23 September 2017
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Leaping from just disclosure to real communication

Business Times
13 Sep 2017
David Gerald

Investors today want greater transparency and understanding of how decisions are made

Many a time, companies believe that their disclosure is sufficient communication. Mere compliance with the Listing Rules and Companies Act to fulfil their disclosure duties does not always mean that they have communicated their disclosures to the expectation of their audience.

The dictionary meaning of "disclosure" is to make a fact known, whereas "communication" refers to the successful conveying or sharing of ideas. Often, company's disclosures are in legal jargon, in complex documents and, even at times, in footnotes. How then can shareholders be expected to understand the business of the company and its financial position, and make informed decisions effectively?

I recall a company that was the target of a short-seller a few years ago, China Mingzhong. Glaucus Research, the short-seller, alleged in a report that the company had mislead investors over its sales and expenditures, which sent the share price plunging to almost half its value. While the company responded later in a 19-page statement, refuting the allegations and offering documents with photographs of assets comprising capital expenditures, the damage had already been done.

Shareholders suffered the impact of the share price decline. Following the incident, the majority shareholder, Indofood, made a general offer at S$1.12 per share. But could the company have avoided the saga completely if it had been more transparent and had embarked on better communication? Could the photographs have been printed in the annual report earlier?

The example of China Mingzhong highlights the importance of effective communication and that disclosures must be timely and visible. Even if companies have bad news, it is better to simply and clearly communicate it to shareholders. The market appreciates transparency.

Addressing difficult issues

Perhaps the most difficult situation is facing off investors in times of financial difficulty and the need for restructuring debt. This is exactly what many maritime, oil and gas companies are currently going through. With the prospect for these companies not improving, drastic measures to restructure their finances are needed to prevent liquidation. But it requires the support of investors.

The Securities Investors Association (Singapore), or SIAS, has been approached by many of these fledging companies to help facilitate the dialogue between bondholders and the company, with Nam Cheong being the latest to do so. Companies have realised the need to communicate their predicament and propose solutions to bondholders rather than ignoring them.

Correspondingly, there is a need to help bondholders to appraise the situation and the proposed offer so as to prevent liquidation. In addition, bondholders have no platform to turn to for representation, resulting in SIAS helping bondholders to aggregate and representing them to protect their interests and investments. While the role of the trustee is to protect the interest of bondholders, in one particular case, the trustee asked for a fee before they can act.

This approach of collaborative discussion "in the boardroom and not the courtroom" by providing communication to the relevant parties has helped SIAS successfully resolve conflicts between issuers and investors, and ensuring investor relations peace.

Another initiative that SIAS has embarked on is analysing companies' annual reports and posing questions on corporate governance, financial performance and business strategy. The aim is entirely to promote better disclosure and communication, and also to improve the quality of annual general meetings (AGMs) by helping shareholders to raise relevant issues specific to each listed company.

This exercise will help focus discussions at shareholder meetings, promote better engagement and provide better accountability - especially from those low on the governance rating which tend not to have research coverage.

In addition, with the usual bunching of AGMs, particularly in April each year, the analysis of the annual reports can help provide a good guide for investors who may have little time to review numerous annual reports and attend multiple AGMs during that time.

Companies are encouraged to address the questions posed at the AGM and to publish their replies on SGXNet following the AGM. While many companies have been slow to respond to the questions posed, yet there are some that have praised SIAS for this initiative. A total of 45 companies have responded to the questions by uploading the responses on SGXNet, and we certainly hope to see more companies embracing this initiative and responding to the questions to promote better communication and disclosure.

Moving beyond disclosures

Companies and corporate governance professionals need to move beyond the mindset of providing just the disclosures and complying with Listing Rules and Corporate Governance Code. Investors today want greater transparency and understanding of how decisions are made. Lapses in communication and transparency have seen many short-sellers make use of these gaps to attack companies. Only by communicating more and effectively in a timely manner can companies prevent themselves falling prey to them.


The writer is founder, president and CEO of the Securities Investors Association of Singapore (SIAS).

Source: Business Times © Singapore Press Holdings Ltd. Permission required for reproduction.