Mark Hynes - thoughts on corporate disclosure

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

Thursday, July 30, 2009

“Engagement” – the new black

It seems to be the governance word of the moment. Engagement is being positioned as at least one of the buttresses in place against a future ‘massive failure of corporate governance’. Indeed some are fearful that engagement will be something on which government will press to legislate.

So a couple of writings this week caught the attention, which may interest IR teams.
An interesting enquiry among investors and a spread of FTSE Chairmen and CEOs on shareholder engagement with FTSE companies. It was conducted by headhunters JCA Group on behalf of the FRC.

The intent and thrust of the paper is set out in the first sentence. “From our research it is clear that the key task in shareholder engagement is to improve the ongoing quality of the dialogue between shareholders and companies.” So is the view the IR profession isn’t doing its job very well?

It also quotes verbatim from interviews. For example “Alongside ‘investor relations’, companies should have a ‘shareholder relations’ process. Chairman should meet the top 5, one could have a small group to cover the next ten; maybe the SID should meet the top three. New non-executives should be expected not only to offer [but actually] to meet the top 5 shareholders.”
To be fair there are a lot of useful insights into how the buy side and senior management perceive the investor communications process to be working now. The FRC discussion paper which references this work is open for comment until 9th October 2009.

However what concerns is that ‘engagement’ is seen by all as wholly beneficial. The argument seems to go that if investors engage, governance will improve with consequent enhanced returns. Obviously it has its place, but a spirited counter argument was put in the FT earlier this week.

For a start, should investors be the ‘policemen’ of good governance at the companies in which they invest? Isn’t their fiduciary duty to the sources of the funds (pension holders, unit trust investors, insurance policy holders and so on)? And does enquiring closely as part of engagement risk investors putting themselves on the inside, and unable to trade? And resources are always limited, let alone at this economic moment. Will investor organisations have sufficient to engage with all the companies in which they invest?

So the wider question remains – who should really oversee UK Plc; entrepreneurs and professional managers, or investors?

Merit as always on both sides of the argument, but in either event the IR profession is under scrutiny.


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