African Investor Relations

The power of the press in influencing your community on issues pertinent to your industry can be negative. And listed companies can feel powerless. Unless they get out their cheque book and pay for content to be published in the hard copy press to counter the negative press or at least correct it.

Actively building an online community of online media enables you to distribute your message at any time as often as you want at no additional cost.

For example when a bank is accused of fraud in the hardcopy press, they may feel obliged to respond in the hardcopy press at a cost. The press then has the luxury of continuing publication of whatever material that they want without having to get out their cheque books. On the other hand the listed company and its cheque book is forever beholden to the hardcopy press. It eventually ends up where there is no communication from the listed company and people are left with their perceptions. Which are typically negative. Everyone thinks the fraud is larger than it actually is.

Having a targeted online community of online stakeholders levels the playing field for you. Being able to send out whatever information you need to respond to the market at any time, as often as you want, for no additional cost is a powerful tool especially where listed companies have a wide base of stakeholders, a politically important profile and a pan African presence.

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We have sent this IR research note to a broad array of stakeholders in Kenya’s capital markets:-

The document may be read online here. The regulatory framework in Kenya’s capital markets is rapidly evolving. The core issue: by placing the obligation of investors to locate shareholder communications the regulator’s core mandate, that of investor protection, is weakened.

Let me clarify here that the core issue is the replacement of hardcopy shareholder communications with something that is better not equal or worse. At the moment the regulators in Kenya have permitted generic shareholder communications publication in the press. This may be OK for the majority of shareholder communications but what about those corporate actions where the shareholder vote relies so much on the shareholder proxy material? In those situations where a direct link with the voters is vital because the majority shareholder is conflicted out? What about those shareholders with no access to the press or the internet?

A number of structural distortions have emerged from Kenyan listed companies’ attitudes in this unclear regulatory environment. One is fixation in the avoidance of incurring costs in implementing effective shareholder communications. This is a facade and an indication of the absence of awareness at Board level (and at a regulatory level) of how technology can be used to make the shareholder communications function a profitable one.

Another distortion is the attitude that retail shareholder interaction should be avoided. The recent developments in online share registry access is an extremely welcome development but company attitudes are as follows:-

• Access thereto is a shareholder choice – so the shareholder must pay for it. It should be mandatory and free.
• Some investors dont have access to the Internet so its not worth the investment
• A single channel of communication is sufficient – e.g. publication in the press
• The option for investors to opt in to receive hardcopy communications will not be provided

The Government of Kenya created Kenya’s large shareholder base as it was a political imperative. The Government of Kenya still has  a significant residual interest in the shareholdings of large Kenyan companies – Safaricom being one. The Government of Kenya should take some responsibility to ensure that the shareholders they have created have easy access to communications governance channels.

Fixation on cost reduction and reticence to consider solutions to actively engage shareholders, will, in the long run increase inherent market risk. Kenya is in a unique position to resolve this issue using precedent and innovation. The evidence is thus:-

• payment platforms e.g MPESA are already being used to pay dividends – for Safaricom, Kenya’s largest listed company and owner of MPESA, every shareholder is an MPESA customer
• a growing internet penetration rate
• a high mobile penetration rate – Safaricom has 13 millions subscribers – a free app to allow opt in to receive corporate announcements or “notice and access” announcements would be SO EASY to do. At the moment they SMS blast anyone who registered at IPO not necessarily identified sharehoders.
• a significant critical mass in shareholder numbers which should motivate some long term investment into serving them
• a stock exchange that is itself about to become a publicly owned entity – how is the NSE going to set the standards of communication?

If anyone should be leading the way in online shareholder communications it should be Safaricom and the NSE. Their shareholder base was created through Government policy. Their shareholder base is a natural customer target (a strategic asset) and they have the technology and budget to create a World class integrated shareholder communications platform.  When the requirement to post hardcopy annual reports to shareholders was dropped Safaricom avoided say, over US$2m in annual printing and distribution costs. A small proportion of this could be applied to technologies (already existing ones) to engage shareholders directly. At the moment their share registrars do not have an online shareholder communications platform (but the CDS and Custody and Share Registrars do).

Everything is lined up in Kenya – all that is required is for someone to focus on the basics. The rest will come.

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We believe that listed companies have now been required by the ZSE to prepare hard copy annual reports for all shareholders. The question of cost now comes to the fore given that there are thousands of shareholders whose shareholdings are of insignificant value (penny stocks). The practical focus should be how listed companies can reduce their shareholder bases significantly to avoid the costs of preparing annual reports. There has to be some form of share buy back solution specifically to make shareholders meaningful again.

Is it all really about cost? Isn’t the annual report a marketing document too? Isn’t business tough in Zimbabwe at the moment? The fact is that no-one has information on how much it costs to prepare annual reports in  hardcopy. If you want to share this information with us we will aggregate all the data we have, without disclosing names and let you know whether this is the issue that everyone thinks it is. Tell us how many shareholders you have and the total cost of your annual report per annum here .

Zimbabwe is at a crossroads in its securities legislation and corporate governance – a new code will be released by the end of the year. Now is the time to start looking at using electronic shareholder communications within a framework of corporate governance and the law. The solution is to provide investor choice and there is ample evidence elsewhere on how to slowly wean ourselves off hardcopy communications.

Click here to track internet use in Zimbabwe and other countries (you will need an internet connection). Or just read the document attached herein see below.

Remember all shareholders have to be treated equally. Companies can’t only have 10 institutional shareholders and still be listed.  If companies view them as an asset then the question is how to use the relationship to better advantage. This advantage may be in corporate reputation, commercial return, brand enhancement. Each listed company will have its own story. Every company has a story. You may not think it does, but it does.

When the obligation to send hard copy communications is dropped, an alternative communications governance model has to be adopted. The Internet can be an important cog in this wheel. The fact is no one channel of communications is perfect. Directors should use whatever tools they have available to them. Hardcopy, electronic and the Internet. You can’t ask shareholders to vote on a proxy card without giving him the information to make a decision on which he is voting. The issues are complex.

In Zimbabwe, the regulatory environment has been unclear and its up to companies to adopt a new communications governance model in consultation with legislators and regulators. Fat chance. There needs to be a culture of co-operation and like minded concern. This does not exist because everyone is so apathetic.

The attached paper outlines what an alternative communications governance model might look like. Read it here online here or download it here and send me your feedback. Zimbabwe is formulating a new corporate governance code and its precisely these issues that need to be addressed.

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The article below from www.ratio-magazine.com, a highly recommended read is good news for Kenyan shareholders. But why are shareholders paying and not listed companies? This is unheard of. Please correct me. Registrar Unveils Online Shareholder Access Service

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