Communication Matters

by Michelle Quah, Nov 29 2005A new award that recognises exemplary investor relations practices will be given out next year. Michelle Quah reports good investor relations isn't simply about talking to shareholders.

It's about the entire spirit of good corporate governance and corporate disclosure. About going beyond what's mandatory in the quality and fairness of disclosure and being transparent. "Investor relations is much more than simply servicing investors and analysts," says Matthew Miller, head of investor relations at UBS. "It involves serving as an active information conduit between internal and external constituencies. With this information flow, a firm's management will be better able to make critical decisions, and the investor community will have a much better understanding of the company." It's a view that Associate Professor Mak Yuen Teen, co-director of the Corporate Governance and Financial Reporting Centre at the Business School of the National University of Singapore, agrees with.

The professor, who published a study with the centre on investor relations in 2003, says: "Good corporate governance requires regular, fair and timely communications with investors so that they can make informed decisions. It also requires companies to understand their accountability to all shareholders and to facilitate their effective participation in shareholder meetings."

The importance of good investor relations cannot be overstated. A recent study by McKinsey & Co found that the top two considerations for investment are accounting disclosure and shareholder equality. Good investor relations is also a basic tenet of the Code of Corporate Governance - a guide to best practice - in Singapore. Two of the four basic elements of the Code - "Audit Accountability" and "Communications with Shareholders" - include best practices that fall within the area of investor relations. "Communications with investors is not only a key area identified in the Singapore Code of Corporate Governance, but in many other codes as well," says Prof Mak.

Yet investor relations doesn't seem to be a high priority for many listed companies in Singapore. Prof Mak's 2003 study, Investor Relations Practices in Singapore, showed that while 85 per cent of the 61 respondents - out of 324 companies surveyed - did have an investor relations officer, only 27 per cent had a dedicated one. For the remaining respondents, other officers perform the additional role of investor relations officer. And a surprising 4 per cent said that their chairman handled that role. "It appears that regulatory requirements, rather than a desire to keep investors informed, are important determinants of investor relations practices," the study concluded in October 2003.

To put the spotlight back on the importance of having a good information flow between the company and its investors, there will be a new award that recognises Singapore companies with exemplary investor relations practices.

The Best Investor Relations Award will be given out at a dinner, to be held in March next year, as part of the Singapore Corporate Awards organised by The Business Times in collaboration with UBS and supported by the Singapore Exchange. Other partners are: the Institute of Certified Public Accountants of Singapore, Investment Management Association of Singapore, Securities Investors Association (Singapore), Singapore Institute of Directors and Citigate Dewe Rogerson i.MAGE. "Good investor relations practices are fundamental in a disclosure-based environment and to market discipline as a means for enforcing good governance," says Prof Mak. "The awards hope to raise awareness of the importance of good investor relations as part of good corporate governance, and recognise those who have good investor relations practices." Mr Miller of UBS agrees: "We see the Best Investor Relations Award - which recognises listed companies that embody the spirit of corporate governance and corporate transparency and, hence, adopt and implement best practices in investor relations - as an excellent platform to create greater awareness of the importance of good corporate governance in the business community in Singapore."

A committee - comprising a cross-section of representatives from the media, IR consultancies, research analysts and fund managers - will draw up a shortlist of nominated companies. They will choose the companies based on the frequency, timeliness and quality of their corporate disclosures, as well as the fairness of their disclosures to all stakeholders. A judging panel - made up of industry luminaries, such as Prof Mak, Stamford Law Corp managing partner Lee Suet Fern and Citigate Dewe Rogerson i.MAGE managing director Elaine Lim, among others - will review and evaluate the nominations and decide on the winners. An award will be given out in each of the following categories: Mainboard-listed companies with a market capitalisation of $500 million and above, Those with a market cap below $500 million, and Sesdaq-listed companies.

While the objective is to identify one winner in each category, the judging panel may, at its discretion, decide to confer up to two additional merit awards in each category, to be called Best Investor Relations - Merit Award. "An investor relations award, if based upon sound metrics, can promote fair and accurate disclosure of financial information and, in general, better communication flow between companies and the investment community," says Mr Miller. "Good investor relations should involve a thorough understanding of the company's existing investors, including their holdings in the company, any recent changes to their holdings, their investment style, what they like and dislike about the firm, and all of the key decision-makers involved in the investment process. It is also important to identify potential shareholders and assess if the company is an appropriate investment given the investors' investment style, their potential buying power, and how they make investment decisions."

The award will, in particular, look at how a company's investor relations function is structured, such as how the company engages its financial stakeholders and shareholders, how often it meets them, how it caters to different groups of shareholders, how accessible its senior management is and how its reports provide comprehensive and quality disclosure in line with best practices. "Good investor relations means ensuring regular, fair and timely communication with all investors, and encouraging shareholders to participate effectively in shareholder meetings," says Prof Mak. "This requires a mindset that recognises that management and the board are ultimately accountable to all shareholders. Companies with good investor relations practices provide high quality and timely information to all shareholders and ensure that they can effectively participate in shareholder meetings. They make creative use of their websites to communicate with investors and have avenues for investors to ask questions and get timely answers, while ensuring a level playing field for all investors in terms of availability of price-sensitive information."