African Investor Relations

In presenting to listed companies and spreading the word about progressive online shareholder communications there are always two questions that arises from the audience: “most of our investors do not have access to the Internet so why should we bother with our website?” and “nothing is happening in the company at the moment so we will wait until it does to sort out our website”.

This is my standard response in summarised points to the first question:-

• Investors bought your shares on two assumptions: firstly, that there is a market for the shares they purchased and they can sell the shares at a reasonable price. This last point is the crux of the matter. Directors have an obligation to employ all reasonable efforts to ensure that the information to make educated investment decisions is made available. What better complementary medium than the Internet? Low cost etc.
• It can take just one investor to change the fortunes of your company, it may be Mark Mobius or a local institution or indeed your retail shareholders. The benefits of a diverse array of shareholders is well documented in US markets and the same applies in African markets.
• There has to be a holistic approach to a communications strategy. Employ all reasonable means to get the message out. Mix your brand message with your IR message, investors are as important as customers.
• News of the growth in Internet capacity in Africa is coming thick and fast prior to 2010. I have recently been a participant of the roll out of mobile internet in Kenya, it is changing things significantly and quickly. Prepare now for the future.

On the second question my response is as follows:-

• If a new website is launched just prior to a major corporate action, to whom will the website be advertised and targeted? The online media game is competitive and the mere introduction of an online presence is insufficient to get the message out in the short time span of a capital-raising. Listed companies need to have an identified audience and ensure that the very brief sight that an investor has of the website results in a registration or “opt-in” to receive information
• It takes over a year to establish a meaningful online investor relations presence. It’s a process and not an event. Effective SOE initiatives will help but it’s the ability to establish a secure two way communications channel between every investor and you that is key. This builds a community. One off Internet events does not.

Keeping the status quo is not enough in this day and age. Corporate strategy should embrace the Internet. The tools exist and the upside is significant. It takes just one investor to make a difference to your company – perhaps he’s the guy with the computer.

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The UK Investor Relations Society recently released a new code of conduct for institutional investors (pensions, insurance companies and investment trusts) to enhance the quality of dialogue between institutional investors and issuers.This code was developed by the organizations representing institutional holders and is meant to improve shareholder returns, corporate governance, and reduce risk. The seven principles:

1. Institutional investors should publicly disclose their policy on how they will discharge their stewardship responsibilities
2. Institutional investors should have a robust policy on managing conflicts of interest in relation to stewardship and this policy should be publicly disclosed
3. Institutional investors should monitor their investee companies
4. Institutional investors should establish clear guidelines on when and how they will escalate their activities as a method of protecting and enhancing shareholder value
5. Institutional investors should be willing to act collectively with other investors where appropriate
6. Institutional investors should have a clear policy on voting and disclosure of voting activity
7. Institutional investors should report periodically on their stewardship and voting activities

Any insights from institutional investors in Africa on whether they are guided by similar Africa-wide principles or only international principles would be appreciated.

The Investor Relations Society represents members working for public companies to develop effective two way communication with the markets and create a level playing field for all investors. It has nearly 600 members drawn both from the UK and overseas, including the majority of the FTSE 100 and much of the FTSE 250.

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The following extract from the Nigerian corporate governance policies and our appraisal as to whether such policies have been broadly applied by listed companies appears below:-

PART H- COMMUNICATION

35. Communication Policy

35.1. Companies should adopt and implement a communications policy that enables the Board and management to communicate, interact with and disseminate information regarding the operations and management of the company to shareholders, stakeholders and the general public.

Have Nigerian companies broadly applied this principle? No.

35.2. The Board should ensure that company reports and other communication to shareholders and other stakeholders are in plain language, readable and understandable and consistent with previous reports.

Have Nigerian companies broadly applied this principle? No.

35.3. Communication with shareholders, stakeholders and the general public especially by public companies with listed securities should be governed by the principle of timely, accurate and continuous disclosure of information and activities of the company so as to give a balanced and fair view the company including its non-financial matters.

Have Nigerian companies broadly applied this principle? No.

35.4. Companies should ensure that shareholders have equal access to company’s information. The Board should endeavour to establish web sites and investor-relations portals where the communication policy as well as the companies´ annual reports and other relevant information about the company should be published and made accessible to the public.

Have Nigerian companies broadly applied this principle? No.

Professor Mervyn King SC states that managing corporate governance by way of checklists is a meaningless exercise because it is not possible to legislate probity. The Nigerian example above and most other second tier markets are examples of where checklists are required in implementing or influencing good corporate governance policies. I suspect that directors of listed companies just do not know how to implement the:-

“principle of timely, accurate and continuous disclosure of information and activities of the company so as to provide a balanced and fair view the company including its non-financial matters”

given the challenges facing them on a day-to-day basis. Simple checklists and whether they have been complied with provide indicators to directors and investors and regulators alike. We are currently carrying out research on Nigeria’s IR policies so watch this blog post for more details.

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The following extract from IntelliNews African Telecom & IT Review  and ISI – IntelliNews on November 23, 2009 provides a peak into Kenyan Internet growth which is ramping up after the new Seacom cable down the East Coast of Africa came online in July 2009.

“More homes are connecting to high-speed internet since data service provider, AccessKenya (AK), doubled capacity. The firm is linked to the Seacom and Teams undersea fibre cables. With 500 new customers in Oct, AK has overtaken its 2,800 annual target, AllAfrica.com reported. Group MD, Jonathan Somen, said AK expects to increase market share considerably in 2010. Access@Home guarantees speed, unlimited downloads, better service levels and support. AK’s corporate market share is over 40%. The company estimates its total market at about 7,500, excluding 20% of the 40,000 corporates, giving enormous growth potential.”

No Kenyan listed company has yet to take their investor relations initiatives online. There are significant and compelling reasons why they should.

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The following extracts from the 2009 ASEA conference in Abuja from This Day, a newspaper in Nigeria, illustrate that:

• ASEA needs a proper vision;
• ASEA needs resources and leadership;
• African markets will not grow until regulators facilitate that growth through actions;
• Markets exist for the benefit of listed companies and investors not the other way around; and
• Oft-repeated annual clichés do not build markets; and finally
• ASEA has not achieved anything significant.

I have taken the text out of This Day’s article ( a Nigerian newspaper) and added my 2010 New Year’s wish in the form of narrative that I would liked to hear from ASEA 2010 conference (where-ever that may be).

Here goes:-

What was said in 2009: “Regulations must be strong, enforcement efficient and effective while investor education must also be given priority to enhance market competitiveness.”

What I would like to hear in 2010: “Through the studies undertaken by our A, B C members during the year we have identified the following opportunities to improve enforcement and investor education: X, Y and Z. ASEA markets have agreed to implement A, B and C of these before next years conference. The person responsible for this is Mr X of Y stock exchange.

What was said in 2009: “For African securities exchanges to be strengthened and attract desired patronage, they should adopt globally accepted disclosure mechanism such as International Financial Reporting Standards (IFRS) and high corporate governance standards.”

What I would like to hear in 2010: “For African securities exchanges to be strengthened and attract desired patronage, they should be responsive to the needs to investors and listed companies. An online African wide consultation and feedback process will commence on 1 January 1 2010 and ending 30 September 2010 with results and recommendations being submitted to ASEA board prior to the next board meeting. US$X00 has been set aside for an independent third party to manage this process. The person and exchange responsible for the supervision of this process is Mr Smith of Y exchange.

What was said in 2009: “Demutualisation will leads (sic) to enhanced corporate governance practices and should be a priority for African stock exchanges.” 

What I would like to hear in 2010: “Demutualisation is being considered by the following markets, A, B and C. The positive impact of demutualization for investment promotion prospects, investor responsiveness and listed companies are as follows: A, B and C. You may contact Mr X of the Y stock exchange if you have any information requirements.

What was said in 2009: “Risk management procedures will be crucial to developing African markets”

What I would like to hear in 2010: “Through the studies undertaken by our A, B C members during the year we have identified the following opportunities to improve risk management procedures: X, Y and Z. ASEA markets have agreed to implement A, B and C of these before next year’s conference. The person responsible for monitoring this is Mr X of Y stock exchange.

What was said in 2009: “Liquidity is still an issue in Africa, due to small floats and small size of many listed equities.”

What I would like to hear in 2010: “The following statistics on the liquidity of all ASEA member markets show improvement over the previous year. Many thanks to Mr Smith of X market in compiling this information. ASEA encourages its members to adopt the following mechanisms to improve liquidity and float sizes: A, B and C. A file of tips to do this is available for download on our website.

What was said in 2009: “The establishment of a strong investment banking industry and usage of mutual fund (sic) to deepen the market is recommended.”

What I would like to hear in 2010: “This is a summary of the initiatives of each of the ASEA exchanges to promote and deepen their market structures: A, B and C. The delegates agreed that the following areas: A, B, C have the greatest impact and should be adopted in 2010. The person and exchange responsible for this feedback is (). The ASEA strategic plan for 2010 – 1015 is available to download here.

What was said in 2009: “Efforts should be made to list the large companies that are currently outside the markets via legislation especially telecoms and oil and gas.”

What I would like to hear in 2010: “The following efforts were made to make listing more attractive on our stock exchanges: by category. ASEA agreed that the single biggest area to promote listings is in X area.” The ASEA strategic plan for 2010 – 1015 is available to download here.

What was said in 2009: “There must be conscious efforts to attract and sustain foreign investments into Africa since prospects for long-term investments abound on the continent.”

What I would like to hear in 2010: “Since prospects for long-term investments abound on the continent and information is the life blood of markets ASEA has, through a consultative process with market players from X date to Y date and managed by Z independent consultancy, adopted minimum voluntary standards of information dissemination for its listed companies. ASEA concluded that Africa’s long term opportunities cannot be appraised as such without adequate information.”

What was said in 2009: “There was need for African exchanges to integrate their markets for improved liquidity, access to greater capital pools, and efficient operations. 

What I would like to hear in 2010: “The prospects for market integration will not be mentioned ever again until A,B,C,D,E and F markets address the basics of exchange control, equality of investor treatment and information availability. The attached annual report, kindly prepared by H exchange, is a succinct summary of the restrictive exchange rate regimes adopted by ASEA member countries.

What was said in 2009: “The adoption of compact technology should be a way of reducing the cost of acquisition as this will enhance the integration of trading platforms.”

What I would like to hear in 2010: Something that is coherent.

What was said in 2009: “The participants identified implementation capacity as a major constraint to executing large capital projects – and therefore sees Private Public Partnership (PPP) as the future of infrastructure development in Africa.”

What I would like hear in 2010: “ASEA recognises that it cannot achieve its objectives on its own and will first achieve A, B and C in order to ensure that it becomes a credible enough organisation for it to partner with private sector resources.

These are my New Year wishes for ASEA and African stock exchanges.

Happy New Year!!!

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In further evidence of the absence of the African Stock Exchanges Association’s (ASEA) capacity to deliver meaningful vision to African capital markets the NSE sought financial assistance from the private sector to fund the ASEA 13^th annual conference held in Abuja in early December 2009. The request came just three weeks before the event.

The conference, touted as the highlight of the activities of ASEA, has been advertised from the beginning of the year. One would assume that, if ASEA had meaningful relationships with its members and Africa’s more than 1,300 listed companies, some form of sustainable funding could have been raised and applied to greater benefit. The objectives of ASEA have not been pursued effectively and therefore ASEA and the NSE find themselves short of cash.

I guess the National Institute of Investor Relations (NIRI) link in the USA is a parallel organisation that has similar objectives to ASEA but within the investor relations field. The organisation in its early years pondered at great length on how to structure its membership, what to charge and what to do in order that it had as broader support as possible. It worked and the organisation now has over 4,300 members worldwide and is a leading organisation in participating in the interface between regulators and market practitioners and listed companies. ASEA has over 22 African stock exchanges, over 300 brokers and over 1,300 listed companies from which to solicit funds in exchange for investment into activities for the benefit of its members and markets as a whole.

I can think of more than a few products that ASEA could offer listed companies, brokers and exchanges in Africa in exchange for some nominal funding or “membership fee”. Let’s look at some numbers:-

If Africa’s 22 stock exchanges each donated US$20,000 per annum (on average – with the smaller markets paying a lot less) and if 50% of Africa’s + / – 400 brokers paid, on average US$750 a year, and say 50% of Africa’s 1,300 listed companies paid, on average, US$1,000 a year then ASEA could raise US$980,000 per annum for market development and improvement initiatives. These initiatives could have, as their beneficiaries, those organisations that subscribed to ASEA.

Add to the above revenues from advertising to the dedicated stakeholder base that would result from the progressive products ASEA would offer.

ASEA’s activities should be outsourced to the private sector. I will give you an example of why. A topic on the agenda at the Abuja meeting is addressing the illiquidity of Africa’s capital markets.

So all of the regulators and market officials, the ones responsible for perpetuating high levels of illiquidity, are tasked with the responsibility of addressing illiquidity in Africa’s markets. Those responsible for the status quo are asked to debate the way forward. In a single sitting. In Abuja. There is no evidence of active dialogue with the listed companies themselves, investors or capital market practitioners prior to the conference. Or at the event for that matter – the conference does not attract a broad base of stakeholders. The meeting is not an accumulation of the views and professional opinions of the dialogue of hundreds of stakeholders over the year. It’s an event where the most likely outcome will be rhetorical and clichéd calls for promotion of a greater number of listings to increase “liquidity”.

This is what the ASEA should do. Sort out their website and make it truly interactive. Adopt say three annual themes. Get member exchanges to provide meaningful data, which aggregated, is attractive to a broader range of stakeholders. Get those stakeholders commenting on the three annual themes. Use the feedback to have a round table discussion at the annual conference and then set concrete and achievable goals for ASEA to pursue.  

It’s simple but ASEA can’t achieve this because the organisation is poorly structured and no-one is applying their mind to what ASEA should be doing to have a meaningful impact.

 OK say that you think that it’s not possible to co-ordinate African markets through the ASEA. Say it’s just not doable. Fair enough. Then disband ASEA and take a regional approach but you can’t have it both ways.

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To whom is the corporation accountable? Before SOX, majority voting, proxy access and “say on pay,” director elections were democratic in name only, and the lines between board and management were blurry at best. Except for the occasional gadfly at an annual meeting, boards rarely communicated with shareholders directly.

Today, after nearly a decade of turmoil in the markets and changes in the regulatory environment, the insulated board is a thing of the past. Shareholders are coming to view directors as leaders whose perspectives may diverge from those of management, who are empowered to exercise independent judgment on matters of consequence, and who are accountable for corporate performance.

A small but growing number of boards, recognizing that investor expectations have changed, have made dialogue with shareholders a formal priority. They are experimenting with new approaches for nurturing this interaction and learning from the experience. Although systematic programs for board-shareholder communications are still atypical in Corporate America, it is not too early to make some observations about what the more successful efforts have in common.

First, nurturing dialogue with investors – as with other corporate stakeholders – requires the establishment of systematic processes for outbound communications with shareholders. At a minimum, companies need to develop a board-shareholder communications policy and method for flagging the inbound shareholder inquiries that should be elevated to the directors themselves. The screening process usually involves two key questions: Does the investor have a significant position in the stock? And, is the matter more appropriate to be handled by the investor relations officer or another member of management?

What kinds of investor concerns are, in fact, appropriate, for board-level response? A blue ribbon commission convened by the National Association of Corporate Directors (NACD) identified several areas as appropriate topics for board-shareholder communications, chief among them CEO evaluation and succession. Another topic is executive compensation, which is not surprising at a time when CEO pay is constantly in the headlines. Other suitable areas identified by NACD are corporate strategy, board structure and director nominations, as well as social, environmental and labor issues.

A number of boards recently have begun meeting personally with proponents of shareholder proposals before they are filed or, once filed, before they come to a vote. Contacts like these provide opportunities to dispute the claims of dissident investors, potentially averting the spread of misinformation as well as personal embarrassment – particularly at the annual meeting.

Today’s forward-thinking boards approach the annual meeting as a serious venue for investor dialogue. A state-of-the-art annual meeting is a well-publicized event held at an accessible location at a convenient time, webcast live on the Internet, and structured in a way that encourages shareholder participation whether in person or online.

Whether the venue is an annual meeting, investor road show or meeting with proponents of a shareholder proposal, the directors who participate need to be prepared. This preparation includes a prior understanding of any underlying issues specific to the company. What are the likely questions, and how should they be answered? This can often depend on the shareholder’s investment style and longevity as an owner of shares. When directors are caught off-guard, the consequences can damage their credibility as well as that of the company.

In practice, learning how to conduct candid and productive face-to-face conversations with shareholders – responding appropriately to their unique psychologies while staying within the confines of Regulation Fair Disclosure – can require considerable training. It also necessitates an understanding of the company’s shareholder base. To help directors stay informed, every pre-meeting board package should include a report on management’s investor relations program, including a detailed analysis of the company’s shareholder base as well as any recent ownership changes, investor feedback and topics of investor interest or concern.

An effective process for encouraging board-shareholder dialogue should include mechanisms for tracking and reporting the resulting communications and their outcomes. A company that is truly committed to this effort will make these reports a regular agenda item for board or governance committee meetings and, thus, a formal element in the board’s annual work plan.

Communicating proactively with shareholders on a regular basis can lead to a variety of positive corporate outcomes. Adding channels for outbound messaging and improving board transparency can strengthen shareholders’ understanding of the company’s governance policies and its strategies for driving growth and profitability. In addition, boards that demonstrate a commitment to open shareholder communication often find that their reputation has been enhanced – not only within the company’s investor base, but more broadly on Wall Street and in the media community.

At a time of heightened demand for accountability, open communication with shareholders enhances the value that service as a director brings to both the corporation and society at large.The alternative is considerably less attractive. Boards that keep investors at arm’s length are risking the independence of their companies and their personal reputations as trusted fiduciaries.

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Maureen Wolff-Reid
President & Partner

SharonMerrill Associates

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I read a study by the SEC on US investors and it go me thinking how none of the African markets have anything similar. The results of the profiling are interesting:-

• 38% of investors in the US get company information from corporate websites, 24% from portals
• 51% of US investors found the language used in annual reports “somewhat difficult” to understand and 21% “very difficult” – thats a total of 72% of the readers of annual reports finding difficulty in reading annual reports
• 55% of investors found “too much” information in annual reports
• 60% of investors revert to the Internet to find information missing in annual reports
• US investors do not read annual reports because “they are too complicated – 38% of respondents” or ”they are too long – 21% of respondents”
• 55% of US investors access information on their investments from the Internet
• 20% of US households invest in shares and 26% in mutual funds

My suggestion is that once the African Stock Exchanges Association sorts out its directionless state it should co-ordinate market- wide studies into African markets. They need not be complicated. I bet you studies on cell phone ownership and internet penetration and what the needs are of African investors will reveal some real opportunities for Africa’s markets and companies to improve their capital markets.

One last statistic here is the scary one: investment literacy was measured and 70% of Americans with investments in shares acknowledged they owned a part of the company BUT 22% thought they had lent money to the company by investing in its shares. There has to be a high percentage chance that Africans are more investment savvy than Americans if studies were indeed carried out.

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Robert Monks, a legendary shareholder activist recently gave a talk as part of the Shareholder Activism course at Harvard Law School about the past, the present, and the future of shareholder activism.

Mr. Monks habitually emphasises the importance of shareholders, noting that in the absence of an informed, motivated and powerful counter force to management, the corporation will always have the problem of autocrat who is answerable to no-one. He notes that capital markets generate tremendous wealth. The key issue is who is entitled to this wealth.

Mr. Monks concludes that the current governance system is in need of overhaul partly because of the asymmetry of resources available to the company compared with the activist shareholder.

Background materials about Mr. Monks and his talk are available here. A video of the talk is available here (Quicktime .mov format). Posted by Jim Naughton, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Wednesday November 18, 2009 at 9:20 am

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