This year holds major challenges for IROs and CFOs in Australia. First, there are regulatory changes following the enactment of Clerp 9 on July 1, 2004, which apply to the current reporting year. These include the controversial new power of the corporate regulator, the Australian Securities & Investments Commission (Asic), to issue infringement notices for breaches of continuous disclosure.
What’s more, the window for company reporting has been reduced to two months from a previous 75 days. This is significantly increasing the workload in the main reporting month of August and has put greater pressure on auditors and analysts at a time when they are asking more questions.
Similarly, the adoption of international financial reporting standards (IFRS) from July 1, 2005 is creating additional work for these professionals. Companies will have to quantify the effect of IFRS in their 2004/2005 accounts and provide results in international accounting standards (IAS) format starting with their 2004/2005 accounts. This could have a significant impact on reported results and the associated challenge of communicating the impact in clear terms.
The evolving corporate governance situation is affecting IROs and CFOs, too. Top issues in this area include executive remuneration, explaining departures from best practice, the debate about independence and board composition, and increased pressure on committees. A recent National Investor Relations Institute (Niri) forum on governance in the US concluded that the most pressing governance issue this proxy season will be executive compensation – and it will likely top the list for Australian companies as well.
There is also increased responsibility and pressure on IROs following scandals in the US and Australia, where IR has come under attack. Investors and directors are wondering whether IR is asking senior management the right questions and whether companies have adequate D&O cover.
Additionally, we are experiencing a slowdown in the economy and in the equity market. Last year was a boom year for the market, which was up 20 percent, and a very high proportion of stocks rose. Profit growth and market gains will be much lower this year and, in this environment, investors will be putting much greater pressure on companies to perform.
From July 2005, employees in corporate superannuation funds (occupational pension funds) will have more choice. Greater choice will mean greater competition and this will put downward pressure on fees. And anything that puts downward pressure on the fees of institutional investors will result in pressure on companies and IROs.
There is also increasing pressure on companies in the area of corporate social responsibility (CSR), particularly following developments at James Hardie in late 2004. At the same time, there is growing recognition of the value of investing in human capital and reporting at least internally on human capital metrics such as job satisfaction.
There is increased pressure from the market for more financial information on a more frequent basis, too, the question being whether firms should provide earnings and other guidance. There is also debate about how much non-financial information investors and analysts require from companies.
Undoubtedly, IR and organizations like the Australasian Investor Relations Association (Aira) and the Australian Shareholders’ Association (ASA) will continue to play a greater role this year. Aira has been given greater resources and is working on a number of best practice guidelines, following the lead of Niri in the US.
