GCC
firms have been faced with uncertain economic conditions, as a result of global
contagion that has impacted our financial markets triggered by US/European
economic bailouts, fluctuating currencies and soaring unemployment rates. Despite the GCC’s relative independence from
foreign funds/capital, our stock markets haven’t been totally immune.
Even
after exuberant mood in the real estate sector has been established, stock
markets across the GCC have not really recovered. Investors burnt during the
previous crash are treating stock markets cautiously and still contemplating on
embracing the equity markets with previous enthusiasm. Even the much awaited,
MSCI upgrade, met with a muted response.
It would be apt to say the investors are now in a passive mode rather
than active investing mode.
This
might not be good news for listed corporates – current and prospective.
However, it is worth noting that this can be changed by managing investor
expectations realistically. This is where the strategic role of investor
relations comes to the fore. There has been a visible change in investor
relations in terms of it getting a separate identity from a general corporate
communication function, which is a norm internationally.
Irrespective
of this development, many listed firms have found it difficult to manage
investor expectations. Investor relations function across many listed firms in
not being utilised efficiently, to say at best. Rather than putting an
interesting investment case, investor relations is just reporting numbers. Majority
of the listed company’s forward audited financial statements as quarterly
results, without necessary context and explanation to the data and tables. Some firms have outsourced this function to a
PR agency which handles financial information without any investment
perspective. This half-hearted attempt at maintaining investor communication is
not serving the purpose of igniting investor’s interest. Many investors fail to
see how their companies will strategize to meet changes business conditions.
Investor
communication is at the very heart of meeting such expectations. The strategic
nature of effective IR role enhances and strengthens a company's value by
communicating effectively with investors- which also means listening to them in
form of constructive feedback and suggestions through surveys.
The
role of investor relations becomes more strategic in difficult times. The
communication, in such periods, has to be more proactive and actionable. Even
in difficult times, companies need to:
◦Continue
to build relationships
◦
Be accurate/forthright in reporting
◦
Focus on the fundamentals- long-term story and balance sheet strength
◦
Listen to investors
The
content of the communication has to be highly strategic. The focus of the
content must be to present a favourable investment case to the current and
prospective investors. It is therefore very crucial to provide context and
implication of an announcement. Therefore, if it’s a rights issue- inform about
the implication that an ordinary investor will have on his/her shareholding. Investor
surveys are also a great way to understand the pulse of the market and set
investor expectations.
Writer
is a seasoned financial professional and an independent strategy consultant.
She has extensive experience in buy-side and sell-side research. Currently, a
partner in Plato Consulting, which is a stakeholder engagement company, she
advices listed firms in IR strategy and communication. She can be contacted at nazia@platoconsult.com
