Stimulating change in financial communication

Two interesting business events that might appear separate but are in fact closely related:

From BBC News:

Shares in the London Stock Exchange (LSE) have jumped by 30% on Monday following speculation of a bid war. On Friday the LSE rejected a £2.43bn ($4.2bn) bid from the New York-based exchange Nasdaq. This sparked speculation that the New York Stock Exchange (NYSE) and Euronext would table counter-bids. >> Full story.

From the Financial Times:

Corporate America is becoming disenchanted with the increasingly discredited practice of feeding company profit forecasts to investors. A consensus is forming among chief executives, regulators and analysts against the quarterly ritual that encourages management to pursue narrow, short-term targets at the expense of more sustainable growth. >> Full story.

There is a growing trend among publicly-listed companies in the US to exercise greater transparency (that word again) in a marketplace where some regulatory requirements that restrict how companies communicate with their financial audiences is lessening, partly due to the aftermath of scandals like Enron and Worldcom.

The FT mentions a study by McKinsey last week which concluded that it was a myth that regular earnings guidance led to lower volatility and higher share valuations – two reasons traditionally cited in favour of such disclosure, the FT said.

One connection between these two stories is the likelihood of pressure for change in the UK regulatory environment regarding communication on financial matters by listed companies if an American exchange succeeds in acquiring the London Stock Exchange.

That could help loosen up the restrictive and controlled way in which listed UK companies communicate with their financial audiences. A good thing, in other words.

Neville Hobson

Social Strategist, Communicator, Writer, and Podcaster with a curiosity for tech and how people use it. Believer in an Internet for everyone. Early adopter (and leaver) and experimenter with social media. Occasional test pilot of shiny new objects. Avid tea drinker.

  1. Dennis Howlett

    Yes and no Nevile. The LSE has been here before and has proven remarkably resilient to takeover attempts. Most high tech execs I speak with say the quarterly reporting cycle is a nightmare which artificially forces vendors into all sorts of negotiating shenanigans to ‘make or massage the numbers.’ That coupled by the kind of process atrophy brought bySarBox would be most unwelcome. And that’s before we get into a debate about US/EU GAAP under IFRS.

    Given that EU companies are struggling with financial reporting as it is, where does the pressure yuou refer to come from? Institutional investors rely on a handful of powerful investor PR crews who manage the relationship between company and analyst reasonably well – in an old boys club sort of way. Do you think they’ll give that up so easily? Not a chance.

    Consumers have little or no power in this when you look at the balance of investment.

    having said that, I’d love to see UK companies having to contend with the kind of reporting deadlines imposed by NASDAQ/NYSE – but it needs a reason for that to happen. This medium ain’t it unless institutions find themselves under fire. No sign of that – too many other distractions – too many vested interests.

  2. neville

    Good points, Dennis.

    I think the pressure would arise as a result of what’s happening in the US. If a US exchange acquired the LSE, that will bring over different mindsets, attitudes and fresher approaches to things like communication. And some of that change I mentioned is being driven by investor relations.

    Sure, the command-and-control crowd won’t want to give anything up. We see that in other areas of communication. Like all things, though, there are evangelists.

  3. Dennis Howlett

    Seen Binns & Co client list? Don’t know any bloggy types there.

    Another perspective – did you see the Hill & Knowlton report on what turns financial analysts on? Bloggers – only 17% say they’ll pay any real attention to the blogerati. The thing those chaps want is face time with CXOs. That’s no surprise given the heavy skew in the blogosphere towards marketing/PR and tech.

    Evangelism has a long way to go methinks. Although a little dickie bird tells me a certain publicly quoted UK software company ‘might’ take some baby steps in that direction sometime soon. If that happens, then it will give my wee sector a major kick in the pants. Watch my space as they say…

  4. neville

    Dennis, I wish you hadn’t told me about Binns & Co. Just found their website – awful Flash entry page and instant-on music. Yuk!

    Re that 17% figure, I’d look at it from the glass-half-full point of view, ie, financial analysts are beginning to see the signficance of social media.

    Evangelism always has a way to go!

  5. Dennnis Howlett

    17% = glass half full…hmmm..I might have trouble selling that to my professional accounting audience but I’m willing to give it a go!

    Someone once said to me when rejecting a pitch – ‘There’s about 1,000 people who really matter in the City, we know ’em all.’ That’s the nature of the ‘club.’ Having said that JP Rangaswami at DrKW I’m sure has a different perspective.

  6. Dominic Jones

    Interesting thought.

    If it does something to end the favoritism that many U.K. companies show towards the “City Old Boys Club” at the expense of the private investor, that would be a welcome change.

    It’s not so much that they report semi-annually, but that they don’t treat all investors the same. With the requirements of Regulation Fair Disclosure now five years old, I cannot imagine American management allowing LSE companies to continue their routine practice of favoring a few.

    However, I do think U.K. companies could teach the Americans a think or two about communication versus mere disclosure.

    Either way, potentially a good thing for all.

    But will the “City Old Boys Club” be willing to give up the good thing they have going?

  7. neville

    The point of view, Dennis, not that 17% = half full ;)

    Interesting point, Dominic, re teaching the Americans a thing or two about communication. In an investor relations context, my experience has been that, generally, it’s the other way around.

    I agree with you, though, re the Old Boys Club and favouritism. If a wind of change blows through the City as one outcome from this acquisition – if it succeeds – and which levels the communication playing field (sorry about the corny metaphors), then that will most definitely be a good thing.

  8. Dominic Jones

    Neville, it depends on how you define communication. If you define it by volume and frequency, then North Americans lead. But if you define it by quality and effectiveness, then Europe leads.

    I am talking strictly online investor relations communication, which is my area of expertise. (Not sure there is any other kind of investor relations communication any more.) I wrote a piece for IR Magazine here that looks at the differences between the best 100 European companies and the best 100 North American firms.

    Still, being good doesn’t mean it is fair to all. A particular problem is how U.K. companies fail to webcast some of their investor presentations. This is practically unheard of in the U.S. However, when they do webcast an event, they typically do it better.

  9. neville

    I agree, it does depend on how we define communication. I like your two definitions, Dominic.

    Re your IR Magazine piece, I remember reading that last year. Very interesting findings. A year has now passed but I wouldn’t imagine that anything changed that much (and which would tend to trample on my view re who can teach who a couple of things).

    However, some interesting findings in Hill & Knowlton’s corporate reputation report released this week. That includes this point re information:

    “North American companies are generally seen [by financial analysts] as good information providers and European companies a little less so.”

    That’s not the same as communication, though!

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