IROs at listed family-owned businesses speak to Candice de Monts-Petit about their role in executive coaching, engaging minority shareholders and building a corporate message on the family tale
At a glance CORPORATE DYNASTIES Family-owned businesses are central to the Asian economic landscape. Many of them have gone public and subsequently found the transition to a more distributed ownership structure quite difficult. The recent economic downturn has increased minority shareholder concerns over their interests. BROADENING THE BASE Family-owned businesses want to broaden their shareholder bases internationally, prompting many to put a greater emphasis on investor relations. This shift is helping to meet the demands of institutional investors, which are demanding greater engagement from their holdings. ON GUARD AND ON MESSAGE Company management and non-executive directors are the guardians of minority shareholders’ interests. Coaching potentially overzealous managers to face investors is key to avoiding disclosure blunders. Building on the family story can be an asset in creating a compelling message. |
Research carried out by IR Magazine reveals that despite an increase in institutional ownership, more than a quarter of all companies in Asia remain family-controlled, a condition that has long suffered from a mixed reputation. Indeed, as John Ryan, head of IR at Hong Kong-listed First Pacific, explains, such an ownership structure immediately raises suspicion that the family’s interests might not be fully aligned with those of other shareholders.
‘It’s commonly assumed in this part of the world that companies will list shares in order to use minority shareholders as a source of funding, and no more than that,’ Ryan says. ‘These shareholders can be viewed as a free loan, and there are companies out there that treat them that way – not so much in an abusive way, it’s just that they’re clearly not the highest priority.’
Kirsten Molyneux, a senior consultant at Brunswick in Hong Kong, believes the recent economic slowdown in Asia has shed more light on the problem. ‘Many of the family businesses in Asia have been built up over several generations and have been extremely successful regionally in tapping into the strong waves of growth over many decades,’ she explains. ‘With slowing growth and a potentially tougher operating environment, however, minority investors are becoming increasingly concerned about share ownership structures, transparency and disclosure, corporate governance and succession planning.’
First Pacific, a holding company invested in food, water, electricity, roads and telecoms, is 45 percent-owned by the Salim clan, an Indonesian family of Chinese descent. ‘First Pacific is fortunate in that we are seen as independently and professionally managed, by contrast perhaps with other large companies in our region,’ Ryan says. ‘Yes, we are ‘family-owned’ but the biggest voices in our shareholder base are those of the institutional holders, not the Salim Group.’
Chairman Anthoni Salim is ‘pretty much hands off,’ Ryan adds, with chief executive Manuel Pangilinan ‘running the show’ at board meetings and most of the important business initiatives coming from the directors, not the chairman.
The fact that the firm is listed in Hong Kong, where ‘property rights are very well respected and also seen as such’, adds to the assurance that all shareholders will be ‘equitably and equally treated,’ Ryan stresses. ‘In addition, management owns slightly more than 2 percent of the company so our interests and those of our shareholders are well aligned.’
Looking out for the little guy
Minority investors are looking not only to management, but also to the independent directors to protect their interests, especially at companies controlled by a large corporate, government or private shareholder, Molyneux points out.
‘In the current climate, IR has a big job on its hands to address [those investors’] concerns and make sure they are relayed back to the board,’ she says. ‘Investors repeatedly bring up corporate governance as a central criterion for judging and evaluating companies, including family-owned businesses. They often remind us that corporate governance is a strategic issue, not an exercise in compliance.’
On the positive side, many family businesses in the region have been looking to broaden their investor base internationally, and have consequently been embracing investor relations and upping their efforts to respond to investor needs and requirements. Through active investor targeting, First Pacific has successfully expanded its shareholder base, with roughly half of the firm’s institutional shareholders now based in the US and a further 20 percent in Singapore.
The company’s three executive directors – 10 percent of a total workforce of 30, Ryan highlights – frequently hit the road with the IRO. ‘As we’re a holding company with investments in a relatively badly understood region, we find it’s a good idea to be as proactive and informative as we can be,’ he says. ‘We visit the major financial centers two or three times a year and we are in constant dialogue with our shareholders and the wider investor community.’
This is an initiative well met by long-term investors, especially by mutual funds and pension funds, which are taking on a more active approach to managing their portfolio and therefore want better engagement with family businesses in return for their support, Molyneux notes.
Teaching time
Executive coaching is also important in ensuring investors and analysts will receive a message that is unified, consistent and – most importantly – disclosure-compliant, whether a company’s outlook is good or bad. ‘When you’ve got a potential negative story about your company, you want to be the one to bring it up first, so that you’re establishing the framework within which you’re going to discuss that topic and defining the limits of how the person you’re speaking with is going to imagine the situation will be,’ Ryan advises.
Mike Garcia is head of IR at Ayala Land, the largest property developer in the Philippines and a listed subsidiary of the Ayala Group, held by the Zobel de Ayala family. He conducts special briefings to prepare senior management, including family members, for ‘investor interface’.
‘The objective is for management to effectively communicate not only the strategy but also the perspective behind every business venture or decision the firm makes,’ Garcia says. ‘This allows investors to fully understand the company and equips them with the right information to guide them in making an investment decision.’
‘There is no doubt that institutional investors in the region are beginning to demand greater understanding of the way companies run their businesses, elect members to their boards, determine remuneration and draw strategies for future growth,’ Molyneux stresses. ‘They will increasingly invest in the high-quality family businesses that respect their voice at the table.’
Moreover, with every business, family-owned or otherwise, competing for investor attention, Molyneux highlights the importance of offering regular engagement with investors, providing an opportunity for questions and communicating the company narrative ‘consistently, honestly and openly. Family-controlled businesses may have to work harder to prove themselves in the eyes of some investors, but they stand to gain greater support from doing so.’
Ryan, on the other hand, believes being family-owned may hold an advantage over traditional, more faceless corporations. ‘When you’re having a dialogue with fund managers, they’re of course going to look at the company through the lens of the numbers but, ultimately, they’re always going to want to have some kind of understanding of what this company is all about, what its philosophy is, what sets it apart,’ he says.
A former journalist who was reportedly hired to serve as the firm’s ‘storyteller’, Ryan explains how he relates ‘the tale of First Pacific: I explain that when General Suharto was trying to throw the Dutch out of Indonesia, there was one rice merchant who was willing to supply to him on credit, and then carry on to tell how the family built its fortune. You make a story out of it and you pull your audience in and make it feel some kind of sympathy for the firm – and you haven’t even mentioned a number yet.
‘There’s always going to be a story people will want to know. If we were a big soulless conglomerate like one of those giants from the 1970s, it would probably be a bit difficult to manage.’
This article appeared in the Winter 2015 issue of IR Magazine