Mark Hynes - thoughts on corporate disclosure

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

Thursday, July 29, 2010

Post Cadbury review – changes to narrative reporting.

The Takeover Panel’s review of its rules closed earlier this week (you can see the IR Society response here). Now with serendipitous timing, HMG has published its reaction to the BIS Select Committee report on the takeover of Cadbury by Kraft : see here. This is an interesting and important document setting out in high level terms the coalition Government's position on many governance related matters and highlighting the direction of future policy.

The report also front runs some key issues on the Panel review, such as preference for an increase in merger fees and a requirement for pre-notification of some mergers.

Much clearly rests on the outcome of the Panel’s review, but from an IR perspective there is also interest right at the end where it notes states that the Government will shortly be consulting on how to improve the quality of narrative reporting, in order to strengthen engagement between quoted companies and their shareholders.

Obviously this has a connection to the government’s promise to restore the OFR. To quote from the report...

“It is important that company directors have long term strategic objectives which reflect a wider understanding of the environment in which the company operates and the principal risks and uncertainties which it faces. It is also important that the directors communicate these effectively to shareholders and investors so that there is a common understanding of the company’s strategy, and investors can take a long term view of the company’s prospects in meeting their own long term objectives.”

As someone who reads more annual reports than is good for him, I am not sure how different this is from the existing requirements, but HMG will no doubt tell us.

There is also important discussion about the extent of short termism in UK PLc investment, and of the ways in which institutional shareholders and their fund managers perform their role as "responsible owners" of UK quoted companies.

All in all, while not a candidate for the MAN Booker or your summer deckchair, its worth a look.

Thursday, July 15, 2010

If regulation is the bane of an IRO’s life, here’s our chance to have a say.

There are currently 4 open consultations which will potentially impact those of us in the IR profession. Time to say what we think! The IR Society Policy Committee is drafting responses right now, and would love to hear from you.

First, from Europe, a review of the Market Abuse Directive. Much of it seems to be about the regulators themselves, but there is a question around market manipulation, and whether the Directive should be extended to cover it. Isn’t already covered, you ask? In the UK, yes it is, as we have a gold plated regime, but its not part of MAD. Should it be? See here.

Also from the Commission, a review of the Transparency Obligations Directive. (23/8) This follows a review of the effectiveness of TOD. 2 key issues arising:
• Should there be a “lesser” disclosure regime for smaller companies? (The thought is that reducing compliance costs – eg no IMS – would encourage more companies to list in EU). A key challenge of course is defining a smaller company. Market cap? Companies below say 60% of total exchange’s market cap?
• A ‘maximum’ harmonisation regime for major shareholder notifications– ie standardisation on 3%, and inclusion of derivatives. Potentially EU-wide disclosures around short selling and stock lending. Many want to argue for a ‘Section 793 for Europe’.
More here.

The Takeover Panel. This consultation has been widely trailed politically, along the “should we protect British companies like the French do” argument. However there are a number of IR-focussed issues raised by the takeover of Cadbury by Kraft in the first quarter of 2010. These include:
• the suggestion of the “50% plus one” minimum acceptance condition
• whether voting rights should be withheld from shares in an offeree company acquired during the course of an offer
• the suggestion that the 1% trigger threshold for the disclosure of dealings and positions in relevant securities under the disclosure regime in Rule 8 should be reduced to 0.5%. (By the way, related to this, one potential impact of the TOD review would mean the removal of some Rule 8’s, as being ‘gold plating’)
• offerors should be required to disclose more about how a bid would be financed.

Go here for more.

Institutional Shareholders Committee Rights Issues Fees Inquiry. (6/8). This consultation focusses on the demand and fees for investment banking services by listed companies. Issues the ISC raises include: How much control do listed companies have over the structure of the deal, including decisions as to full scale rights issue, clawback issue or firm placing, discount, fees? How much corporate decision-making takes place at full board level? How much risk have investment banks had taken? How have concerns over confidentiality affected consideration of other options, use other advisers or engage in dialogue with shareholders? And - probably most contentiously - how much value was added by banks, brokers, financial advisers?
More can be found here.

Happy responding!

Thursday, July 01, 2010

Virtual investor conferences?

Someone once said to me that being an IRO was a cross between being an accountant and a travel agent. The road show schedule of many an IRO can be punishing. So I was intrigued by 2 events this week.

First the research published by Brian Rivel on virtual investor conferences. As his piece in Bulldog notes, the technology is embryo, but nonetheless one out of four sell- and buy-side investment professionals say they have attended live video investor days. Compare that with only one in ten IROs who report that their companies have held this kind of live session in the past.

The second was a conference at which a colleague was invited speak. “Engage CSR 2010: The Growth of Corporate Social Responsibility in a Socially Connected World” was a great conference by all accounts, but the important thing is that it was virtual.

It included standard webcast presentations, but it also allowed for networking rooms, for one on one secure video sessions, opportunities for email and business card exchange, and booths for the product offerings.

So I wonder whether the day of the regular virtual investor conference is nearing. If so, who will organise it? Traditionally, real-world events have been broker-organised, with obvious spin off benefits for them. But how could a virtual event be run? What would a business model look like?
And if it could work for investor conferences, why not road shows? Potentially AGM’s as well, although in the UK the Companies Act does not allow that for the moment.

Given the investor focus on ESG issues (nice irony in flying to attend an ESG conference?) , cost constraints, the changing role of the sell side, and the emergence of appropriate technology, could we be looking at removing the “travel agent” from the job description? Or will the handshake still have to be paramount?