There can’t have been many winners from the 1997 Asian crisis. But while the region teetered on the brink of financial collapse, one company began to reap the rewards of Asia’s newfound awareness of good disclosure practice. ‘The crisis was a rude awakening for many companies. Transparency became the buzzword of the year, and that was good for us,’ recalls Alison Chow, CEO of IRAsia.com, a Hong Kong-based market information portal.
Though Asian companies are still hardly regarded as world beaters when it comes to disclosure and transparency, things have improved since the 1997 crisis. Just as something good always comes out of something bad, the Asian crisis proved that companies need to be more open when it comes to supplying information. Some claim that previous efforts to improve disclosure were hindered by the shareholder structure of many large Asian firms, which are typically dominated by a single controlling party or family concerns. Why waste time and money disclosing information for the benefit of minority investors? Analyst calls would go unanswered by company executives. And if you tried getting extra information from the Asian tigers, you risked getting bitten.
But the companies are not solely to blame for the poor level of disclosure in Asia. You could just as easily point the finger at the market regulators, who some would claim have only belatedly shown an interest in corporate transparency. Then there are the investors. As Elaine Giam, senior consultant with financial PR consultancy Baldwin Boyle Shand in Singapore, puts it, ‘There hasn’t been much pressure on companies from investors because until recently all companies had been in a growth phase. Be they in fish food or manufacturing widgets, anything you put your money into was going to make a profit.’
And therein lay the problem. Until 1997, investors from Asia and beyond were happy reaping the rewards of the tiger economies. They weren’t too bothered about demanding Asian companies release more information, at least not in sufficient numbers to make an impact. Then came the collapse. Initially, many companies retreated and hid from investors as the stock markets went belly-up. The trickle of information dried up, leaving investors infuriated. But in the aftermath of the crisis, companies, regulators and shareholders began to realize the importance of improved transparency.
Global rules
For the regulators the priority was to restore confidence in the reeling markets. Companies needed to reassure investors or risk further losing market support. ‘The crisis brought the rules of globalization to bear on companies here, and now they are catering more to cross-border investors,’ reports Sue Gourlay, executive director at Hong Kong consultancy Golin/Harris Forrest.
The regulators still have to do some catching up, if companies are to start meeting international disclosure standards. Until recently, companies in Hong Kong could satisfy their disclosure requirements simply by publishing results in one Chinese language and one English language newspaper. Gourlay is dismissive of this rule. ‘It’s a silly way to disseminate information and it is not global disclosure. But we are seeing a progressive move toward a web-based news service, which should replace the anachronistic system we currently have,’ she adds.
Despite the slow pace of reform, many companies in the region have taken it upon themselves to increase the flow of information to the market. IRAsia.com is one firm hoping to capitalize on the growing company information market. It has recently opened new offices in Singapore and Sydney, reflecting the growing corporate interest in disclosure. ‘Companies now do file a lot of statutory information to the regulatory bodies, but we can help companies do more than just communicate information required by the regulators,’ Alison Chow explains. ‘For example, companies may wish to make a presentation available to investors,’ she suggests.
‘By helping these companies reach a greater number of investors, it helps investors understand companies better, and that is what IRAsia.com is trying to accomplish.’ Chow may have timed the opening of her Singapore bureau well. The island state’s stock market is dominated by the giant Government of Singapore Investment Corporation (GSIC), which manages the huge state investments. But in recent years, as part of a package of financial liberalization reforms, the GSIC has been rolling back its direct influence over the stock market and farming more assets out to professional fund management institutions. According to Elaine Giam, the fact that the state controlled all pension funds in the territory hampered development of relationships between major companies and big investing institutions in the past.
The Singapore government also plays a key role in regulating the Singapore Stock Exchange (SGX). Though the SGX is entrusted with the day-to-day running of the market, the Monetary Authority of Singapore (MAS) has the job of overseeing the development of the financial markets, and that includes its disclosure regulations. The MAS claims Singapore’s rules on this issue are in line with international requirements and that it operates a disclosure-based regime. It emphasizes that the onus is not so much on it to watch over companies; rather it is on the companies to discover the benefit of better disclosure. So far, the island state’s government reports that reaction from companies to MAS initiatives aimed at improving disclosure has been positive, while investors have also been supportive.
Techno-transparency
Investors are growing more demanding in Hong Kong, too, it seems. Rob Patalano, IR director at Burson-Marsteller’s Hong Kong office, reports that Asian analysts now expect more communications. ‘Companies increasingly realize they have to communicate to the market how they are going to create shareholder value, if they are to keep investors happy,’ he says. ‘Companies must be proactive in issuing press releases rather than just putting out announcements. If a company wants to improve its stock it has to abide by international norms, talking to current as well as prospective shareholders.’
The Securities and Futures Commission, the Hong Kong regulator, is well aware of the need to improve transparency, says Patalano. ‘They are using technology to reform disclosure practices, which is a fair way of doing things. They are focusing on transparency through technology.’
One firm that has experienced the profound changes in Asia’s financial communications must be Singapore Technologies (STE). A product of the merger of four separate defense companies back in 1997, STE is now acknowledged as a company with one of the most advanced disclosure strategies in the Asia region. Vice president of corporate communications Shirley Tan has seen that strategy develop rapidly since she joined one of STE’s subsidiaries eight years ago.
‘Over the last three years, the government here has tried to encourage companies to become more transparent,’ she explains. ‘The larger companies have taken the lead, and we are already seeing a marked change in disclosure practices.’ Tan recalls her early days in the business, when the standard of communications was so low in Singapore that even companies merely holding press briefings were regarded as good corporate communicators. ‘Just holding an analyst briefing was seen as excellent practice, because so few companies were in touch with their investors,’ Tan adds.
Following the 1997 merger, she decided that STE needed to develop better links with its investors. As part of her learning process, Tan attended several aerospace analyst conferences, watching how rival companies such as Boeing and British Aerospace presented themselves to investors. ‘I was amazed at the amount of information they provided and the closeness of the relationships between analysts and the companies,’ she reveals.
Open regime
Now STE prides itself on a disclosure regime that is as open as that of its western competitors. ‘If there is a problem with any part of the company, there’s no point in hiding. We aim to be as open as possible, and I think that investors appreciate this honesty,’ Tan avers.
That commitment to openness and full disclosure was rewarded last year when Singapore’s Business Times newspaper unveiled its Corporate Transparency Index, which tracks the reporting performance of the top firms in the city state. Singapore Technologies came out in first place.
Initiatives like this only serve to raise the profile of – and increase the pressure for – improved disclosure in Asia. This awareness of the importance of transparency and full disclosure is bound to grow as stock markets discuss mergers and access to capital becomes an increasingly global matter.
The recent controversy over fair disclosure in the US and Europe is undoubtedly adding to the interest in disclosure in Asia, all of which is good news for Alison Chow and her colleagues at IRAsia.com. ‘Companies here are now fighting for the same investment dollar that the big institutions can easily place anywhere in the world – Singapore, Hong Kong, New York or London,’ she says.
Chow reports increased interest from potential clients in other parts of Asia. Asked about future expansion plans, she says, ‘We’re thinking about Taiwan, Japan, Korea. We have to do one thing at a time, but we have interest from those parts of the world.’ All of this bodes well for the future. The technology to permit full disclosure is now in place, and regulators in the region are keen to improve transparency. International companies with large overseas investor bases, such as Singapore Technologies, are leading the way. The question is how long it will take other less visible companies to follow them.
