Providers of capital have a right to know how it is being used to ensure that their interests are being met within any investment. Companies on the other hand, regularly update their models and strategies to respond to changes in the business environment.
However, the communication and engagement between companies and investors has not evolved at the rate at which business decisions are made.
On a global scale, regulations such as the Sarbanes-Oxley Act have been adopted to bridge the gap between investors, other market stakeholders and the management team, increasing the level of transparency and accuracy of the information reported.
Closer to home, the Capital Markets Authority (CMA), in line with one of its objectives in its current strategic plan, seeks to “enhance the responsiveness and enforceability of the policy and regulatory framework to improve investor experience”.
A crucial step in achieving this is the annual assessment of the Corporate Governance Scorecard.
The CMA released its first State of Corporate Governance Report 2018 on the 56 issuers of securities to the public. Overall, the report suggests a ‘fair’ status of 55 percent of the issuers on corporate governance practices.
However, on transparency and disclosure, only 20 percent scored a rating above ‘fair’ with 38 percent of the issuers termed as needing improvement.
An interesting question one may ask would be: What do the companies need to do to make information they disclose better? How do they communicate effectively and ensure transparency to the providers of capital?
The answer is rooted in having a comprehensive investor relations strategy. With the dynamic operating environment and companies’ rapid strategic evolvement aimed at retaining their competitive edge, investors and other stakeholders are requiring more targeted communication.
Investor relations can do just that by ensuring that the company’s business strategy and performance are widely understood by the investor community and other stakeholders.
Being the primary interface between management, providers of capital (equity & debt) and the wider investment community, how then, can companies benefit from a comprehensive investor relations strategy?
For it to be effective, there has to be buy-in and representation in internal executive discussions. TD Bank, one of the global leaders on the investor relations front, made the deliberate decision that the “the voice of the investors is always at the table”, according to the former CFO Colleen Johnston in an interview with Bloomberg and IR Magazine.
Around this time, TD Bank was ranked tenth globally in Investor Relations. Involving the board reinforces a company’s commitment to transparency and makes information more accessible.
Due to globalisation, access to capital that would have been geographically inaccessible is now unrestricted. On the flipside, the breakdown of geographical boundaries has meant increased competition for capital. This has put companies to task in staying visible to generate recognition and credibility, making them more attractive — and Investor Relations can support companies to achieve this.
Companies need to consistently foster engagements with their ecosystem of stakeholders and especially with strategic investors, as they can be your biggest asset — offering insights on business and operational aspects that can be beneficial to the C-Suite.
Investors have a vested interest in your company and therefore require to be kept informed on the business. Regular, relevant and targeted communication will go a long way in keeping investors interested in your company and solidifying their investment position. If this is ignored, investors can lose confidence in the performance, strategic direction, and capabilities of the company.
Recent reports have highlighted that investors, specifically, those who view the business as a long-term play complain that management teams do not provide adequate disclosures on long-term issues, while management teams often complain of the short-term orientation of investors.
To adequately tackle this problem, it is important to categorise your investor base by their investment horizon.
There is no point talking to an investor on your five-year strategic plan if they have a short-term outlook on your company.
The writer is head of Investor Relations at Centum Investment Company Plc.