The evolution of IR in Nigeria

Recently, the CEO of a mid-size company on the Nigerian Stock Exchange told me of his plans to recruit an investor relations officer into a senior position. On learning this, I could not hold back, asking: ‘Why at all, and why now?’ His answer deserves verbatim repetition.

‘One word: consequences. These days, investors and analysts simply won’t let us get by with token spurts of information. The feedback is instant around results release dates and strategic announcements.

‘They want more information on performance, strategy, governance, our competition – you name it, they claim a right to know. Not just that, they want it delivered right to them, and faster, too.’   

Those were his words, not mine. Fortunately, I had my voice recorder to capture every word and I’ve replayed it several times since. Quite frankly, the strongest advocates for the takeoff of IR in frontier markets, including myself, could not have expressed it more eloquently.

What impressed me most was his complete grasp that companies’ investor engagements will succeed only on the basis of the quality and content of meaningful disclosure. Companies will get only as good as they give. In Nigeria, this was not always so.

Not long ago, the link between a richer mosaic of corporate disclosure and higher valuations on the stock market would have been dismissed, or considered tenuous at best, by officers at Nigerian companies.

Denizens of the C-suite could not be bothered to know the difference between CSR, PR and IR. In their dictionary, one ‘R’ was as good as another.

For several companies on the Nigerian Stock Exchange, it used to be that disclosing no more than was absolutely necessary – for which read, whatever was mandated by the SEC – was a distraction and nuisance.

When queried, they rushed to recite an instinctive litany of excuses for why it was bad business to talk about their business:
-The competition would steal a march on us.
-We would be exposed to lawsuits if we did not meet publicized targets announced at investor interactions.
-Let our results speak for us.
-If more disclosure is so beneficial to markets, regulators would have mandated a remedy for that deficiency by now. (Well, they haven’t.)

Throughout, what these firms omitted to add was that they could afford to hold investors in passive contempt because they were in that sweet spot of national capital market development where they could enjoy all the gains of raising funds from the public without any of the punishment for acting like privately owned entities.

This was for the simple reason that, at the time, investors had limited choices. Too few companies on the bourse, a lot more money with investors and the age-old law of demand and supply did the rest. The company was king.

As so often happens when agents fail to precipitate necessary change from within, an external agency provoked it for them. In Nigeria the catalyst came in July 2004 when the Central Bank announced that the country’s 89 banks had an 18-month deadline to raise their shareholders’ funds from under $10 mn to $203 mn before January 2006.

Suddenly, financial institutions began to flood the stock market with public offerings. In their wake, companies in other sectors followed suit. Soon Nigeria had public offerings galore.

For those companies long established on the exchange, several of whom were household names and which had long taken their senior status on the market for granted, the new rowdiness alerted them to the emerging reality: they had to reach out to be heard above the cacophony.

Investors now had a plethora of choice when populating their portfolios. If they were unsatisfied with the way a company ran its business or behaved toward them, they could dump its shares without long soul-searching, knowing full well that there were several others that could give similar upside exposure. The more, the merrier – and investors beamed.

Simultaneously, a new breed of analysts and portfolio managers began to tackle companies on novel issues.  By feeding their views in reports back to the firms’ client base, investors begun to ask questions they did not even know they ought to before.

In turn, they pushed fiduciaries and analysts for more information and the cycle kept repeating itself. Depending on where a company stood on the disclosure slope, this could be a virtuous or vicious cycle.

Altogether, these developments have pushed companies to create administrative funnels for processing these demands. Basically, IR among Nigerian companies has evolved to meet the growing number of requests for information.

Within companies, the ceaseless impromptu calls and emails asking for management access has led to a need to systematize the interface. Investor relations outlines what companies owe investors, in terms of a service level agreement for disclosure of sorts.

Conversely, it enables companies to be explicit about what they expect from investors, in terms of what they can legitimately demand, when they can demand it, and how. For instance, direct calls to the CEO’s cell phone demanding privileged information would no longer be tolerated.

While IR in Nigeria still has a long way to go, its development has been encouraging. For example, a number of local banks like Access Bank, Diamond Bank, FCMB, First Bank and Sterling Bank maintain well-staffed IR departments. Among other plus signs, they host quarterly conference calls and have significant content on the IR sections of their websites.

Still, the biggest changes have been executive recognition of the need to keep investors abreast of corporate developments and their acceptance of a normative burden to provide more than regulatory information. The way Nigerian IR has evolved to be an administrative response to information demands, rather than a preemptive financial PR agenda, will define it for years to come.

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.