Lost voices: has anyone seen IR in Africa?

Lawyers do it all the time. It is second nature for accountants and auditors. Investment bankers, private equity investors and traders snap to it at the drop of a hat. Over the past decade, these professionals have all been quick to state their case whenever a significant market regulation – be it SOX, Dodd-Frank, Basel capital requirements, IFRS or the various EU market directives – has been proposed or implemented.

Collectively under guild associations and individually as economic units organized as firms, these groups do not hesitate to make their positions known whenever government agencies announce plans for a new set of regulations that would affect their practices either directly or remotely. To back their positions for or against, these professionals have the arguments, the numbers and – importantly – the organizational resources to wage their self-interested campaigns. For them, lobbying is not a dirty word; it is a means of survival to stay relevant to their clients and employers.

Surveying the timeline of market upheaval and its ripple effects over the past three years, one would expect that IR professionals would have joined the bevy of speakers to state their positions on the slate of new market rules. Instead, it seems as if IROs, with few exceptions, unwittingly shirk from airing their views. Of course, one is assuming that IR professionals recognize how these events will define their relevance, growth and even career earnings ability –as consultants and managers – for years to come.  

Nowhere is the pace and scope of market reforms, broadly labeled, more encompassing than in frontier markets. In fact, as a phenomenon, history would probably recognize this period as the Great Regulatory Rush. From Lagos to Accra to Nairobi and across the rest of the African continent, officials at stock exchanges and securities market regulation commissions are introducing materially significant changes at forced marches.

It is not far-fetched to claim that no single professional services group has more at stake in these changes than investor relations. Yet it is also the case that, as a group, IR in Africa is sleeping through what is the greatest show on earth in terms of capital market development.

The stimuli for these regulatory initiatives are twofold. While no one disputes the good intentions of regulators, the end results are often woeful in execution, so the first stimulus comes from the standard reaction of regulators to unsavory events in the past. In addition, they aspire to shape emerging developments in their desired image of how national markets should look.   

The second stimulus is what I call ‘regulatory echoing’. This is when regulators in a less-developed market echo rules introduced in another market – think New York, Brussels and London – where they did not participate in the formulation nor partake of the unique politico-economic circumstances that produced them.  

Combined, these stimuli inspire frontier markets regulators to feverish market overhaul, which – though often positive in intent – produce mediocre results and send confusing signals. More telling is the fact that while other affected professions have hurried to engage in a proactive manner with regulators to seek clarification on the ‘devilish details’, IR practitioners in these markets are completely silent.

Most damning of all is that in markets like Nigeria, leaders of ragtag shareholder associations in their distinct local character have become the de facto spokespeople for weighty subjects that touch on disclosure and access, which should be the birthright of investor relations.

Three examples drawn from the Nigerian experience will suffice to illustrate IR’s disturbing silence: earnings guidance, online dissemination of results and short trading. The first two are already operative, the last under advanced consideration.

Two years ago in June 2009, the Securities and Exchange Commission (SEC) of Nigeria published Rule B4(3) requiring all public quoted companies to release their earnings forecasts and their underlying assumptions to the commission and the investing public 20 days prior to the commencement of a quarter. With an unreasonably short public comment period of three weeks, few were even aware such a rule was being considered.

In the circumstances, IR practitioners did not contribute to what could have been a lively debate on the merits of guidance, internal competence for prediction, and responsibility for tracking the accuracy of these forecasts as well as their ascribed credibility in an economy marked by frequent but abrupt economic policy reversals.

Notwithstanding the brief window for comments, since then no commentators from the profession have queried the effectiveness of the rule in practice. Today, companies submit these forecasts to the market authority but only as a formality; their predictive content hardly seeps out to the public domain.

Whether the fault for this lies with the companies or regulators is not the point here. The fact is that had those charged with the maintenance of financial communications pathways been involved in the drafting of the rule, they would have weighed in on the micro-issues necessary to achieve success. At present, IR officers are burdened with the task of coordinating these forecasts even though the end-users – investors – hardly know they even exist.

More recently, in June 2011, Nigeria’s SEC put out an announcement under the title ‘Circular to all public companies’ in which it chastised issuers for filing their financial returns (quarterly returns, annual returns and earnings forecasts) without the attachment of the mandatory certification letter signed by the CEO and chief financial officer.

Then at the bottom of the notice, as if an afterthought, it stated that ‘all public companies are hereby directed to post their annual reports and audited accounts as well as all interim financial reports and corporate actions on their websites to enable easy access by the investing public.’ The regulator gave companies a seven-day deadline to comply.

Frankly, in a country where less than a third of listed companies have websites and a still smaller number of these have IR sections, it is baffling how such requirements could be met in such a short space of time. The truth is that more than a month later, most companies have not met them. Instead, IR consultants and managers have been scurrying about to build and extend websites to meet this rule. This is being done with all the expense such projects entail but with scarcely a thought for globally accepted standards for effective online investor relations. Again, not a single IR professional has raised his or her hand to say, Wait a minute, shouldn’t we take a holistic approach in dealing with this matter?       

Only two months ago, in May 2011, Oscar Onyema, chief executive of the Nigerian Stock Exchange, announced that the bourse would soon introduce short selling. What he left unsaid was anything about the measures that must be put in place to monitor these types of positions and how companies will have access to their volume and patterns. As it is, because the onus of digging for such information will fall on IR officers, it behooves them to raise awareness of the need to ensure transparency and that a code of ethics is followed by traders who will avail themselves of this soon-to-be-introduced facility. Once again, the sound of IR’s silence is deafening.

There are two possible reasons for the reluctance and scant regard of investor relations professionals in Africa to speak up in the face of regulatory advances. The first is intellectual and the second organizational.

Sometimes, it appears that in their justified bid to concentrate on their specialty and grow professionally, IROs tend to become self-absorbed soldier ants who quietly accept road diversions placed in their path and walk around them regardless of the extra distance. This may be all well and good for insects, but profession that aims to serve clients effectively should insist on the shortest distance between two points always. And when it does not get its way, it should at least make its position known.  

From a purely intellectual standpoint, IR is a varied beast. Its ability to straddle corporate communications, graphic design, web and print interface technologies, marketing, finance and strategy makes the discipline unique. It also gives IR a major handicap: without an organizing principle, IR cannot become a mono-culture but will remain all things to all men. Many peering from the outside often erroneously perceive it as a gatecrasher of sorts, an ad hoc fill-in, a temp that just lingered, because other shareholder-facing departments were too busy to handle the tedium of administrative and routine communications duties.

By allowing others to define it as a mixed bag of functions – ‘What does IR do?’ – investor relations has been cast as a low-budget substitute for the real professionals who are busy elsewhere. The preponderance of ‘how to’ discourses in the IR community (how to host successful conference calls, how to handle analysts, how to succeed in social media, how to write an earnings release, how to host meetings) reinforces this misconception of IR as an easy DIY set of activities. This ‘reference guide’ predilection of contemporary IR inadvertently hampers its stature.

The absence of well-established IR faculties at universities has not helped matters. One consequence is that most research in the field is carried out by those in other academic departments or practitioners drawn from adjacent departments. It is revealing that when accountants, for example, pontificate on legal matters, they always preface with the caveat that they are not formally trained in the law. Curiously, on IR issues, when these other professionals touch on the subject, they do not even acknowledge that they are not qualified to do so. IR is an all-comers affair, easily hijacked when convenient, and ignored when not.

All the above make it hard for anyone to stand up and claim IR as his or her ‘own’ when its borders are trespassed. Everybody’s business is nobody’s business. How this will change any time soon is hard to tell.

The second reason that response rates of IR professionals to regulatory events in these frontier markets are so low is that the professionals themselves are not organized in any way. In contrast to NIRI in the US and the Investor Relations Society (IRS) in the UK, both of which are very active in providing a common platform, there is no equivalent in Africa, with the possible exception of South Africa. The importance of such bodies that serve as interest groups, continuing education providers, best practice and ethical guardians, and networking hubs cannot be overemphasized.

No doubt a few specialists on the continent are actively sharing developments and thoughts on investor relations – Rob Stangroom at AfricanIsCool.com readily comes to mind. Unfortunately, the lone voice in the wilderness is incapable of growing to a chorus without backup singers. IR practitioners in these markets need to come together to self-organize. Due to the relatively small sizes of these markets on a global scale, however, the sensible path is to organize on a continental basis with national chapters, rather than on an exclusively national basis. In practical terms, because more listed African companies are going cross-border, understanding transnational regulatory demands will help these professionals serve their employers and clients better.

The bottom line is that IR in Africa has got to start thinking about its long-term prospects and discover its selfish gene. At the moment, the primary preoccupations of IR professionals are the fees consultants can charge and salaries managers can earn today. It is time to look beyond these concerns. Otherwise IR in Africa will always be a passive rule-taker from regulators, barely acknowledged by other market professions, and not fully appreciated by corporate leadership. Above all, IR will never shed its present caterpillar form to become the butterfly in its DNA. Wouldn’t that be a terribly huge evolutionary disappointment?

Obi Tabansi Onyeaso is founder and managing director of Customs Street Advisors, a Lagos, Nigeria-based IR advisory firm, and was formerly head of investor relations at Transnational Corporation of Nigeria.