in association with ABRACOM and IBRI Thursday June 29 th 2006
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in association with ABRACOM and IBRI
Thursday June 29th 2006
Governance and communication
“Sunlight is the best disinfectant”
Agenda
• Governance
• Trends in disclosure in major markets
• Key communication issues for public companies – Non financial information – XBRL
• Changing communication solutions for professionals
Governance • What is corporate governance?
• Major concerns for stakeholders: – Corporate governance has shifted from a
compliance obligation to a business imperative.
– Corporate governance is a global imperative.– One size doesn’t fit all investors.– Innovative approaches to corporate
governance challenges.
Trends in disclosure in major markets
Trends in disclosure in major markets
Focus on…
The US •The US has 2 different types of mandatory disclosure: structured and unstructured.
• Information is “material” when there is a “substantial likelihood” that a “reasonable investor” would find it important in the “total mix” of information.
• Structured disclosure: registration statements, prospectus, proxy statement, 10K, 10Q and 8K documents, and their equivalents for foreign companies. Issuers are obliged to file these with the SEC; in 1997, electronic filing to the EDGAR database was progressively introduced.
The US – continued • “Unstructured” disclosure covers dissemination of worthwhile information and prohibits companies from selectively providing material information. Required by NYSE, NASDAQ, AMEX
• Reg FD introduced in 2000. The rule aims to do away with selective material disclosure to investors, analysts, brokers and traders. Companies must distribute material information broadly to the market. Webcasts.
• Sarbanes-Oxley – real time disclosure. Mandates that each company “disclose to the public on a rapid and current basis such additional information concerning material changes in the financial condition or operations of the issuer.”
Trends in disclosure in major markets
Focus on…
European Union
Introducing the Transparency Obligations Directive
Context
•The regulations on financial services have differed among member states since the EU was invented in 1957.
•This has resulted in lack of cross border capital and investment flows.
•The EU wanted a “single” market for investment.
Financial Services Action Plan
• The FSAP was designed to introduce a single market.
• It has comprised 39 different Directives, including …..– IFRS, – Market Abuse, – Prospectus etc
• One of these is TOD.
TOD time line
2002 2003 2004 2005 2006 2007
Comm consults on need
Parliament approves
level 1
CESR publishes
its advice
EU States Publ. level 3
20th
Jan
Comm. Publ
level 2
What’s in TOD?
Major elements are:
•Financial reporting timetable
•Major shareholder reporting
•Dissemination
•Storage
Trends in disclosure in major markets
Focus on…
Asia • Japan – Tokyo Stock Exchange has just completed
major review of its disclosure obligations. – Likely outcome is increased disclosures on
directors dealings, material information etc. – Disclosures made through TD Net
Asia – continued • China – Improvements in disclosure – SOE’s – Foreign investors – Working party – Links to the SEC and ‘common agenda’
Trends in major markets – in summary • Key trends among regulators are to ensure that news is disseminated: •o Simultaneously. Empowering the individual investor in addition to the institutional investor •o Fast. The era of advertisements in national newspapers is ending, and real time electronic distribution is standard.•o “Push versus pull”. Simple posting of news on a website (either the issuer’s or a regulator’s) is insufficient. •o Media. Regulators are staying away from defining specific media outlets to be reached; rather they are using phrases like “appropriate media”, and “capable of reaching investors”.
Agenda
• Governance
• Trends in disclosure in major markets
• Key communication issues for public companies – Non financial information – XBRL
• Changing communication solutions for professionals
Non financial information
BUT! Regulatory disclosure is not enough…
It is about credibility• Investors demand transparency
• Governance fiascos have created a risk avoidance mentality
• World-class transparency and governance enhance valuation
• Emerging market issuers are suspect
• Reputational value drivers are key criteria for investors
Good Governance Builds Value
Investors will pay 28% more for emerging market companies that practice good corporate governance
McKinsey Quarterly
Corporate Value Drivers Changing
Quality of Management replaced EPS Growth as the #1 factor for U.S. money managers.
Reputation Matters More Now
64% of all investors say information about a company’s reputation is more important to them than one year ago. Rating Research Investor Confidence Survey
The Focus is Changing to Reputational Value Drivers•Leadership/Governance
•Communication/Transparency
•Brand Equity
•Intellectual Capital
•Innovation
•Human Capital
•Networks/Alliances
Traditional accounting has remained focused on tangible assets. As a result, a significant portion of corporate assets go under-reported in the financial accounts. The relative lack of accounting recognition of intangibles coupled with their growing importance in the value creation process means that the financial statements have lost some of their value for shareholders. If other information does not fill the void, there could be misallocation of resources in capital markets.
(OECD)
The Coloplast test
• One group of analysts received the full (excellent) non financial disclosures.
• A second group of analysts received a minimum compliant document.
• The result?
• The first group issued more BUY recommendations, even though they issued lower valuations.
(Source PWC)
So reputational value drivers matter
•Account for 35% institutional investor stock decision factors
Measures that Matter - Ernst & Young
•Are more important than financial measures in determining an IPO’s success
Measures that Matter - Ernst & Young
•Comprise at least 50% of a company’s valueBaruch Lev - New York University
XBRL
• XBRL is a language for the electronic communication of business and financial data which is revolutionising business reporting around the world. It provides major benefits in the preparation, analysis and communication of business information. It offers cost savings, greater efficiency and improved accuracy and reliability to all those involved in supplying or using financial data.
XBRL in Action
Agenda
• Governance
• Trends in disclosure in major markets
• Key communication issues for public companies – Non financial information – XBRL
• Changing communication solutions for professionals
Changing role for the news release • Knowledge workers move away from press articles as key information source, to press releases
• Today’s news release reaches: – The media PLUS – Web users– Bloggers, – Social media networks, online communities,
• Using multi media – image, audio, video – RSS, podcasts…..
The wire: complete and simultaneous delivery to media, investors and end users
Press releases
Information distribution
Validation Formatting
Translations
Information network
• Companies in the private or public sector , • Communication agencies
“wire” Internet, satellites, Dedicated lines, fax
Email, print
Journalists
Investors
The public
Targets
Press agencies
Internet sites
Financial news wires
Aggregators (Intranets)
PRNJPR Newswire
for Journalists
MEDIAtlas
Clients
In conclusion • Stakeholders are demanding excellence in corporate governance.
• Disclosure is a practical means of compliance….
•….but is not enough. Non financial information adds to the story.
• XBRL is one the most exciting opportunities for issuers
• And technology presented by PR Newswire is available to help communicate with with audiences.
Thank you.
Any questions?
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