A new report published by the Institute investigates the shareholder communications practices of listed companies in Hong Kong, Indonesia, Malaysia, Singapore and Thailand.
The Institute launched a research project two years ago to assess the importance given to shareholder communications by both listed companies and investors in Hong Kong. The research found that shareholder communications tend to be reactively driven by rules and regulations, rather than being proactively driven by a choice to communicate and engage with shareholders. The resulting report – Shareholder Communications for Listed Issuers – Five Imperatives to Break the Monologue, published in September 2016, noted the importance of moving from a ‘monologue’ (whereby issuers simply provide such information as they are obliged or choose to disclose, without expecting or receiving investor feedback) to a ‘dialogue’ (where investors respond to the information given and proactively engage with the issuer).
Two years on, the Institute has launched a follow-up report extending the discussion to other Southeast Asian capital markets. The Institute has been working with sister professional bodies in the ASEAN Corporate Secretaries Network (ACSN) and this presented the opportunity to work collaboratively to assess the differences in local practices and regulations in shareholder communications around the region. In addition to the Institute (as an affilate member), ACSN comprises:
- Indonesian Corporate Secretary Association
- Chartered Secretaries Malaysia
- Chartered Secretaries Institute of Singapore, and
- Thai Listed Companies Association.
The new report (Shareholder Communications for Listed Issuers: Five Imperatives to Break the Monologue – Where are we in the Asian Region?) gives insights into these five jurisdictions and asks whether a broad regional trend towards enhanced shareholder communications can be observed.
The findings of the new report
Overall, the new report suggests that the picture which emerged from the survey is a positive one. While there were differences, sometimes substantial, between the experience of the different markets covered, overall the survey suggests ‘a growing awareness of the importance of good shareholder communications and the development of improved practices and disciplines in this area.’
Nevertheless, since the survey is based on the respondents’ own assessment of their engagement policies and practices, rather than a survey of the actual policies and practices themselves, there is always the danger that the picture which emerged is an overly optimistic one. In some specific areas the survey indicates that there is some distance still to go in terms of meeting international best practices. For example, the survey found that the formulation and review of engagement policies is not a regional norm. Moreover, a high proportion of respondents (particularly in Indonesia and Thailand) acknowledged that there is a need to engage shareholders more effectively.
The report recommends that listed companies in the region address the five imperatives set out in the Institute’s 2016 report as a way to improve the quality and effectiveness of their dialogue with shareholders. Using these five imperatives as the framework, the new report assesses how the five jurisdictions included in the survey measure up. The findings are summarised below.
1. Develop an investor relations strategy within the corporate strategy
There were substantial differences between ASEAN markets as to the relationship between issuers and their shareholders. The overall feeling was an awareness of growing activism by shareholders, which has not yet been matched by a strong move towards issuers establishing investor strategies within their corporate strategy.
2. Know and regularly review your shareholder base
Given that knowing the identity of shareholders is a critical first step in effective shareholder communications, the feedback from respondents was affirmative about the procedures in place for identifying beneficial shareholders, the importance attached to the upward transmission of that information to the highest levels within a company and the major role played by company secretaries in that process.
3. Formulate and regularly review shareholder communications policies
Generally, respondents suggested that issuers consider their shareholder communications policies are largely adequate (few issuers believe that it is actually inadequate) and there is a confident view of the timeliness of the provision of information. Only a minority of issuers employ a differentiated communication strategy vis-à-vis different categories of shareholder, however. This might be attributed less to an unwillingness to distinguish between shareholders and more to regulatory requirements, as recognised in the Organistation for Economic Co-operation and Development (OECD) Principles of Corporate Governance, to treat all shareholders equally.
4. Formulate and regularly review shareholder engagement policies
The feedback from ACSN respondents indicates that the formulation and review of engagement policies is not a regional norm. Notwithstanding the advent of new communication platforms, notably social media, statutory general meetings remain the centrepiece of any dialogue between directors and shareholders. Overall, the allocation of resources to this area of corporate activity seems adequate, but whether shareholder engagement is formally structured, planned and implemented was unclear. Both Indonesia (96% of respondents) and Thailand (61%) believe there is a need to engage shareholders more effectively. Perhaps this view is more widely shared.
5. Review the responsibility and accountability for investor relations
There was no indication of general uncertainty about the allocation within issuers of responsibility and accountability for shareholder relations. It was also clear that this lies at senior levels within issuers, including and up to CEO level.
The survey background
As with any survey, the Institute recognises the importance of putting the data in context. The appendices to the report highlight a number of relevant background factors. Appendix A shows that the majority of survey participants represent larger-scale issuers with a substantial market capitalisation and a large number of employees. Appendix B shows that the five jurisdictions involved in the survey are characterised by high ownership concentration (see Figure 1: Characteristics of Asian stock markets represented by ACSN).
The fact that a high proportion of the issuers surveyed are dominated by a single or small number of majority shareholders has an important bearing on their attitudes to shareholder engagement. Majority shareholders are typically highly engaged in the running of the business. In most cases they sit on the board, or, where they are not formally so appointed, the directors are mindful of their interests. The shareholder engagement issues of most relevance to closely-held companies therefore tends to be the attitude to the wider shareholder base.
The survey indicates awareness of the need to identify all shareholders in the wider shareholder base. Minority and retail shareholders can become ‘invisible’ to issuers where their shareholding is held via intermediaries such as institutional investors, brokers, banks and share registrars. However, the survey also suggests that issuers may be under-utilising the most effective ways to engage such shareholders – namely via social media channels and the company website. Statutory general meetings remain the centrepiece of any dialogue between directors and shareholders among the survey participants, but minority and retail shareholders often do not participate in the governance of their investee companies and rarely vote in general meetings (see Figure 2: Are there communication channels other than statutory meetings available to shareholders?
Another important factor to consider is the regulatory background within each of the jurisdictions covered. As mentioned above, the Institute’s 2016 survey found that in Hong Kong shareholder communications tended to be reactively driven by rules and regulations. This indicates that regulatory requirements and recommendations are an important driver of better shareholder communications. In this context it is encouraging to find that, in the five jurisdictions covered by the new survey, regulators have been eager to promote better shareholder communications and engagement. However, as set out in Appendix C, these obligations are currently either voluntary or subject to comply or explain (see Figure 3: the regulatory background). Apart from legislative requirements regarding the need to ensure adequate levels of disclosure, the recommendations relating to improving the dialogue with shareholders are to be found in guidelines and codes of corporate governance.
Shareholder Communications for Listed Issuers – Five Imperatives to Break the Monologue – Where are we in the Asian Region?’ is available on the Institute’s website: www.hkics.org.hk.