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November 05, 2009

Straight talk wins the day at AIM conference

Despite the hi-tech focus of delegates at the Alternative Investment Market (AIM) conference yesterday, the message was simple.

Richard Plackett, managing director of leading UK investment fund Blackrock, gave AIM-listed companies some very straightforward advice: ‘look after the business and the share price will look after itself’.

Maybe Plackett’s no nonsense approach was inspired by his panel predecessor, Jonathan Straight of Straight plc, the UK supplier of kerbside recycling containers. Straight was a particularly refreshing and popular presence. His trademark waxed handlebar moustache and ponytail were nearly overshadowed by his straight-talking account of ups and downs on AIM.

In an interview with a British regional newspaper, the maverick entrepreneur once said his appearance made him ‘memorable’.

‘It's very deliberate. People did not and do not forget me..it also means that competitors do not take you seriously, which is a good thing.’

Robin Froggatt-Smith

IR Magazine

Corporate secretaries called the World Series

The proxy plumbing problem is making its way through the SEC’s rule-making machine.

In a speech yesterday at the Practising Law Institute in New York, SEC chairman Mary Schapiro said the commission will be issuing a concept release ‘in the coming months.’

That’s good news for the Shareholder Communications Coalition (SCC), a group backed by NIRI, Business Roundtable and the Society of Corporate Secretaries and Governance Professionals, among others. The SCC has been pushing for changes such as the elimination of the NOBO/OBO distinction and regulating proxy voting advisers.

According to Schapiro’s remarks yesterday, most of the issues raised by the coalition are being tackled by the SEC.

At  Corporate Secretary magazine’s East Coast Think Tank on Tuesday in New York, vague recognition greeted the problems of proxy mechanics. According to electronic polling using Computershare’s IML technology, 72 percent of participants were vaguely aware or not at all aware of the SCC’s work.

Other polling results:

- 27 percent of think tank participants say changes to NYSE Rule 452 eliminating the broker vote in director elections will require a significant increase in efforts to educate retail investors about proxy voting.

- 33 percent say the 452 changes make it less likely they’ll use notice and access for proxy materials.

- 63 percent say the SEC’s proposed enhancements to notice and access will not increase voting levels.

Judging by the response to another key polling question, predictions by these corporate secretaries and governance professionals can be relied upon: 60 percent said the Yankees would win the World Series.

By Neil Stewart, IR magazine

November 02, 2009

Standard Chartered’s mooted extra listings a ‘brand’ exercise

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HK-based bank says its Mumbai and Shanghai ambitions are intended to raise its profile in India and Mainland China.

Standard Chartered Bank has revealed ambitions for further listings in India and China. Corporate branding and not capital is said to be their motive. Plans were discussed by the bank’s chief executive Peter Sandis, as reported in the Financial Times on Friday.

The new listings in Mumbai and Shanghai, expected to take place in the new year, will add weight to the bank’s Asia-centric practice which is already serving them well. Indian plans are the more developed, the bank plans to issue Indian Depository Receipts which work like American Depository Receipts and their Global equivalent.

They won’t be searching extra-enthusiastically for institutional investors, however. ‘This is strictly a brand and profile raising exercise’ said a representative from the bank. Problems associated with listing in Shanghai, and indeed in any emerging market, emanate from a lack of local investor confidence and variable market regulations.

In this context, bolstering an extensive regional presence will be a useful prelude to global capital-raising in the future if the bank should so wish.

Robin Froggatt-Smith
IR magazine

October 29, 2009

It’s all a load of balls!

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The London Stock Exchange (LSE) is to invent a new tradition to compete with upstart exchanges with no real history.

A sculpture featuring 729 moving balls has signified the opening of daily trading in Paternoster Square since 2004. This sculpture, ‘The Source’, is thought to be outdated and overshadowed by rival market openers. The NYSE and NASDAQ have notorious opening bell ceremonies; the latter’s is exquisitely planned ‘minute-by-minute’ and broadcast over the web. Even London-based Turquoise, launched in 2008, has a specially commissioned brass bell.

Hundreds of pendulous, florescent balls haven’t captured the hearts and minds of the population as had been hoped so they will be replaced by something altogether more modern. I wonder if LSE representatives have enquired after the availability of the Bow Bells?

The next question must be: who are the leading candidates for the post of chief bell-ringer. Perhaps soon-to-be unemployed Davina McCall? I doubt that the LSE would be able to get Simon Cowell on their budget, but Robbie Williams would certainly be worth a try.

The exchange is looking to revamp its public profile in the wake of the financial crisis and with this in mind, a new ceremony could replicate the NASDAQ’s audience participation scheme. On entry, clients and employees might be asked to down a pint of overpriced European lager before punting a rugby ball to the sixth floor or, if they are football fans, inflicting grievous bodily harm.

Prospective bar-staff and bell-ringers should send their CV and a covering letter to 10 Paternoster Square.

Robin Froggatt-Smith
IR magazine

October 28, 2009

Confidence tricks

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Is the Financial Services Authority (FSA) disclosure code just a confidence trick?

‘UK banks recognise that there is a level of public interest in their disclosure’ and better disclosure will improve investor confidence, says a new code (Annex 2) launched by the British Bankers’ Association on Monday.

What kind of better disclosure? The code suggests four main principles: continuing reevaluation, good-practice guidance, increased comparability, and clear explanations behind disclosure.

An FSA discussion paper accompanies the code but who could disagree with the above advice? Investor confidence is desirable all-round. And is the code especially ‘tough’, as the FSA claims? It seems more like posturing on their part. Indeed, the discussion paper jumps in straight away to back up the code’s second principle:  ‘UK banks…are committed to the ongoing reevaluation and enhancement of their financial instrument disclosures for key areas of interest’.

Cynicism can be unhealthy, however, and the code is positive. Beginning with 2010 annual reports, UK Banks ‘will seek to converge their definitions of non-IFRS (International Financial Reporting Standards) terms.’ Converge sounds a bit half-hearted but it is an essential verb. The report continues, ‘in this context, ‘convergence’ does not necessarily mean identical definition; rather, a level of equivalence in definition’ that will enhance investor understanding.

This principle is perhaps a nod to the FSA’s game plan – to prepare the guidance before producing templates for practice. The accompanying discussion champions codes over standardised templates as the best format for investor confidence-boosting disclosure. However, once the code’s principles have been instilled, problems with templates – the FSA note that they lack flexibility, and demand responsibility and exhaustive detail if they are to be effective – will dissipate. For example, disclosure templates aim to standardise definitions but this is problematic because all banks and financial institutions are different. Instead of the discussion paper’s ‘pseudo-comparability’, the code’s ‘convergence’ provides flexibility.

The code on its own seems rather predictable and timid. The FSA have not been explicit about its further development, and its immediate efficacy has been stressed. One suspects that the banks’ feedback in 2010 will be the key to confidence-increasing disclosure, but in the meantime the code looks like a confidence trick.

By Robin Froggatt-Smith
IR magazine

October 23, 2009

ADR roundup: unsponsored ADRs one year on; Vodafone; Aviva

This is the first of a regular blog on what’s going on in the world of ADRs. The plan is to post fortnightly, pulling out the main stories from this small corner of the capital markets world.

SEC rule change: one year on
This October is a good month to start such a project, it being a year since the SEC’s rule change that led to an explosion of unsponsored ADR listings. By January, the depositary banks had set up over 1,000 new programs between them, upsetting a few corporates along the way. A year on from the rule change, there are thought to be around 2,000 new unsponsored programs, worth roughly $2 tn in value.

US investors drive demand for the programs and the depositary banks have not always consulted issuers over whether they’d like a program established in their shares. Obviously it’s not ideal to have an unwanted unsponsored program set up. It doesn’t make the job of IR any easier, with the depositary banks under no obligation to distribute shareholder materials to the ADR holders. Most IROs questioned by this magazine, though, viewed the programs as a mild irritation and not much more.

Vodafone
Vodafone, the FTSE-100 company with a market cap of around £75 bn, made waves this month when it announced it’s moving its ADR listing from NYSE to NASDAQ. Vodafone said it is making the move to save costs, a statement that will ratchet up the tension between the two US exchanges.

Simon Gordon, a spokesperson for the company, told Bloomberg the shift will save around $400,000 a year in listing fees. ‘There are two benefits from moving to NASDAQ,’ he told the newswire. ‘We want to save the money and secondly we don’t just offer voice services anymore, we offer multimedia and data and therefore expect to be at home on NASDAQ.’

Vodafone’s expects to start trading on NASDAQ on October 29, and will continue to use the ticker symbol VOD.

Aviva
NYSE salvaged some pride this week as Aviva’s new level-two ADR began trading on the New York exchange. Another FTSE-100 constituent, Aviva has listed to boost its presence in the US market, as well as make it easier for its US investors (which make up 20 percent of its investor base) to trade in Aviva shares. 

CEO Andrew Moss told the FT earlier this month it had taken the company two years of work to ensure compliance with SOX, but refused to comment on the costs involved. After all the bad publicity for SOX, it is interesting that a number of non-US companies, like Aviva, still view it as useful from both a risk management and a marketing perspective.  

Tim Human
IR magazine

October 21, 2009

Which CEO?

6a00d83451ef8d69e20120a5953375970b Recent CEO searches have produced mixed results. Some companies are struggling to find the talent they want, while others give the impression that they’d settle for anyone. But investors aren’t panicking.

Standard Life finally found the right CEO this week after a six-month search. Talent scouts scoured the world in a grueling marathon which now seems rather unnecessary – they have promoted David Nish from his role as finance director. After all that, Standard Life’s pick was popular in the City – shares rose by 2.1p with the news.

And then there’s ITV, with the CEO and chairmanship both currently vacant. This leadership crisis has, counter intuitively, not dented investor confidence: when the broadcaster issued a convertible bond on October 13, it was more than ten times oversubscribed and the sum raised was increased from £120 mn to £135 mn. Who’d have thought?

Not all companies are getting such an easy ride, though. In Marks & Spencer’s case, Stuart Rose made a point of appointing himself puppet master when he invited the internal candidates for interrogation at their investor day last week (the first in eight years). The candidates were most definitely overshadowed and M&S shares fell 4 percent.

By Robin-Froggatt-Smith
IR magazine

October 16, 2009

The relationship between behavior and regulation

6a00d83451ef8d69e20120a5953375970b Boot camps for delinquent directors are one of the more extreme solutions recently mooted as a means to ensure good corporate governance. As November approaches, anticipation of the Walker Review and Combined Code review has prompted much discussion along the lines of: which will prevail, regulation or behavior?

The debate has been assessed by PriceWaterhouseCooper’s David Phillips and Cass Business School’s Professor Roger Steare in a reaction to the Combined Code Review, released by Phillips on his blog.

After reading the letter, however, it is striking that in many constructions of this argument, behavior over regulation is a truism.

The letter quotes the Financial Reporting Council’s progress report: ‘quality of corporate governance ultimately depends on behaviour not process.’ Of course it does! To question the extent to which people are free to act within a legally regulated system is to descend into philosophy of mind – a bad idea we can agree. What one has to assume they mean: once a process is in place, the manner in which corporations behave is crucial to its success.  Most regulators and most commentators agree. In suggested contrast, Phillips and Steare warn of ‘mindless box ticking and unthinking compliance with the form of what is being requested,’ but ‘mindless’ and its synonym again highlight that an ideal outcome would be mindful regulation, thinking compliance.

There seem to be two definitions upon which these repetitive debates need to be hung.

Process and regulation
I certainly agree that ‘character, judgement and behaviour are connected stages in a process.’ By implication, rather than being isolated as cold regulation, the process itself is also important. This is confusing because comment has pitted regulation - meaning regulation leading to boiler-plating - against behaviour. Regulation is part of the corporate process and further regulation shouldn’t be outcast.

Behavior
Behavior has been highlighted by Phillips and Steare. They recommend that the Financial Reporting Council should define and presumably regulate for the benefit of boards, ‘the essence of what is meant…in its references to “character” and “behaviour” throughout its July 2009 consultation document.’ In other words, behavior should also be codified and regulated. This is all well and good, and has been confused because the above reviews and press coverage have reached the same outcome by the reverse of codified morality – moral regulation.

There is an underlying assumption that successful businesspersons will respond well to efforts to educate their attitude. Ignoring the all-too-apparent problems with this theory, I would add that successful businesspersons should respond well to regulation and disclosure requirements. If they can’t manage to do this with the ‘integrity’ or ‘honesty’ of Phillips’ letter, they will fail prescriptions and should be disqualified.

Robin Froggatt-Smith
IR magazine

October 15, 2009

Marks & Spencer's got talent? The City’s not so sure

Will-close On Tuesday, Marks and Spencer held its first investor day for eight years. Spearheaded by executive chairman Sir Stuart Rose, the day allowed the leading internal candidates for the role of chief executive to address 80 investors and analysts gathered in Hammersmith, London.

The role of CEO at M&S is an important job, currently performed by Rose in addition to his chairmanship, a dual role that is a growing source of resentment among shareholders.

Finance director Ian Dyson, general merchandise director Kate Bostock and executive director of food John Dixon were all given their chance to address the audience. M&S’ efforts to find a successor to Sir Stuart, who stands down next year, took on particular significance at the investor day as Charles Wilson, chief executive of cash and carry food wholesaler Booker, became the third retailer to rule himself out of the race.

Unfortunately, the talent contest turned out to be something of a flop. As the Daily Telegraph pointed out yesterday, shareholders are far from convinced the internal talent is up to scratch. They want to see a strong successor who will challenge Rose when he or she becomes chairman.

The consensus after Tuesday’s performance is that Dyson ‘lost it in the question and answer section; Kate was nervous; John had the most gravitas even though he didn’t always make sense.’

Following the presentations, M&S shares dropped 4 percent yesterday, the biggest faller in the FTSE 100.

From an investor perspective, the management talent vacuum in M&S wouldn’t exactly fill you with confidence: if Sir Stuart was holding the talent contest to reaffirm his position as the only person fit for the job, he certainly succeeded.

Perhaps M&S should have a bash at an alternative reality show format? A series of Big Brother, perhaps, where successors are holed up in a secret location and filmed intently by a television camera crew before being put to a public vote.

William Russell
IR magazine

October 14, 2009

Mood picks up among German IROs

Timheadshot Six months ago they were sharing the pain. During the spring, DIRK, the German IR association, saw numbers at its members’ meetings swell as equity markets bottomed out and IR managers sought advice and consolation. At the time, DIRK’s general manager, Kay Bommer, compared his job to that of a psychiatrist.

Numbers at the association’s meetings remain high. But the mood appears to have improved considerably, according to the findings of DIRK’s latest Sentiment Indicator – a semi-annual poll of IR managers. It asks respondents to rate their assessment of their present and future situation from +100 (completely positive) to –100 (completely negative).

In March, German IROs gave a response of –50 for the present situation and –38 for the future situation. Six months later, the assessment of the present situation stands at +19. ‘The last time a comparable value was recorded was in the spring of 2008, before the financial crisis hit,’ notes DIRK’s survey. IR managers are even more optimistic about the future this time round, giving a response of +38.

Now out of crisis mode, the German IR community is thinking of ways to buffer itself against the next downturn. One option is for listed companies to target more retail shareholders, as explained in our news piece earlier this week.

Tim Human
IR magazine