Investor relations crucial to raising accountability

Kenya’s newfound embrace of international corporate governance standards has the potential to be a defining moment for the country’s economy. Against this backdrop, shareholders in the companies on the Nairobi Securities Exchange (NSE) are now expected to be more demanding.

On the other hand, firms can expect to feel the pressure for more disclosure. But, there’s just one question: How can they govern themselves more effectively and be truly transparent?
One answer is increasing investor relations (IR) role.

Now, for the most part, NSE-listed entities do a reasonable good job in disclosing information. Equity investors are accustomed to press releases, investor briefings, annual reports, circulars and so on. IR teams (not PR teams that are used by some firms) are largely responsible for the release of this information. Having said that, in the spirit of transparency and more accountability, I expect to see a broadening of mandate for IR teams. In this regard, three key areas come to mind: disclosure of corporate strategic initiatives, alignment of management and shareholders perspective and investor communication.

Here’s why I think these areas are important. First, disclosure of corporate strategy changes or initiatives provides context to shareholders. If a listed company introduces a change in corporate strategy, it should inform shareholders on its ability to deliver consistently against that plan.

Explanation should also touch on whether the strategy’s execution will be non-linear – three steps forward, two steps back kind of progress - or not. This information not only helps investors understand how the company is measuring its progress against the overall goal but it also builds credibility between itself and shareholders.

A good example is Centum Investments. Its IR team has done an excellent job in explaining the company’s 3.0 strategy. By breaking down the strategy into five simple components: focus areas, cost limits, return targets, expertise and business growth, it has clearly explained the metrics and signposts investors can use to monitor the company’s progress against its strategic plan.

Secondly, IR teams can help the management understand the shareholder perspective and ensure it aligns with its plans. Managements need to understand what shareholders are interested in and their criticisms. So for instance, during the release of KQ results, there was a perceived guided focus towards the airline’s reduction in operational losses (down 75 per cent in the financial year 2015/16), growth in passenger numbers and improvement in its operational loss situation.

However, investors were instead focusing on other things: the deteriorating negative equity situation (Sh35 billion as at March 2016) and the ongoing labour wrangles. This is a clear mismatch on perspectives.
Lastly, today’s investor communication is notoriously a one-way traffic. Shareholders are often listening while companies do the talking, at least for the most part. IR teams can – and should - correct this situation through providing a platform where NSE-listed companies do the listening.

Companies need to listen to how they are defined and need to hear what investors think is good or bad or what is value-building or value destroying. IR teams must also be able to keep these communication lines open to provide the rationale behind decisions on a regular basis and not just rely on a press release.

If all these initiatives are to be embraced, I truly believe the capital markets will be a safer place to invest in thereby inspiring investor confidence.

Mr Mwanyasi is the chief executive Canaan Capital