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Tuesday, 23rd April 2024
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Online disclosure - how plcs can realise their full potential Back  
A set of best practices should be established by Irish plcs to better communicate to investors and the external capital markets recommends Brendan Bracken, as he suggests that this could develop into a competitive advantage for the market as an entity.
The US law Regulation FD, the rule designed to prevent selective disclosure of market moving news, is two years old this year and a review of the time frame reveals that investor relation (IR) efforts of companies globally, are more varied due to various interpretations of the law rather than the SEC’s desired effect of more streamlined practices.

The residual effect closer on our shores is that the IR efforts of Irish plcs lack as much conformity - a troubling notion given the fact that they are mostly focusing on external capital markets. Whether it is speaking to analysts or posting material news on their websites, a lack of a unified approach to investor relations in the Irish market is a potential liability. A case in point is the brokers’ assertions that Riverdeep’s recent troubles with its management buy-out (MBO) has been due, in part, to poor communications with the market.

Harvey Pitt, the controversial head at the Securities and Exchange Commission (SEC) in the US who resigned late last year, had been championing for more definable laws that include ‘regular’ disclosure, that is, a company should release material information as it happens rather than waiting for quarterly results press releases to disclose the information.

Despite his departure and the now lack of a lead at the SEC, the precedence has been set for greater demand for disclosure, particularly in the scorched earth of the Enron and WorldCom scandals. At the moment, very few companies anywhere are communicating market news effectively. In fact, many institutional investors contend that Regulation FD has resulted in companies disclosing less.

Some in the industry say the lack of clear guidelines causes companies to hold the cards closer to the waistcoat fearing litigation. London-based Investor Relations magazine conducted a survey of institutional investors, which reveals that 60 per cent believe that Regulation FD has increased market volatility. The sentiment is that the companies with bad news hide behind the vagueness of the guidelines, IR staff are more defensive, which has slowed the flow of information, thus making the market more sceptical. Furthermore, to show they’re serious, the SEC filed suit against three companies, including Motorola citing violations of Regulation FD.

There has also been frustration on the part of the SEC at the low levels of the use of technology to disclose information. As is evidenced in the Irish market, the gaps are wide from plc to plc. Some, such as AIB, have all the bells and whistles, such as web casts, analyst presentations, and feeds from the stock market, while others, such as CRH, have the bare minimum with essentially no other value-added information to accompany what is basically its annual report on the web. What is hugely lacking is serious market content from plc to plc.
While overall the volume of IR information on the web has increased greatly over the past two-to-three years, one is forced to question if quantity edges out quality when communicating investor-targeted information. The serious gap in quality information on corporate websites makes the web still an unreliable information source because it is difficult to find the right information on many sites and often times, investors are left in the dark by one company and therefore dismiss the web and rely on traditional means for getting their information. Meanwhile, in actual fact, some plc’s web sites might be the optimal source to gain pertinent financial information.

Packaging the market

There is an approach that both assuages the demands of brokers and analysts, while providing straightforward information for the individual investor to achieve this. A set of best practices should be established by Irish plcs to better communicate to investors and external capital markets. The place to begin for a more ‘bundled’ marketing approach would be with the Irish Stock Exchange, which could serve as the main point of entry for investor information on the Irish capital market, but which could also set guidelines for individual corporate websites to ensure investor adoption for obtaining information. A set of best practices for online investor relations should include the following:
• Each PLC should have an IR element in its corporate website;
• There should be a specified minimum information;
• All relevant press releases should be disclosed at the top of the page;
• Material information should be real-time and highlighted;
• Ideally, each plc should have a separate IR website with links to the corporate website;
• Audiocasts of presentations should be included for the individual investor.

The Irish Stock Exchange should follow the example of the New York, NASDAQ and the London Stock Exchange and become a composite source for all plcs traded on the exchange. The goal of this is to make the Irish market - and by association, it’s plcs- attractive to external investors.

How do they do it?

The web is the first step on a number of tactics the Irish Stock exchange can take to ‘package’ the Irish capital market as a solid investment option. Regulation and disclosure should also accompany online investor relations initiatives. One only has to look at how they do it ‘down under’ to see the consequent effectiveness. Examining the Australian approach on this is an effective business lesson.

Currently, Australia is the only country that has achieved a high level of transparency and it has done so with heightened, but specific regulation for continuous disclosure. The Australian Stock Exchange (ASX) has specific guidelines for what is considered material information and the stringent rules have spurred many public companies to develop their own disclosure policies. Any company news of material importance must be disclosed to the ASX on an ongoing basis. One Australian company even sends their analyst presentations to the ASX in order to reach a wider audience and disclose the information in a timely fashion. Being ‘pushed’ out into the public domain means those broader outlets, such as the media, have a greater chance of picking up the information. This reinforces the concept that the information is for all eyes.

Being more aggressive about material news disclosure is a fine balance of ensuring the information is conveyed to each target audience in the most effective manner. However, ‘pushing’ the company news out into the marketplace in a formalised and sophisticated manner, namely via an IR-dedicated website, rather than only posting static information and burying it on the corporate website, is an interesting proposition and one that the Irish regulatory bodies and companies alike should debate.

The SEC’s expressed despair of the ‘scarce use of the internet’ is not unique to US and Irish companies. They should come together and define best practices for real time information and how to maximize it. This could be a differentiating factor and a competitive advantage for the market as an entity, one that would be attractive to foreign investors who have grown sceptical after residing in the scorched earth of the Enron, Aldelphia and WorldCom debacles.

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