Saudi regulator draws line in the sand on investor relations
Saudi Arabia’s Capital Markets Authority (CMA) has issued a strongly worded statement that urges all listed companies in the kingdom to establish professional investor relations. On October 28, the regulator explained that its move was driven by several factors:
– It sees this pressure on companies as a central part of its regulatory role
– To promote confidence in the Saudi capital markets
– As a direct result of Saudi inclusion in emerging market indices
– To protect citizens and investors from unfair and unsound practices
– To make the Tadawul one of the world’s leading capital markets by 2030.
The authority also says it will ‘periodically assess the need to obligate listed companies to establish an investor relations function’.
This statement from the Saudi regulator is bold and should be applauded by all capital markets participants. It clearly articulates how IR is viewed in Saudi Arabia. The fact that the regulator deems it necessary to give companies such a nudge suggests a steep shortfall in adoption and acceptance of IR as a standard management function – and regulatory dissatisfaction with the current state of affairs.
And where Saudi Arabia goes, the other Gulf Cooperation Council (GCC) capital markets tend to follow – so this should be seen as a call to action for all listed firms across the region.
GCC markets have historically served as wealth-sharing mechanisms, rather than as capital intermediation forums and marketplaces. The oil-price decline of 2016 has reordered priorities at the top level in the oil-producing countries. The focus now is on cascading this mind-set down to all levels, first and foremost to address an increasingly scarce commodity: capital.
As a result, companies are being asked: are you doing enough to serve the national agenda by enabling foreign investment? The tone from the region’s leaders is changing. Organizations and leaders are being asked: are you enabling this change, or standing in the way?
For outside investors, this must be good news. A region characterized by many analysts, investors and rating agencies as opaque now has a prime mover agitating for transparency – and this activist stakeholder cannot be ignored.
To help organizations and leaders think about this paradigm shift, the Iridium Advisors team has prepared a list of 50 things to think about as board directors and C-suite management decide on their next move:
1. Being a public company means your business is precisely that: public
2. All shareholders – no matter how small – are entitled to equal treatment
3. Whether your shareholders are short term or long term, they must be treated the same
4. Your shareowners own your company; your entire organization ultimately works for them
5. If you don’t tell your company’s story, nobody else will
6. And if nobody is telling your story, your audience must work it out for itself
7. The less information your company provides, the higher the risk of erroneous conclusions
8. In the absence of information, rumor, speculation and falsehood can thrive
9. You can be in control of the information about your company by making it available
10. It is better to highlight your company’s risks before someone else does
11. If information is not accurate or omitted, you will be made responsible
12. A strong IR function mirrors the quality of your organization – a bad one does, too
13. Don’t mistake PR for IR. PR provides spin; IR speaks truth
14. PR gets people interested. IR gets people invested
15. Taking a PR approach to IR is one of the most common failings in the GCC
16. ‘Ever-bullishness’ is one of the most common pitfalls that deters investors
17. Capital markets will forgive a mistake, but they rarely forgive being deceived
18. Institutional investors are not investing their own cash. They also have fiduciary duties
19. When asset managers buy stocks, they are making decisions for which their clients pay
20. Without adequate information – and management access – most institutions cannot invest
21. Institutional asset managers are under tremendous pricing pressure
22. The rapid rise of passive funds does not mean the end of active management
23. ESG concerns are on course to become the single biggest buy or sell factor for investors
24. Governance is moving further up investors’ agenda. This is no longer a nice-to-have
25. Many retail investors rely on rumors or use their gut; they will be either lucky or wrong
26. Short-term share price movements bear little relation to long-term corporate strategy
27. For all the talk about artificial intelligence, investors are human, and human values inform their decisions
28. The global trend of regulation is toward more disclosure, not less
29. The gulf’s oil reserves mean global investors will always be interested in our companies
30. As the emerging markets universe continues to expand, differentiation will become critical
31. Your equity story is your strategic, operational and financial road map viewed by outsiders
32. Companies that disagree with giving information to the owners should consider going private
33. Institutional investors’ buy or sell decisions are always influenced by macro, sector, economic and political factors
34. There are elements you can control, and elements you cannot. Risks arise from all angles
35. Risk mitigation strategies and tactics are key skill sets any investor will be looking for
36. Management teams prove their worth in bad times as well as good
37. Regulators and exchanges in the gulf are demanding more and better investor relations
38. Truth and trust are the currency of IR. Any deviation will result in valuation discounts
39. IR is a way of ensuring organizations and leaders get rewarded for their achievements
40. IR forces senior management to confront and tackle critical questions about their business
41. Companies should ‘not only deliver on financial performance, but also show how they make a positive contribution to society’ – Larry Fink, BlackRock CEO
42. Great IR is a never-ending journey
43. Companies never achieve IR perfection, and investors don’t expect them to
44. Some investors will be unwelcome: activists and short-sellers can be difficult to manage
45. But as shareholders they are owners of the company, and deserve the same courtesy, disclosure and respect as any other holder
46. When company directors buy or sell stock in their own company, it sends a signal to investors
47. Directors’ dealings in the company’s stock will need to be explained
48. IR is genuinely a force for good
49. IR is your opportunity to shine
50. Be proud of your investor relations! IR delivers real results in the real world.
Some Saudi companies are already running very solid IR programs. They are the pathfinders the CMA will want all others to follow. What all companies need to remember, though, is that IR is not a shopping list of items to be purchased. It is a cultural mind-set, embedded in a firm’s DNA, whereby governance, transparency, responsibility and trust permeate the culture of an organization, at all times, at all levels.
IR culture is like water: it spreads easily when it has a source. The tone from the top defines the culture of an organization. And the culture that generates good investor relations needs to emanate from the very top. In Saudi Arabia, this has begun.
Oliver Schutzmann is CEO of Iridium Advisors