Mark Hynes - thoughts on corporate disclosure

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

Thursday, July 31, 2008

What a week for disclosure and IR – its not the silly season after all

Just when the world takes off on holiday, a whole series of announcements are made on different transparency themes. Where to start?

Yesterday the SEC held a webcast to announce its conclusions on the use of corporate websites as a disclosure means for Reg FD purposes. In the latest move it announced that under certain circumstances, companies could rely on their websites and blogs to meet their Reg FD public disclosure requirements. It will “as soon as possible” provide detail of what “under certain circumstances” means shortly. However it does look as if public companies will have choices in how to disseminate their news.

For me the most surprising thing was the extent to which the SEC is grabbing the web 2.0 agenda. With twittering and all the rest the SEC is determined to stay on top – if not ahead - of change.

This blog – and remember my affiliations – will comment on those details when they are published.

Meanwhile the FSA – as discussed in this blog – continues to get tough on market abuse. The 2 announced prosecutions in one week have focussed minds on City banks and brokers. However they also have significant implications for listed companies. For example, internal controls on inside information and on the length of insider lists have already been targeted by the FSA.

At the same time, IR professionals will want to have a look at 2 new studies out this week on changes in the investment community that they target. First according to research from the Financial News and, separately, from Pensions Strategies, pension funds continue to devote more resources to fixed income investment as they face up to the impact of turbulent stock markets. Alternative assets, such as hedge funds and private equity, have also seen a surge in popularity among pension funds.

And Sovereign Wealth Funds continue to attract interest. According to new State Street research, they could collectively own more than 5 percent of the world's major companies over time and their desire to diversify into equities would push real bond yields to rise. Time to look at that road show schedule?

Wednesday, July 23, 2008

Hot on the heels of HBOS rumours, calls for action from US regulators

“To comment on rumours or not; that’s the question.” To paraphrase Hamlet it is indeed a question of growing importance on both sides of the Atlantic. Companies across the world are suffering the “slings and arrows of outrageous fortune” (OK enough Shakespeare) and share prices are suffering as a consequence.

The New York Times piece 2 weeks ago on troubles at Lehman Brothers has highlighted how fast rumours can travel, and how much impact they can have the subject of the rumour. Lehmans stock has fallen 70% in the last year – and 10% in the last month – on rumours on their financial troubles and the potential sale to Barclays.

As a consequence many in the US are calling for increased action from the regulators. Of course in the UK, we have seen the fast (and demanding) introduction of rules on short selling in during a rights issue. (Of course whether rights continue after the HBOS scenario is another subject…).

However, for me the question reverts to one of investor relations. It starts with the (critical) decision from the company and its policy on disclosures, as to whether to comment on rumours at all.

As so often the rules in the US and the UK vary quite widely. In the UK (DTR 2.7.1):

“Where there is press speculation or market rumour regarding an issuer, the issuer should assess whether a disclosure obligation arises under DTR 2.2.1 R. To do this an issuer will need to carefully assess whether the speculation or rumour has given rise to a situation where the issuer has inside information.” Full text

whereas as in the US (NYSE 202.03)

“The market activity of a company’s securities should be closely watched at a time when consideration is being given to significant corporate matters. If rumors or unusual market activity indicate that information on impending developments has leaked out, a frank and explicit announcement is clearly required. Full text.

One gives clear guidance, the other suggests an assessment.

As always, this blog will argue for the widest possible transparency. Its about believeability. If the company has a habit of responding to rumours and consistently keeping the market informed, investors will tend to support the company.

Thursday, July 10, 2008

IR expertise in Eastern Europe is spreading, but challenges remain.

And so to Zagreb to moderate a “Best Practice in IR” course. A few years (months?) ago that would have been an extraordinary statement. But now markets in Eastern Europe are developing their IR expertise – and very fast.

Last week I had the pleasure to work for 2 days with the leading companies in Croatia, and to offer thoughts on developing a world class investor relations programme.

As so often, the levels of exposure to international equity markets, and the processes of creating and communicating the company’s equity story, were very varied. 2 attendees had worked in IR for many years. Others worked at companies – for example recently privatised – whose IR programmes were in the middle of development.

However for all, the challenges remain. If market turbulence impacts US and European main market companies, they present significantly greater difficulties to companies from emerging market countries.

For example, an absence of liquidity on the Zagreb stock exchange, which is itself in the new ‘frontier’ equity market category created by Morgan Stanley’s MSCI. Winning equity analyst coverage remains a considerable issue, as does the perennial issue of adequate free float.

Nonetheless, Croatian IR remains ambitious. HANFA, the local regulator, is on a fast track process of upgrading its disclosure, market abuse and corporate governance obligations. This is aimed at creating a regime which stands comparison with EU directives such as the Transparency Obligations Directive, Market Abuse and others. The investor presentations, IR websites and PR programmes are improving very rapidly. And in many cases companies have a great story to tell.

Watch this space for Croatian companies hitting the international roadshow circuit very soon.