The Covid-19 pandemic is having an unprecedented impact on a global scale, overturning age-old norms. For the first time in the history of our relatively young capital markets, the Capital Markets Authority (CMA) has authorised virtual shareholder meetings in place of physical conventions.
Companies find themselves encumbered by bureaucratic tape that was put in place to promote accountability and transparency at a time when large gatherings were, at most, just a 21-day notice away.
In its recent guidelines to Nairobi Securities Exchange listed companies, the Capital Markets Authority (CMA) emphasised that material decisions that companies make during the Covid-19 lockdowns will have to be ratified by shareholders in future. No one is sure yet how the new normal will look like, but the CMA has investors’ best interests at heart by insisting on taking only measured decisions during these uncertain times.
The board and management of companies, both listed and unlisted, are grappling with how best to preserve shareholder wealth at this time. From an operational point of view, trade and supply chains across a wide spectrum of industries are broken. The difference with previous pandemics is that Covid-19 presents an extraordinary level of uncertainty that will resonate across businesses for possibly years to come.
As corporate leaders work on their companies’ mitigation strategies, they will need to update their investor communication frameworks as a good case practice in stakeholder management.
The Investor Relations function is increasingly becoming a critical component in developing credible information that supports investor understanding of a company’s decision-making process during these uncertain times.
Admittedly, crisis communication should not start at the outset of a crisis especially when it comes to a company’s multiple stakeholders. Periodic updates and targeted communication to all stakeholders goes a long way in building credibility and influencing how investors react when a crisis does happen.
Clarity in communication or lack of it also impacts a company’s valuation over the long-term.
Investor relations teams within companies should prepare and present scenario analysis on the impact of the pandemic on their businesses. Such scenario analysis supports an organisation’s awareness of future uncertainties, while providing a range of possible outcomes (worst-, base-, and best-case).
This helps companies detail how best to measure pressures on business operations and financial impact, and the measures put in place for each scenario. Keep in mind that this scenario planning needs to be reviewed constantly as the pandemic unfolds, and its full impact is better understood.
The planning must also take into account external interventions such as the measures put in place by governments and the related behavioural change directives that in this case include social distancing, work from home, containment or lockdown of certain regions and requirements for medical testing.
Pay attention to specific industry mitigation initiatives, as well as the company’s likely areas of both downsides and opportunities, including effects on the supply chain, earnings, cash flow, liquidity and covenants. For banks; a key issue will be the impact of loan moratoriums and NPLs as a key risk factor.
Stay close to the detailed Business Continuity Plan (BCP) in place and act quickly to mitigate financial and operational headwinds.
Ensure all stakeholders (employees, suppliers, customers) in the business ecosystem are safe and informed. It is also necessary to detail the recovery plan and what it may entail; be it cutting costs, a pivot in certain revenue streams or completely reconsidering the corporate strategy.
Additionally, it would be useful to detail the crisis team constituted to coordinate the mitigation and recovery measures.
Present the facts “as they stand at this point in time.” Investors expect a meticulous business analysis from the management that is up to date, transparent and realistic. For publicly listed companies, avoid providing full financial year forecasts at this uncertain time and instead communicate the actions the company is taking in the short-term.
If projected estimates had already been provided and these will change as a result of Covid-19, release new ranges with detailed explanations on the short-term strategic plans in place and the expected impact on the longer-term strategy guidance.
Guidance considerations need to be fluid and, particularly for Kenyan companies that only communicate guidance – if at all- on an annual basis, perhaps consider quarterly or semi-annual guidance. Providing a range for guidance helps communicate that management is in control, has estimated impact, and has a recovery plan.
Above all else, in times of crisis, there is no such thing as “over-communication”. Business leaders should be timely and honest in all their messaging with their stakeholders. A proactive approach rather than reacting to information requests highlights strategic and accountable leadership in these unprecedented circumstances.
Whether the impact on the business of Covid-19 is major or not, value dilutive or accretive, all companies should be communicating to their multiple stakeholders. Do not assume your investors understand the impact and drivers to your business from this crisis.
By demonstrating a grasp of the situation, in terms of having a level of control over the unpredictable during this time of turbulence, companies can articulate their enduring, long term value to investors now more than ever.
Suzanne Kilolo is a capital markets expert with nearly 20 years of experience and has worked as head of investor relations at NSE-listed companies, Safaricom and Centum and also Etisalat Group in the UAE. She currently serves as an advisory board member of INTABA AFRICA.
The writer is a capital markets expert.