Soludo’s restrictions on banks’ financial results advertising and the future of investor relations in Nigeria. Depending on whom one is asking, the post-banking consolidation era,...
2. 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 (2). How do the investor relations sections of Nigerian company websites...
3. 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). In the first conference call of the FCMB Group, and...

After the Securities & Exchange Commission’s announcement in August removing Professor Ndi Okereke-Onyiuke, the former director-general of the NSE, the public waited with bated breath for the searing indictment that was almost sure to follow. Anything less would have been an anticlimax for the baying crowd. After all, it was be unthinkable that the regulator would take such an unprecedented step by making a direct intervention in the affairs of the NSE without a thorough investigation and damning evidence.

When the so-called audit report was released, the public, which had been clamouring for a villain to pin the blame of the 200i market crash on, was not disappointed. It was the Pontius Pilate moment without the washing of hands.

In its press statement announcing the change at the bourse’s helm, the SEC under Arunma Oteh, its director-general, defended that it had a duty to calm investor anxiety in the midst of distracting litigation between the President of the Council of the Exchange, Alhaji Aliko Dangote, and Okereke-Onyiuke, a lack of clarity in the NSE’s succession plan and, finally, what it termed ‘several allegations of financial impropriety and corporate governance lapses.’

Since then, the new leadership of the NSE under Emmanuel Ikazoboh, whose responsibilities were stiffly defined in the press release as ‘day-to-day management’ has taken a number of unexciting but nonetheless, steady steps that highlight the strict operational character of its mandate. They include extending the trading period to 2:30 p.m., purchasing a new trading platform and delisting companies that have consistently failed to file returns.

These measures have been aimed at increasing high quality trading activity on the Exchange.  Yet, as commendable as they are, the narrow focus of these initiatives on solely investors under the catholic banner of ‘market reforms,’ demonstrates the limited scope of the NSE’ understanding of what the market should be.

In my view, the market exists to serve both investors, who provide capital, and companies seeking long-term capital. To serve one and ignore the other is counter-productive.

What we are seeing is that evangelists of the market reform agenda led by the SEC and NSE are extrapolating a boost in investor trading statistics and northward trending All Share Index as conclusive proof of market health.

This is where I disagree with them. I think they are wrong.

It is vital to draw a distinction between a rise in trading driven by the search for quick profit opportunities and investors’ willingness to commit long-term capital to the companies. It is only this latter that endows markets with its social utility.

Equally important, it is the one factor that companies closely monitor when determining their optimal capital structure, which, in turn, can have huge implications on their ability to reinvest profits and increase their competitiveness.

My considered verdict is that until middle-tier companies feel confident enough to return to the Nigerian Stock Exchange to seek capital, and at an attractive cost of equity, all the positive results on the return of confidence to the market are one-dimensional, even misleading.

The two missing critical dimensions are investors’ willingness to provide long-term capital to mid-tier and upper-micro companies, and the ability of these companies to raise same at a price that does not asphyxiate their growth.

Since big commercial concerns the like Dangote Group companies, big banks and multinational subsidiaries in consumer goods, food and beverage sectors can almost always raise cash in any market condition they should not serve as a representative bellwether of market sentiment for long-term capital.

Similarly, it is absurd for the Exchange or other voices to invite the likes of Shell, MTN and Etisalat, all of which have important operations in the country, to list on the Exchange as a means of boosting investor confidence. This is akin to asking the elite unit of an army to walk around a war ravaged town as proof of neighbourhood safety.

In a recent piece in his column, Luke Johnson (Financial Times, December 1, 2010) bemoaned the decline of the primary issues market in developed markets. Hear him:

In the 21st century, it seems the investment management industry in the west prefers to channel our savings into emerging markets or commodities such as gold – almost anything but growth companies going public. . . The capital markets have lost faith in domestic industry, and become enraptured with property, derivatives, bonds and every other asset class. . . The crucial role of stock exchanges in the financing ecosystem cannot be replaced entirely. Fund managers looking after pension plans should be seeking opportunities that will pay off over the long term. In the developed world we must nurture the minnows of today that may become the multinationals of tomorrow. . .

Somehow, securities markets should create exemptions to cumbersome regulations for smaller companies going public. Governments should introduce tax incentives to embolden investors so they welcome new companies to public markets. The authorities should devise more ingenious ways to increase market liquidity for small caps. This really matters. A vigorous pipeline of IPOs is a sure sign of a healthy and expanding economy, and successful flotations create a positive feedback loop that stimulates entrepreneurship, jobs and invention.

The writer, who runs Risk Capital Partners, a private equity firm, hit the nail on the head. The main reason for the existence of stock exchanges is to provide durable risk capital. All else, including the quick profit turnarounds of daily trading and deep liquidity are secondary throw-offs of this first mission. The obsessive spectator sport of bulls wrestling with bears and its running commentary is a side attraction. It must not be mistaken for the main event.

At a more fundamental level, the scorched share issues market raises existential questions about the role and value of investor relations. If raising fresh capital in equity markets becomes a non-option for most companies, then the meaningfulness of the activity of its practitioners comes into question.

One of the core responsibilities of investor relations officer is to facilitate a ready market for the company’s shares at a good valuation. If the macroconditions of the market make this effectively impossible, the IR professional’s effectiveness becomes handicapped.

Moreover, if companies cannot raise fresh capital, then there may not be much sense from an external investors’ point-of-view in the whole investor relations project. In such a universe, companies would only require fair valuations if they planned to enter strategic transactions based on the value of their shares or when executive compensation was tied to the value of shares. If the company does not plan any mergers and acquisitions-related events or executive pay is not linked to the stock price, then investor relations may well be irrelevant in the corporate order of priorities. In either case, the entire effort of engaging with investors as a valid case-in-itself becomes superfluous even wasteful. This unintended effect cannot be ignored.

So while the stage drama of the process that led to the exit of the former director-general continues and brickbats continue to fly over actions taken during her tenure, they are red herrings. The fact of the matter is that the faith of companies and investors in the Exchange’s reputation as a destination for capital is at a low ebb. If the Exchange cannot attract new companies nor serve as a channel for pumping fresh capital to those already on its platform, then it has failed woefully. Put differently, confidence has walked out the door.

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. Where there is no RegFD: How selective disclosure hurts issuers and investors on the Nigerian Stock Exchange. In 1999, the US Securities and Exchange Commission (SEC), made...
3. Look, don’t Touch: Real time Prices without Trading is Useless Maxims are deceitful. A popular saying may triumph on the...

For businesses, an economic recession, internal crisis, financial scandal or ruinous transaction can threaten their very existence from the outside. In turn, these four horsemen may provoke internal discontent within the company.

Very few companies will ever be faced with all four swords at the same time. It is almost impossible for a company to pass through the combined ordeal and come out stronger and better for it. But one company did.

When the business is a publicly traded company, its shareholders may agitate for major changes in governance and strategy punishing its share price, while talented staff may leave due to perceptions of uncertainty about the company’s future. Together, these can sap the company’s strength and handicap its ability to compete effectively.

Its story should inspire corporate leaders, business students and investors on the importance of resolution faced with adversity. When the hurricane came, the company’s board dug in its heels and the management hunkered down.

Most importantly, the company took an objective look at itself. In a rare admission by a Nigerian company, it recognized that it was losing the faith of its stakeholders. It needed to act fast to stem the hemorrhage. It did just that. The company is Transcorp.

With its ambitious goal of becoming a world-class company like the South Korean chaebols, which laid the foundation for rapid industrialization of the south-east Asian Tigers, Transcorp declared that it would pursue opportunities across entire value chains in agriculture, energy, entertainment, international trade and hospitality.

However, the company, which inspired high public hopes of leading the vanguard of Nigerian companies which were expanding across the continent when it was launched in 2005, became caught in the political crossfire between supporters of former President Olusegun Obasanjo and those on the other side of the political divide. Its high profile board, constituted of many leading lights from the country’s private sector, was an easy target for those who believed that the company was a front for rewarding the former leader’s business associates.

To compound the misunderstanding, the new company’s deliberate choice to grow through acquisitions in the federal government’s privatization program seemed to confirm concerns that it was only another rent-seeking enterprise with no value-adding potential. The relentless hostility of some commentators gradually turned what several investors had initially welcomed as a timely vehicle for the private sector’s contribution to national development and job creation into a thinly disguised caricature of the South Sea bubble with no credibility and a phantom business plan.

As if these were not enough, the rapid turnover in the C-suite, with four substantive and one acting chief executive in five years, did not help matters. Its acquisition of the once-dominant national telecoms company, NITEL, at a rich price in 2006 and the subsequent difficulties it had with labour resistance and government interference set a high bar for Transcorp to attain profitability in the mid-term.

When the immediate past CEO was arrested on allegations of financial impropriety and grave mismanagement, the company hit its low point.

In the space of four years, Transcorp had dropped from the darling of investors to a pariah stock. It was the embarrassing lovechild of the stock market’s years of excess.

In 2009, Mrs. Aduke Akanbi, a retired civil servant, told me with all the weight of regret that she could muster, ‘I have not sold my shares in the company because there is no one willing to buy. My husband and I bought the shares during the IPO at N7 and today they trade at less than 70k. Why should I still have any faith in this company?’

Providing an answer to that elderly shareholder’s question encapsulates the mission embarked on by Nick Okoro, the chief executive officer, who replaced Iseghohi last year.

Since then he has led the exit from NITEL, concluded the termination of the odious debt load Transcorp incurred to finance its NITEL purchase, focused the company on narrow segments in three core sectors, (agro-business, upstream exploration and production, real estate and hospitality- where the company’s network of partners places it in a very strong competitive position), established a partnership with Hilton International to develop  other Hilton Hotels in Nigeria including Lagos, and completed the acquisition of the 4-star, 146-room Calabar Metropolitan Hotel.

Recently renamed the Transcorp Metropolitan, it will be rebranded a Hilton Hotel after extensive renovation work scheduled to commence in 2011.  According to Afie Makinde, Transcorp’s head of Projects and Business Development, ‘Transcorp’s entry into Calabar raises the bar for business and leisure guests’ expectations in what is arguably the fastest growing tourist destination in West Africa.’

From its profusely bleeding loss position of N5.1 billion in 2008, the group has declared a profit of N1.2 billion in 2009. In the first quarter of 2010, it posted a profit before tax of N326 million which increased to N469 million by the end of the second quarter ending 30^th June, 2010. Speaking of the recent performance, Pius Uwagbai, Head, Financial Controls at the company explained that the company’s refined business direction and exit from NITEL have provided the boost to profitability.

But perhaps, Okoro’s greatest success has been keeping the company out of public focus for all the wrong reasons. Of equal importance, he has shifted its investment narrative from ‘we are planning to do’ to ‘we have done.’ Today, Transcorp has a track record of achievement. For those who recall the company’s many claims in the past and the damage to its credibility when it failed to achieve them, this is no mean feat.

This week, the company held its first annual general meeting to present results for 2006, 2007, 2008 and 2009 to shareholders. For Transcorp, this event goes beyond the formality of compliance with Nigerian securities laws. It marks a new page for a company that was once unfairly dismissed as an all cronies’ affair with the disdainful tag ‘Transchop’. A company once so maligned that senior members of its management team were regularly accosted at events and in transit at airports to confirm that the company was not a sham.

The absence of its name in the September publication by the Securities & Exchange Commission of companies in default of its reporting requirements proves that the company has now got its act together. Transcorp has pulled back from the brink of disaster. Asked what message the company would be taking to shareholders at the Calabar AGM, Nick Okoro, the CEO, said, without skipping a breath that ‘we intend to keep our promises’. It’s still early days yet but the smart money knows better than to dismiss this survivor. This company has shown that it can outlast its own tough times.

Related posts:

1. The first thing a company should do when the last thing it needs happens: Suggestions on how TransCorp should respond to the recent arrest on fraud related charges of Tom Iseghohi, its CEO When the Securities and Exchange Commission ordered the board of...

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. Under-used & Under-rated: Are Corporate Websites Wasting Assets? Everybody I know remembers where they were and what they...
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...

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...