‘Shareholders need better quality information,’ is the conclusion of a recent report by the Institute of Chartered Accountants in England & Wales. Nothing new there. Investors are always harping on about the need for more transparency and pertinent disclosure from companies.
But the report turns the argument on its head and points to something which many companies seemingly fail to grasp. The desire for better quality information from shareholders should not be viewed as an extra chore in a one-way process of information provision. It is a two-way process: the better the information provided to the market, the better the understanding of a company, the more likely that more people will find something which appeals. Give and you shall receive.
‘The Cadbury code was based on the principles of openness, integrity and accountability,’ reads the ICAEW’s report. ‘It said those companies whose standards of corporate governance are high are more likely to gain confidence and support from investors in the development of their businesses.’ Provided that there is a decent enough business for investors to support in the first place.
And there’s the rub. An increasing number of companies are exhibiting a willingness to increase their information provision to investors – when things are going well. The trouble is that too many companies decide to batten down the hatches when things start to go awry. Yes, we are open and friendly to investor inquiries unless, of course, those inquiries are likely to lead to hefty criticism of management. Then we just go through the regulatory paces and take the phone off the hook.
It’s something we all learn at a very early age. When you did something wrong or failed to achieve a goal at school, you kept a low profile in the hope it would blow over. Some might call it human nature.
Yet it’s also human nature for those on the other side of the fence to respect people who own up and explain their actions. Even if there is a short-term problem, such openness will stand you in good stead in the longer term. When running a company, with a responsibility to owners and employees, it’s the type of expectation of integrity the ICAEW is referring to in its report.
Recent analysis in the States indicates that the companies which are most successful at marketing to the investment community are those that tell the story straight in both the good times and the bad. It also found that if you’ve been consistently open in disclosing good quality information then you won’t get such a ticking off when the bad times come around. Think back to school: some things never change.
