Ratio Magazine :: The Inside Track to East Africa’s Economies - Why You Can Afford to Talk to Your Shareholders

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Why You Can Afford to Talk to Your Shareholders

Monday, 14 June 2010

My buddy Rob picked up the newspapers and looked at the Safaricom financial results with a raised eyebrow: An increase in profits by nearly 44% to KES20.9bn. ‘Possibly a good idea to not have printed all those annual reports’, he mused. Rob had initially been critical of Safaricom’s decision not to print and mail annual reports to their shareholders. At the time, before their first annual general meeting as a listed company, Safaricom had gone to great lengths to make sure that everyone was clear that there’d be no frills. Not a sausage. Literally. You probably remember reading about it in the newspapers: a very explicit warning not to turn up if you were counting on lunch. Or an umbrella. Or a t-shirt.

Safaricom sat the media down and explained in detail why this would not make any sense: After the IPO, the company had more than 800,000 shareholders. Based on other companies’ AGM turnout, Safaricom estimated 30,000 people to turn up for the AGM. Do a quick calculation what it would cost to buy 30,000 umbrellas, alongside 30,000 baseball caps, and 30,000 lunches – it wouldn’t have been money well spent. In a way, this very explicit announcement worked very well: Only a trickle of shareholders came to Kasarani Stadium. But that determined trickle then spent more than an hour arguing over the missing lunch, blind to the fact that no lunch actually enhanced the value of the company that they had chosen to buy a part of.

Not printing 800,000 plus annual reports and sending them out by snail mail had also been part of the cost management exercise: If anyone had asked for a hardcopy, they would receive it, but Safaricom focused on making the annual report available digitally. However, Rob had not been concerned about the efforts to spend carefully: He was concerned that changing from hard-copy to digital delivery of company information would be too passive an approach to ensure that shareholders actually obtained important company information. This may seem ironic since Rob actually runs a company that specializes in creating online investor relations platforms for listed companies , and he is quite evangelical about the use of digital media to communicate especially with retail shareholders.

The Curious Case of the Missing Lunch showed that despite their undoubted enthusiasm for stock market investments, a lot of people actually did not really understand what they were doing: There is a big gap in financial literacy. This is not something that you can necessarily leave with listed companies to fix: Financial literacy needs to be part of the overall educational system and if a government decides to use the stock market for privatisations and encourages broadbased small retail shareholding, then it needs to pull its weight in adult financial literacy, too – and not just stand by and casually allow margin trading.

Other companies followed Safaricom’s stripped-down AGM version closely, keen to see if and how they could emulate the cost reduction. But I don’t think they have yet picked up on an important related issue: That it is now a lot more feasible for companies to communicate with their retail shareholders. Just a couple of years ago, you could always argue that it was way too expensive to maintain a steady communication with small shareholders. That argument no longer holds: With rapidly growing internet access and mobile phone penetration, not only does it become a lot cheaper to make information available, but it also becomes a lot easier to have a two-way communication, i.e.to release information towards your shareholders, and at the same time to invite questions and feedback.

However, many listed companies in African markets are still reluctant to embrace this. Partly a lack of clear regulatory requirements that stipulate disclosure and shareholder communications requirements, and a regulator not enforcing existing regulations, partly a general suspicion of proactive information and feedback, and partly inertia – we’ve always done it this way, so why should we do it any differently? Fund managers and other large investors know how to find us, and why bother seeking out to all those people who’ll just argue over free lunch anyway?

Well, aside from regulatory requirements regarding disclosure, there are actually benefits to reaching a much larger audience by embracing an active digital shareholder communications strategy: It can help to build your brand, the feedback can improve your governance, and often listed companies also find that more business opportunities come their way. And small retail shareholders might then just stop coming to the AGM for food and freebies only.

Republished with kind permission from the Star.

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