Mark Hynes - thoughts on corporate disclosure

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

Thursday, December 13, 2007

What’s this? Regulators relaxing rules about shareholder communications?

It was really refreshing this week to moderate a 2 day seminar with attendees from Poland, Russia, Georgia, Saudi Arabia. So often these seminars are focussed on regulation, a word that appears high up in any definition of IR.

The guys from eastern Europe wanted instead to home in on how to build a truly comprehensive understanding of the company among analysts and investors, not just on how to stay on the correct side of the law. We discussed building sell side coverage, using the media to good effect, communicating the value of intangibles, and all the original concepts of good IR before the creation of the rule books.

So it is encouraging this week to see a reversal of the regulatory trend. The SEC has announced that they will encourage online shareholder forums. The amendments to the federal proxy rules are expected to open up new avenues for real-time communications among shareholders, and between shareholders and the companies they own.

Chairman Cox commented that "The rule amendments are intended to remove legal concerns, such as the risk that discussion in an online forum might be viewed as a proxy solicitation, that might deter shareholders and companies from using this new technology."

These will create potentially very valuable means by which companies can communicate through blogs, chat rooms and other electronic media, allowing shareholders and other stakeholders to discuss issues such as director nominations, without fear of breaching proxy solicitation rules.

And given the exponential growth of blogging (did you know that there are 22 blogs in the top 100 most visited media sites on the web?), it cannot be long before blogging for IR becomes mainstream.

This is an excellent outcome to what had looked for a while an unpromising situation. The SEC’s vote last month to let companies deny shareholders access to annual proxy ballots, a move governance advocates say could make corporate America less responsive to investors, had been wrapped up with the ideas on shareholder forums.Now it has been broken out.

Another move back to what top IR professionals rightly regard as ‘real IR’ – rather than the focus on compliance.

Thursday, December 06, 2007

IR in China – the great leap forward

Apologies to Chairman Mao for (mis)quoting him. Investor relations among Chinese companies is developing so fast, as became evident during last week when I spent time in Beijing.

My first visit to China was in the early nineties, when the Shanghai exchange was being run on the floor of an old hotel.

Fast forward to 2002, and the gleaming tower in Pudong. At that time I was asked by Xinhua PR Newswire to run an “educational seminar” for listed companies. Listing was an unusual event for Chinese companies. Access to the Chinese stock markets was limited for institutional – never mind retail – foreign investors. The massive state owned enterprises – now driving the Chinese economy – had listed perhaps 25% of their capital worth. And those companies that had an investor relations function had largely employed foreign experts.

The event 4 years ago was attended by relatively junior members of staff, sent politely to discover more about this subject. As my Chinese was non existent, interpreters helped out. I asked them in advance how they would translate the term “investor relations” – and it seemed there was no such term. So we created one.

Fast forward again to last week, and what a difference. XPRN sent out the invitations, and there was an immediate acceptance by over 100 firms. The level of English understood (and my Chinese was no better!) was impressive. The level of questioning was challenging. And disclosure practices are improving all the time. The SOE's now list upwards of 70% of their shares.

Local rules now require at least 3 years of profitable trading before a company may list on a Chinese exchange, and so there has been a significant rush to markets like AIM and, significantly, the Deutsche Boerse, where opportunities are presented.

Among the challenges faced are communicating the investment story. Many companies reaching out to international investors through European and American exchanges find it difficult to communicate the opportunities represented by the Chinese market. And winning analyst coverage is tough: many have only 2 or 3, against a sector average of 5/6.

My fellow speakers from Brunswick and Financial Dynamics – both well established in China – spoke of best practices post IPO and in dealing with the media. Creating a reputation for solid communications practices lies at the heart of the advice given.

Expect (as ever) a uniquely Chinese IR to evolve. And I hope that I will be asked again in another 5 years. It will be very interesting to see what has happened.