Mark Hynes - thoughts on corporate disclosure

Opinions on changing rules, changing best practices, and their effect on investor relations officers.

Thursday, October 26, 2006

Supply chain disclosures in Business Review going ahead

More is emerging about the sudden, last minute changes to the Business Review, introduced as an amendment to Companies Bill.

These changes seem to have been introduced as the result of pressure from CORE, a coalition of 130 campaigning organisations. In their proposals published on October, there was an amendment which would require companies to publish as part of their Business Review, "information about persons with whom the company has contractual or other arrangements which are essential to the business of the company".

This amendment was quietly adopted by Government, and passed on a vote last Wednesday. Business organisations such as CBI were caught on the hop, and had no chance to express concerns. In this amendment, there was neither consultation nor certainty in the final outcome.

What do these changes mean in practice? Superficially, the new change requiring companies to disclose information about their suppliers looks similar to the OFR famously scrapped last year. However the proposed OFR was based on detailed standards; the new plans for supply chain disclosures are not. This makes them much harder for IRO’s to interpret.

Obvious concerns are about "information" and "persons". There is no guidance for companies on what "information" means - detailed, confidential etc -. that I can find. Thus the result will be patchy at best. Potentially also, "persons" could mean Directors, consultants, almost anybody. And how can you give information about them without breaching the Data Protection Act?

So Investor Relations professionals will be obliged to review their processes for producing the Business review – without the benefit of any guidance on content.

Thursday, October 19, 2006

And still the Business Review won’t stop moving…

After all the OFR shenanigans, Investor Relations professionals must have hoped that the Business Review had settled down, and the contents become certain. Wrong.

The Government has moved at the last minute to force issuers to disclose information on their supply chains. According to the Secretary of State, in a letter to FT, this is less about lists of suppliers, than about human rights and environmental issues down the supply chains.

Remarkably, for once, issuers and investors are united in their opposition to this plan. Investors are concerned that this could be a return to box-ticking, while issuers will concerned about yet another increase in regulation.

What should you include, and what not? For those companies who already cover the issue in some detail in their annual reports, will this mean a lower standard? The Bill’s amendment allows flexibility in what companies should disclose, rather than imposing a standard. This will surely result in at best, a patchy outcome.

Meanwhile, we also have to be worried about the direction this further change is leading us. The Companies Bill was supposed to be de-regulatory. And yet at every turn, the Government is loading the Bill with further requirements. Before the truck departs, let’s just add this, in case we need it in the future.

And, in case we think this is all over, the Government gave warning that “stricter measures could be imposed if the provision in the companies bill failed to achieve the desired improvement in corporate standards”.

Tuesday, October 10, 2006

Investors have to “opt in” to hard copy reporting; electronic communication becomes the default.

Among the 1264 clauses of the new Companies Bill currently working its way through Parliament, are those which present much for Investor Relations Officers to think about. Gone is the obligation to provide a hard copy annual report, interim report etc to investors; in is the obligation to provide electronic access (through a company’s website) to these documents, with delivery of printed materials obligatory only to those who insist.

At first sight, there would appear to be significant room for cost savings. Annual report print runs of 50,000 copies are not uncommon, especially in the old privatisation stocks, and given the fast rising length of an annual report, (through rising compliance obligations), the costs are a major part of an IR budget. And some companies have long held the view that some of these (expensive) reports simply wind up in the bin.

However many companies will be cautious about seizing this opportunity, fearing a PR disaster. Institutional investors are noted for wanting the hard copy and retail investor organisations are already highlighting that some individual investors have no web access – or will resent having the print costs effectively transferred to them.

Nonetheless, the changes under the Companies Bill will present opportunities for companies to provide customised versions of these materials. The “compliance” document will still be needed, but companies with large groups of retail shareholders (eg the ex-privatisation stocks – BT et al) will create a simple to read summary. Meanwhile for their institutional investors, companies are likely to create ‘deeper’ versions of their annual reports, with extra financial analysis or strategic considerations, etc. They will wish to target these at the sell side and to the buy side, in their sector.

Delivery of these new documents will be a challenge. The default being electronic, investors who have not replied within 28 days to a company’s announcement of a move to electronic communication, will be deemed to have opted in. However, the company may well NOT have an email address for all investors, and will not wish to rely on investors ‘pulling’ the information from their website.

Instead, companies will want to look at news releases, webcasts, podcasts, and other media to deliver materials.

Monday, October 02, 2006

Issuers’ websites at risk of non compliance

The posting of regulated information on a company’s website is a crucial requirement of the Listing Rules, and potentially the changes in the Companies Bill currently going through Parliament. So it is concerning to note research out this week showing that a significant number of corporate websites fail in their broader legal obligations.

The websites of some of the largest FTSE 100 companies are “a compliance nightmare” according to research from vendor Data Protection Consulting.

Of the 99 websites checked, compliance breaches were found on 76, with half that number having 2 or more breaches. Failures ranged from failure to mention identification data such as registration number, full legal name to absence of privacy policy and cookies management.

Since many of these are required under the Companies Act or the EU’s Electronic Communications regulations, this is of concern.

But is this non compliance simply the tip of the iceberg? Transparency Matters suspects that this non-compliance will come as little surprise to those who regularly use companies’ websites every day to find IR data.

Hedge funds and regulation: another breach in the wall?

Hedge funds have been successful in defending themselves against excessive (some would argue ANY) meaningful regulation. However for the investor relations officer for whom hedge funds represent a major challenge, there are 2 signs of light on the horizon.

First, from today – in a little highlighted move – hedge funds will be obliged to disclose the favourable terms offered to select investors such as large, loyal or early investors. Some of these side letters allow these select investors to withdraw their funds earlier than most, in the event of a hedge fund disaster, to give more detail of the funds management or changes in personnel.

The Alternative Investment Management Association has been working diligently with the FSA to agree a code of practice. This is applicable from October 2nd. 2006. Hedge funds who do not comply could, in theory, have their authorisation withdrawn, or not approved.

Separately, there has been movement in the key area of disclosure of CFD’s, hedge funds’ favoured vehicles for position taking. In its consultation earlier this year on the implementation of the Transparency Directive, the FSA shelved the debate about whether to extend “material” interests to include CFD’s in the reporting of major shareholdings, until next year when it is expected to consult on the issue.

The Association of Investment Trust Companies last week set out its views on the issue, supporting wider disclosure of holdings in CFD’s as major shareholdings. This could bring the FSA’s Listing Rules in line with the rules from the Takeover Panel, and provide much needed relief to IRO’s seeking to understand their shareholder’s register.

Transparency Matters understands that the AITC’s position has support from the IMA and ABI.