Kenya: Investor Relations Management: Practices in East Africa
Kenya: Investor Relations Management: Dealing with the Public
Perspectives: Growing Awareness?
Structural issues have held back improvements in IR practices: The fact is that there is a very limited number of large investors in Kenya. They are institutions and a handful of emerging market investors - not more than 100 significant ones. This is indicative of an overall lack of critical mass in these ‘frontier markets’ with a total of around 1,400 listed companies. At the same time, regulations tend to not push IR improvements either. Informal conversations with the institutional and emerging market investors, both foreign and local, reveal that the practice of a call to senior management prior to results announcements to “see if there are any surprises” is common. In the absence of a formal disclosure policy at board level, not much can be done to stop this. It’s a question of organisational integrity and culture. What’s the motivator? It depends on the company: For some, it will be a commitment to excellence. For the smallest listed company, it will be the CEO wanting to be sure that his company appears on an investor’s radar for that all-important buyout or strategic tie up. Stangroom argues: “On the one hand, self regulation clearly does not work as governance standards are generally poor. Others argue that legislation does not solve the problem either - see the USA model of Sarbanes Oxley which burdens the companies with excessive costs. The answer has to be somewhere in between and will probably find as its motivator companies’ desire to excel over their peers. But in East Africa, no evidence of this trend has emerged yet.”
For now, investor relations in East African capital markets lag far behind the standard. “I don’t think they realize the need for it,” says Kilolo-Kedenge. “Most companies just have the mandated announcements, press releases and meetings.” As a consequence, institutional investors spend weeks trying to schedule substantive meetings with top management, and retail investors are often left out in the cold.
Signs of institutional awareness of the need for investor relations are emerging in Kenya: Gichaga, public relations and communications manager for the NSE., said Safaricom could be the first company to speak at one of the NSE’s new quarterly investor forums. The exchange also holds forums for listed companies in which the CMA and CDSC sit in to answer questions, and quarterly media briefings for the financial press. Gichaga says investor relations are on an upward trend in the region. “Just because there is no IR department in a listed company doesn’t mean they’re not actively trying to communicate with their investors,” she said. But retail investors still do not always get the information they need. Even at AGMs, companies focus on institutional investor needs and retail investors are often there for the free lunch - literally.
In Kenya, “retail investors tune out,” Gichaga says. “Some investors don't actually read annual reports. They fail to take the time to read the information that is put out there.” Gichaga points to a lack of investor education early on. The NSE has introduced an online trading game for college students in hopes of developing an investor culture among Kenyan youth. Some 4,000 students participated in the first trial round last year with the help of professional investment analysts as mentors. The winning group received KES250,000 to invest in the real stock market. “It’s a start,” Gichaga says. “But of course investor relations can improve, and the onus is not only on the listed companies, it’s on all the players in the capital market.”
Still, corporations are responsible for their own growth. And many executives simply lack the motivation and imagination required to reach Kenya’s new layman investors. Stangroom suggests that large shareholder bases should be seen as a marketing opportunity. Investment data required for effective shareholder communication can be seamlessly presented and merged with an operational brand to improve overall reputation. This also improves share value.
Online social fora are also tangible evidence that the web does need to be taken seriously by companies in handling their image. Safaricom has taken a particularly hard hit in this area following its IPO debacle. Corporate blogs have yet to be seen in investor relations in East Africa.
Finally, a key lesson for East African corporations to learn is that when something bad happens, silence does not count as effective damage control. A few companies understand this. When one of Kenya Airways’ new planes crashed last year the company immediately set up a media centre where the CEO was available to answer questions for days on end. The Kenya Airways website was however unable to handle the traffic and was down for days on end. The new aircraft had been part of the company’s expansion plans, and it was clear executives realized the need to explain what had happened to their investors. For any market like Kenya’s that is increasingly driven by retail investment and characterized by social networks through which rumours spread like wildfire, this kind of honest proactive approach is necessary for success.
Perspectives: Technological Revolution
The cost of maintaining a traditional IR department to constantly interact with the investment community can be significant. There are over 14,000 listed companies in the US alone – to get their investment stories heard amongst the crowd, IR practitioners need to have a background in PR, financial reporting, communications, law, and an understanding of the markets. They need to convey the corporate investment story eloquently and they need to know what is going on within the company at all times: they need to have a seat at board level. Not surprisingly, IR professionals are paid a lot of money.
Technology will hold the key for IR in Africa, argues Stangroom, since it offers both cost savings and the ability to work around infrastructural challenges such as the lack of effective postal services: “In Africa, the ideal model for a medium-sized investor relations function may well be to have no investor relations department per se, but a website that identifies every investor and enables immediate communication with that investor (both ways) and presents comprehensive information almost simultaneously. It will be seen online by anyone that immediately wants to look at the sector or the company from anywhere in the world. Internal policies will drive the release of information with all staff being acutely aware that the gossip shops that typify current practices are no longer. The investor presentations at the AGM and half year will be published almost immediately online with transcripts, and questions received online will be answered immediately in an open transparent forum. Any irresponsible online reporting on listed companies will be responded to by balanced transparent responses from listed companies.”
However, at the moment, disclosure practices are so poor that the market does not take internet disclosure as a reliable means to access information. Information is likely to be out of date and accessible only via the website – many companies miss out on engaging more proactively with their shareholders through a “push” approach via email. Furthermore, it is more complex than it initially seems to keep a corporate website updated properly: Even if this is typically handled by the IT or marketing department, legal, compliance and financial departments all need access, too, and the net result is that often nobody has core responsibility to maintain the site.
A big issue for East Africa is that not every investor has access to online information. But this is at best a temporary restriction, as internet access is expanding rapidly. Even at low income levels, African citizens have yahoo email accounts, and there are 24-hour internet cafes in many places. In any event, now is the time for Africa to get with it, pushes Stangroom: “In the US, those companies that took on the electronic communications wave in 2005 were way ahead of the game when electronic communications became mandatory in 2008.”
For Stangroom, the current debate goes far beyond merely stock market data: “There is a war going on in the world that African companies are oblivious to. In Africa, the war appears to be about data because they not available. This will resolve itself over time - possibly much sooner than we think. The real war is about getting an audience to speak to directly. Data will be irrelevant as it will be ubiquitous and free. What’s left? It’s the ‘how’ and not the ‘what’. Stock exchanges think they have the monopoly over trading data and how they are used. But they don’t: it’s the listed companies, stock exchanges’ clients, who should be using data to promote investment and add some substance to the ‘Africa is the next investment story’ rhetoric that has been doing the rounds for the past 15 years. If this statement is true, then it has to be preceded by change at the corporate level, and there is too little of this happening when the world is moving technologically at breakneck speed. Websites like Linkedin.com, facebook.com, blogs, etc are all evidence of this war and the grey haired IT-averse executive will find himself increasingly fighting battles he cannot understand how he got into.”
Investor communities are eager for information, and the internet provides a useful platform to generate and aggregate new information. A look at, for example, investing.businessweek.com and Google Finance reveals the extent of the information that the online communities are gathering and presenting on listed companies. For investors, such fora are useful, and Kenya’s online community is active, ranging from finance-related blogs like Bankelele and stock-market information providers like stockskenya.com. But listed companies should regard this as a wake-up call: This information is moving investment communities away from listed companies and denying companies the opportunity to communicate directly with investors, which is a huge strategic asset. Listed companies are the source of investment data and they should use it to strategic advantage. What is happening now with blogs and Google’s services is that companies are becoming weaker and weaker in getting their investment message across. Ignorant directors think a reasonable defence is to sit and say nothing when, in fact, for a small amount of investment they could be actively engaging and participating in these fora. They do it to market their operational brand, so why do they not do it to market their investment thesis? Public companies exist to protect and grow shareholder value, but to date, seem to have little appreciation of what it takes to do this.
We gratefully acknowledge the support of Rob Stangroom for this article. Working for the African arm of the former Robert Fleming investment banking group, Rob Stangroom established the Malawi Stock Exchange as the first registered stockbroker and Secretary to the Malawi Stock Exchange. He has subsequently acted as lead advisor in five successful IPOs in sub-saharan Africa and in 2006 established African Information Solutions for Companies Online Limited ("African Is Cool") a company established to use technology and international investor relations practices to ease the burden of strategic communications for listed companies in Africa. African Is Cool is actively involved in promoting transparency and investment into Africa through its free portals www.africanfinancials.com and www.africanshareholder.com. African is Cool has nine listed company clients in four countries and sponsors the Green Annual Reports Initiative (GARI)
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