Mark Hynes - thoughts on corporate disclosure

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

Thursday, March 12, 2009

From IR to SR?

One of the changes coming from the 2006 Companies Act was those of Directors Duties. These have been upgraded to include a duty not only to investors but also to the wider stakeholder community. Thus Directors are duty bound to consider in their decisions, not only on members of the company – those who own the business – but also those who work in it, supply it, the community around it, those impact by its environmental performance and so on.

So are we in an era where in house IR managers are moving from focussing their communications almost exclusively on investors, to one where they consider the wider stakeholders? In fact, from Investor Relations to Stakeholder Relations? And as the company upgrades its focus on wider stakeholders, what are the impacts on shareholder value creation?

An interesting new study Over the Long Run: Short-Run Impact and Long-Run Consequences of Stakeholder Management, Roberto Garcia-Castro and Miguel Ariño of IESE and Miguel Canela of Barcelona University proposes that investment in stakeholder management over the longer term increases Market Value Added (MVA). (The authors use MVA in preference to traditional accounting-based measures such as Return on Assets or Return on Equity).

For example, a company that chooses a beneficial employee relations policy, costs incurred may include bonuses, training, amenities, above-average wages and so on. While these policies may have a negative impact on performance in the first years after investing, in the long term there is a significantly positive relationship between such stakeholder management policies and MVA.

From an IR perspective, it emphasises the need to communicate accurately the context in which investment in policies which benefit stakeholders will create shareholder value.

1 Comments:

  • At 3:02 pm, Anonymous Eddie said…

    Very intersesting thanks!

     

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