derek abdinor

Electronic communication to shareholders is a philosophy as much as a practice – where possible collect email and mobile addresses of your shareholders to communicate directly, and cut down the costs associated with being a listed company, eg on the JSE.

Polar Bear

1. Because there is an argument for and against, there is doubt. Which means there is no consensus, so policy shouldn’t change. If the water is muddied enough, no-one can tell if there is or isn’t something in the water.
2. The signs are there for climate change and for electronic comms, it is a visible thesis. This is the reason that both phenomena have legs, because we witness climate change and we witness greater use of electronic delivery.
3. The toothpaste can not be put back in the tube. We can set a level of sustainability of life, but all the seas of plastic and remnants of carbon will be here for a long time to come. In the same way, the internet and email can not be stopped.
4. Change will come from below. Our generation and those before had different mandates, so the kids will have to fix this mess. Ergo, the Digital Natives wrote school assignments on computers and with the internet. They are now administering your pension fund and don’t know what a masthead is…
5. These problems come at the right time to create a perfect storm, which means the problem will either be faced and solved or not. Environmental issues (ironically!), shareholder activism, financial crisis et al have demanded that we look at electronic comms.
6. The world expects instant information and instant fixes. The battles between bank queues and online banking, tax returns and e-filing,  memos and email have been won.
7. It is an obligation to be fulfilled – looking after the environment is a legacy issue for generations to come; communicating to shareholders, to those who fund your growth, in their preferred manner is a duty.

In discussion the other day we were puzzled as to why the majority of companies on the JSE do not take advantage of Schedule 23 for their regulatory communications to the market and shareholders.

For issuing companies to embark on an electronic consent program, the following benefits accrue to company and shareholder:

1. Email addresses of shareholders for direct communication
2. Mobile numbers and landline numbers if proffered
3. Reduced printing and mailing costs
4. More cash in the kitty for dividends or retained earnings
5. Saving the planet
6. Training your shareholders to come to your official website as the #1 source of fact, news and comment

There are even more reasons to clean up one’s share register, embark on an asset reunification project  (tidying up unclaimed dividends) and ALL of them do credit to your brand. How you choose to spin it, be it by planting a tree for every shareholder converted or a reporting unit in your sustainability report, is up to you.

In South Africa, where public monies are involved, its always only a matter of time before the issue becomes politicised.

<pause for effect>

It follows that employing good shareholder communication governance NOW is better than having industrial action in a few months or years, at your AGM or outside your glass doors.

From an article in the Economist:

One reason why Germany’s biggest firms have not cut many jobs is its cherished model of stakeholder capitalism, which took root after the second world war and contributed to its rapid economic growth until the 1980s. Under this model, workers’ representatives fill half the seats on firms’ supervisory boards. A separate management board is responsible for running the business day to day. Companies are also required to act in the interest of all “stakeholders”, not just of shareholders.

That creates a tension between profits and jobs. A seminal, if dated, study is illustrative. It found that 83% of German managers surveyed in 1995 considered that the companies they worked for belonged to stakeholders rather than shareholders. Some 60% said that saving jobs was more important than paying dividends. In America and Britain, by contrast, almost 90% of managers said that paying dividends was more important than preserving jobs and 75% of managers felt that firms belonged to their shareholders.

Via Compliance Week:

Aircraft manufacturers, Lockheed Martin Corporation (NYSE: LMT) , is conducting an online survey of stockholders on its executive compensation (remuneration) practices. Results will be reviewed by the Management Development and Compensation Committee of Lockhee’s Board of Directors.

Prudential (NYSE: PRU) has a section on their website where one can email the independent directors (an email address going to all of them, interesting!) to make comment on pay practices. Its not indicated how these results will be audited or reported on.

What I like about is the effort that is being made, as well identifying the role of the independent directors and the implication of their resposibilities.

Two codes of corporate governance have ruled informed public companies in the last 15 years in South Africa – the King codes.

The third code was launched in Johannesburg last week for public review – you can view it here.

Some interesting points:

• shareholders ought to approve remuneration, and an annual remuneration report needs to be published
• the audit committee to be appointed by shareholders
• a Chief Risk Officer to be mooted
• Sustainability reporting should be an ongoing process
• the majority of the board should be non-executive; the majority of that being independent.

I must observe with unjaundiced eye that South African companies, notably the blue-chips, do adhere to the King recommendations. As it is a widely used benchmark, it is expected to come across in the company’s annual report. No self-respecting company secretary could pretend not to know about King and the recommendations.

It seems some of the proposals in the draft review are to be found between what is happening in the developed world and the new South African Companies Act, also fermenting in legal and regulatory circles.

We are all analysts. We have all the information at our disposal and we will marry that to our experiences and opinions. We don’t have faith in the established financial, political, consumer and even sporting analys systems because they’ve proven fallible. Which is ok, but not when you’re taking a fee.

We’re in a world where:

1. There is general public mistrust of Big Bailed Business – in a world where information is a click away, citizens can see how companies are faring and paying themselves
2. Social media is a broadly accepted media channel. Pastor bloggers, mommy networks, Republican tweeters have skyrocketed in growth, and online has become flooded with “Hire me! I’m a social media and SEO Expert!”.
3. We have a stake in the tools that we use. Open Source software allows for tinkering, adapting and contribution. Users feel they can make their own software better, and therefore they can pass criticism on it.
4. Political analysis is quite detailed, but, like sports analysis, if you slap a 24-7 news channel on anything you can change your tune under the glare of the klieg lamps. Spotlights create more 360 degrees of shadow.

XBRLSpy: XBRL: An attempt to empower amateur analysts?
Dianne takes the view that the XBRL ruling in the US may mean many things, but it was not created to empower amateur analysts. That may be a by-product, but the millions of dollars pumped into XBRL had more upstream application.

Monkchips: Software ecosystems and convergence
James is an industry analyst for IT issues and Environmental issues – therefore you get a multisided take on both. Redmonk use the web natively, and are therefore specialists across a broad spectrum (no sic).

IR Web Report: Time to open up your earnings calls to bloggers
Dominic points out that Barack Obama called on a blogger for questions in his briefing. Research has also shown that blogs have become influential, and in many case, are as good a source for stock picking as the traditional sources. Companies should open up their calls to influential bloggers.

Re:The Auditors: Who Guards the Guardians?
Francine covers the big four accounting firms, and doesn’t let them get away with anything. Extremely influential. 

Alacra: A list of analysts
This list is of analysts in many sectors – some are formal analysts from firms (Gartner, Forrester, Redmonk) and others more informal.  

Remember desktop publishing? We don’t call ourselves Publishers. 

Blogging? Some call themselves Bloggers, but it implies “thinker and commentator” rather than a person who simply posts. Very like a poet.

This meme came about a week after finding some serendipitous links, usually via Twitter. I’m calling it to become big – especially as it is foreseen that people are going to get very pissed off this year.

The King II Code of Corporate Governance, which  recommends good practices for listed entities in South Africa, has always been in favour of companies having non-executive representation on the boards as well as the committees of listed companies. The reasoning behind these recommendation went as follows:

• non-executives are relatively impartial
• they bring different expertise and strategic input, being seperate from the operational running of the company
• they should be in the majority on the remuneration and audit committees in order to represent shareholder interests 

PWC brought out the Non-Executive Directors Best Practices and Fees Report which was of far more pertinence in 2009 than in any other time.  Amid bailouts in developed countries and exorbitant remuneration, non-executives are either being looked to highlight problems or to shape up their own accountability.  That aside, in this country a professional non-executive director is a full-time career.

As an afterthought, why do boards get ‘remunerated’ and ‘compensated’ for their time, whilst workers get ‘wages’ or a ‘salary’?

The maritime Automatic Identification System (AIS) means that every seagoing vessel over 300 tons is required to transmit certain data every few seconds, including:

• Navigation status, e.g. ‘at anchor’ or ‘underway’
• Ground speed, from 0 to 102 knots in steps of 0.1 knots
• Rate of turn, 0 to 720 degrees per minute
• Position (GPS latitude and longitude)
• Heading and Course over Ground
• Time stamp

Then every six minutes “static” information is transmitted:

• MMSI number, Callsign, Ship’s name, Type of ship, Width, length and draught, Destination and ETA

Bear with me: the data gets written to a database and pulled out, probably as xml because the structure of the data is similar to the element/attribute/schema nature of xml. As we know, that’s all you need to start displaying that data in exciting ways. The result is a web-viewable mashup of all these vessels around the globe.

Like GPS, the information is largely open and available to the general public. Like financial information of funds, government and public companies should be? 

There have been concerns raised about XBRL having most of the specifications being tied down, but no software implementors to bring the solutions to market. While the tagging software is quite mature, there is a dearth of meaningful and fast analytical or comparison applications.

I still maintain that once the graduates of Web 2.0 find little appetite in the market for social media gadgets, they’ll turn their attention to Enterprise 2.0 applications. These excellent marine shipping examples put the implementation aspect of XBRL to shame.

ShipAis.com
MarineTraffic.com

It’s here: the mandate for XBRL to become an official filing process, alongside EDGAR, for listed companies in the US. 

The SEC announced this in a long-awaited roundtable today, 17 December 2008.  The IDEA system was launched today too. This has followed on the completion of the US GAAP taxonomies. 

Immediate impact: 
Companies that are listed in the US (even foreign-owned) will have to begin a process of filing in XBRL in addition to current EDGAR requirements. It will not replace EDGAR at first, and will have to be placed on the company website (if it has one). Mutual funds will have to do same for risk-return summaries.

This is a phased approach, beginning with companies with a worldwide float of over US$ 5 billion and a december year -end. There will be limited liability, the same as in the voluntary filing program. If you satisfy these requirements, talk to your EDGAR vendor tomorrow.

The big picture
XBRL software vendors will see some consolidation in the market; I believe an influx of developers from the consumer-centric web 2.0 world  may find that XBRL combines their aspirations of mashups and service oriented achitecture, and financial analysis apps will experience a steep innovation curve.

At the same time, SAP and other ERP vendors will escalate XBRL within their products, for internal analysis and risk management presented in visual fashions.

Foreign markets will see the world’s biggest endorsing XBRL unconditionally, and rush to complete their taxonomies.

There is likely to be too much credit given to XBRL in the early , pre-and post inauguration days: it is not a panacea, but currently it looks like the best idea going. The ultimate aim, though never stated, is 24-7 disclosure: from the General Ledger to the markets

After weeks of speculation and false starts, it became clear that this would be a political decision. The lack of oversight in Wall Street and Washington is clearly an ethical and governance issue, but it has become clear that XBRL could go a long way to allow for better analysis, rapid decisions and early warning systems. It may not be the sherriff, but it’s the sherriff’s mustang.

Risk Metrics Group provides risk management services and information in many countries around the world. They are also a client of my organisation, in a convulted and irrelevant way.

They recently released their policies around proxy voting: meaning how they will vote or advise voters in any given situation. Not only does it provide rational guidelines as well as promote transparency, it also serves to highlight underlying sentiment amongst professional investors.

The methodology in drawing such guidelines up includes polling the investment community, and the issues that they see as most pertinent are included in the document. Amongst others, they are:

• executive compensation practices
• board accountability and oversight
• the quality of financial reporting

The first point is becoming a part of an amplified chorus; the second is interesting in that it alludes to board members not fully aware of the financial (not business and operational) risks of their enterprises and the lack of accountability to shareholders they therefore exercise; but the third seems to be news. Poor accounting practices? Can that be resolved?