Mark Hynes - thoughts on corporate disclosure

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

Thursday, January 21, 2010

Investor communication coming of age.

This week’s publication by the FRC of its Stewardship Code consultation is an important milestone in investor communication. For many years, IR has laboured to achieve the fair valuation, and the right balance of liquidity, creating context for investors to make decisions.
However this has been achieved in a vacuum; for the early practitioners there was no manual, no guides, no best practice. The IR teams have had to make it up as they went along, complying of course as they did so. Investors on the other hand have chosen to involve themselves with the companies whose shares they own - or not.

In the aftermath of the financial meltdown, (cometh the financial crisis, cometh the governance review) the regulators are examining the processes of how this works. And the Stewardship Code is a potentially very helpful part of that.

Announcing the consultation, the FRC said: “The benefits of a code which can help to bring about more effective engagement between companies and shareholders are potentially significant. They should lead to sustainable and enduring improvements in the governance and performance of UK listed companies and greater clarity in the respective responsibilities of asset managers and asset owners, which will assist the ultimate owners to hold to account those acting on their behalf.

“To deliver those benefits the code must set standards of stewardship to which mainstream institutional investors should aspire, and maintain the credibility and quality of these standards. It must foster a proper sense of ownership amongst institutional investors in the interests of their clients, and its success should be based on more effective communication between shareholders and the boards of the companies in which they invest.”

This level of clarity of interaction between investors and companies can only be helpful.
The wider question of course is that both the new (proposed) Governance Code and the Stewardship Code note in various places that “...companies should...” referring to their communications. What neither does is to provide the levels of detail on how they should.
And since in the view of many there is no difference between shareholder engagement and investor relations, we should look to see if this creates the opportunity to write the definitive IR book of best practice.


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