Mark Hynes - thoughts on corporate disclosure

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

Thursday, January 27, 2011

New white paper argues that shareholder disclosure rules in EU are not fit for purpose

The old joke goes of a couple asking directions, only to be told ‘I wouldn’t start from here if I were you’. Some IRO’s must sometimes feel the same way. How do you start developing an IR strategy without knowing where you are starting from?

And yet that is precisely the situation many IRO’s across Europe feel. Their national – and European level - disclosure obligations do not allow companies in many countries to identify their shareholders. The ‘single market in financial services’ is failing in that respect.

A white paper launched this week by Capital Precision (see disclosures), lays out the problem, and proposes a solution.

Why does this matter? Well, there is much pressure on public companies to adopt better governance disclosures and to engage with their shareholders. How can they do this without knowing who they are? And perhaps even more concerning is that analysis of those public disclosures that ARE made can produce disinformation. A company that appears to be held primarily by value investors, based on public data, can show a very different picture with a more detailed analysis.

So what are the problems? The chain of ownership/ influence is long. Those who select, hold, manage, account for, trade and vote stock are rarely the same. Disclosure of derivative positions is patchy, there are limited disclosures of debt positions, despite the major impact they can have on market perception. And in half of Europe, companies may require in their Articles a greater level of disclosure than required under national legislation – but NOT in the other half.

And the solution? Some EU regimes (France, Germany, UK) have effective rules allowing the issuer, backed by the force of law, to demand the identity of any investor. Making this legally backed approach available across the EU, would create significantly higher transparency for all companies listed on regulated exchanges in the EU.

That would mean that companies at least know where they are starting from. Meanwhile in the, don’t get me started.


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