Mark Hynes - thoughts on corporate disclosure

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

Thursday, September 11, 2008

Stable performers and a clear story – what investors want?

It is ironic that in good times, it is the stable performers that have problems attracting capital. Unable to generate the kind of returns that get the market going, they risk being dismissed as being dull and boring; a useful part of a portfolio, but not to actively encourage. They have a sound business model, and are likely to have top class governance and transparency, but nothing to set the pulses racing.

By contrast during good times, those with new ideas, innovative plans and products, the potential for new investment seems limitless. Such companies seem to skim over the surface of the challenges faced by “ordinary” companies.

However with the latest bubble having burst (why is it always a “bubble” – from South Sea, to dot com and sub prime – we rely on the same noun), investors’ attention is being refocused on the fundamentals. Those with a clear equity story and old fashioned virtues of stability, continuity, experience and sound management, are being sought after. So how should companies approach this new world?

A recent survey from knowledge@wharton is interesting in 2 ways. First, it highlights what investors are actually looking for in companies’ communications. And since the field work is still going on, it is thoroughly current and topical. Second is the role of the Enhanced Business Reporting Consortium - EBR 360.

Their aim is to persuade market participants to communicate through the Enhanced Business Reporting framework which “makes it possible to create useful classifications, i.e., taxonomies for value drivers, non-financial performance measures and qualitative information. Specifically, an EBR framework enables a more robust use of XBRL taxonomies.”

To those (still relatively few) who are familiar with XBRL, the association is with financial data. Now we see the potential emergence of a structured format for non financial data.

The aim of course is to make our equity story easier to use by (buy AND sell side) analysts. Oh boy, yet another great opportunity whose time is yet to come.


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