Mark Hynes - thoughts on corporate disclosure

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

Wednesday, February 07, 2007

The myth of a “transatlantic” market for equity.

As companies and their Investor relations Officers on both sides of the Atlantic prepare for their road shows, investor days and the like, many will operate under the assumption that the fundamentals of the markets are similar. However a new initiative from the accounting profession is highlighting that corporate governance issues such as disclosure structures, board processes and shareholder interactions are so distinct as to make common messaging in corporate governance compliance very difficult.

Of course corporate governance is a means to an end and not an end in itself. Good corporate governance aims to inspire trust in investors. However if those investors are anticipating different things, how can companies satisfy both communities?

In both systems, boards and institutional investors are therefore mutually responsible for acting in the best interests of a shared beneficiary. However it is application of that responsibility that differs. UK shareholders have the authority to appoint or remove a director, which creates an environment where the use of such power is rarely needed.

In the US by contrast, shareholders can do little to influence boards except to withhold votes, through litigation, or, provided that their portfolios are not index-linked, selling their shares.

Also, in the UK, the domestic regulation supports dialogue between boards and shareholders, allowing them to work together, whilst in the US, they run the risk of falling foul of Regulation Fair Disclosure.

And of course, “disclosure” is achieved through a different approach; the rules based requirements of US companies, allowing investors to make their own minds up, against the UK approach of requiring companies to decide what is material and disclosing it – and to justify that decision afterwards if necessary.

These are just some of the issues to be addressed under the new spirit of ‘competitive’ regulation – as outlined in “Sustaining New York’s and the US’ Global Financial Services Leadership” a report backed by U.S. Senator Charles Schumer and New York Mayor Michael Bloomberg.

Meanwhile, IRO’s on both sides of the Atlantic are operating in different corporate governance climates, which requires a difference of approach to institutional investors – making their task even more unenviable.


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