Issue: March 2013 / May 2013
Editorials

FINANCIAL NOTICES

A lame start

There’s been a slow take-up of the new JSE rule on press announcements. It defeats the opportunities for improved stakeholder communication.

Same old, same old. It’s not good enough.

Scanning the first batch of JSE-listed companies to have reported their financial results this year, few have applied the Listings rule effective from January: “Announcements requiring publication in the press...must be published in a widely circulated daily newspaper taking into account the specific composition of the issuer’s stakeholders, in the reasonable opinion of the issuer, in any official language”.

From evidence to date, the reasonable opinion of issuers seems to take cognisance of neither the “widely circulated” nor “stakeholder” requirements. And although some announcements have professed to be in the short form now permitted, several have obscured the basic information in superfluous technical detail. Intelligible only to sophisticated investors, most issuers have preferred not to summarise it in the five simple disclosures that the new rule sets out.

Such non-application is problematic:

  • Like it or not, the new rule is the rule. Companies do not have discretion to apply the old rule instead;
  • Like it or not, the new rule is the rule. Companies do not have discretion to apply the old rule instead;
  • JSE-listed companies are expected to comply with King III, the code for good corporate governance. It promotes the use of “clear and simple language” for “all communication to stakeholders” and recommends that companies “use communication channels that are accessible to all stakeholders”. Companies purporting to accept the code should examine, and be examined, on their compliance with this provision;
  • Apart from the wide range of “stakeholders” that the code identifies – customers, employees, suppliers and the like – King also points out that members of pension funds are indirectly “the largest holders of equities in SA”. Electronic channels, including message delivery by smartphones, facilitate mass communication in language that fund beneficiaries understand and that is readily accessible at least to the fund trustees representing them;
  • To the extent that past practices in use of print media continue to pervade, without complementary effort through electronic media that allow for targeted audiences, financial inclusivity is undermined;
  • Short-form press announcements are much cheaper for companies to place because they take less advertising space than long-form. Companies that don’t adapt are wasting their shareholders’ money.

Sceptics suggest that the JSE is conflicted, using its role as the regulator to advance its commercial interest as a profit-making entity. Introduction of the new rule does not impact on its revenues, whereas it lessens the costs to companies of being listed and thereby encourages new listings; the more listings, the better for JSE revenues.

Few companies are applying their minds to where they should place financial notices

This should be an easy argument for JSE president Nicky Newton-King to refute. Aside from the need to keep the JSE competitive – more and more, it’s being challenged particularly by Lagos as the African gateway – she need merely point tosupport for the amended rule from the Financial Services Board (which sits ex officio on the JSE committee and has a legislative mandate to promote financial education) and by the Institute of Directors (which stands behind King III, inclusive of its approach to communication).

Newton King
Newton-King . . . give it a prod

But it’s insufficient that they merely leave the choice of the “widely circulated daily newspaper” to the “reasonable opinion of the issuer” because, so far, few companies are applying their minds. While they should know the “specific composition and demographics” of their stakeholders, they’re unlikely to know much about the “widely circulated daily newspaper” best suited to reach them.

Perhaps the JSE, FSB and IoDSA can together stimulate the process by providing guidance. This might be done by requesting information from the newspapers vying for financial advertising to provide such ready-to-hand information on their respective circulations, readership profiles and regional distribution patterns.

Then offer this information on the JSE and IoDSA websites, for issuers to pick and choose.For a start, it’s easy enough to compare the bare circulations of newspapers that are the main contenders for short-form financial advertisements (see box).

Finally, and importantly, the new rule also envisages that the full announcements be made not only on SENS but also on companies’ websites. King III goes further in recommending that companies’ stakeholder policies “support a responsible communication programme” whose criteria it defines.

A few suggestions: sms and email alerts to anybody wanting to be on companies’ databases to receive them; website hyperlinks to financial notices, as announced in the press and on SENS, where their content and significance carry user-friendly explanation; public fora for internet interaction with companies’ investor relations relations officials....

Such are the opportunities now provided by technology, and such is the capacity for creativity in applying them, that there’s no excuse to ignore them. Try a little incentive too. Maybe, for example, through an adjustment to weightings on the JSE SRI index.

CIRCULATIONS COMPARED

Average copies daily as per ABC for July-Sept 2012, figures rounded:

Beeld and Burger combined  

132 000

Business Report (The Star, Cape Times, Daily News and Pretoria News)   191 000
Business Day   36 000
The Citizen   66 000
Sowetan   101 000