Catherine Wright of Africa Investor’s Johannesburg office co-ordinated the survey.

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In his immensely entertaining account of the global economic meltdown, Too Big to Fail: The Inside Story of How Wall Street and Washington Fought to Save the Financial System from Crisis – and Themselves, the author, Andrew Ross Sorkin, who is also the chief mergers and acquisitions reporter of the New York Times, describes a charged scene during a Lehman Bank board meeting held in July 2008. As the bank struggled to raise capital, Dick Fuld, its mercurial chief executive, invited Gary Parr, vice-chairman of Lazard Frères, the venerable investment bank, to provide his board with objective counsel on alternatives. Soon after the session began, Fuld felt that Parr was using it as an opportunity to ‘shamelessly plug’ Lazard’s experience with such Armageddon scenarios. Quickly, Fuld cut Parr off and thanked him for coming. Later that day, he telephoned the Lazard banker and threatened to fire him. The unflappable Parr replied, ‘that may be hard because you haven’t hired us yet.’ I enjoyed reading that story.

In the interest of full disclosure, I would like to inform readers that in my personal and professional lives, I do have selfish interests. I am not wholly motivated by altruistic impulses. Hold that against me if you will. I am only human. Gladly, I have never been crafty enough to raise my slate of selfish interests to an art form where it acquires the Machiavellian grand status of a hidden agenda. At the end of this article, you will read that I am the principal of an investor relations firm. I have had to issue that disclaimer because it captures the dilemma that consultants who sell cerebralware face every day. They will always be open to the charge of salesmanship even in non-bakeoff situations. But it would be incorrect to misconstrue selfish interests with pecuniary instincts. A lawyer’s pro bono work in defense of civil rights is driven as much by a moral alter-ego as her training to fight for the oppressed. If the rule of law prevails in society, then the lawyer’s practice will do just fine. This is long-term greediness.

Events in the past six months have made me ponder the fate of retail shareholders on the Nigerian Stock Exchange (NSE). Used and abused would not be a far-fetched description of their lot. Once pampered as darlings, memories of that feverish courtship are a distant memory. In those days, companies seeking to raise capital paid for giant billboards, had toll-free public offering numbers and insisted every staff member wore a branded t-shirt to declare their undying affection for small-time investors. The offering ads were even targeted at them with themes more geared to fast moving consumer goods. Married life has been a different story altogether. Forgive the well worn cliché, but today, mom-pop-and-sonny investors justifiably feel dejected, neglected and exploited. All this time hardly a word from the companies. If this is not fraud then it cannot be far off. It is all man for himself and no one for all.

Customers, on the hand, have been spared the pain. Companies are going the extra mile to retain and acquire new ones. No wise manager wants to mess around with clients these days. Lose one and it could mean a pink slip at the end of the month. To prop up this self-preservation ethic, having a regulator that demands right treatment for customers goes a long way. In this respect, bank customers must be blessing the Central Bank for its new regulation on dedicated help-desks for complaints on ATM transactions. Lately, one can hardly read the papers without coming across adverts of all sizes showing contact details for bank officers responsible for dealing with these queries.

All these have got me thinking more about the processing of retail shareholder inquiries at companies. In most NSE companies, there is no single officer whose responsibility it is to respond to investors’ concerns. Emails, telephone calls and postal mail arrive daily at public companies from shareholders in Kafanchan, Akwanga, Osogbo, Eket, Gboko, New Bussa, Wukari, New Rochester, Bonn, Houston and Toronto. Some are too old to travel the distance, others too busy. But their questions are the same: what is going on at our company? Most of these mails end up in the trash basket while callers are put on eternal hold, stuck listening to numbing tunes.

Do not get me wrong. I am not implying that appointing or training internal persons to handle such requests will lead to a surge in demand for a company’s shares. That would be preposterous. In fact, tying positive share price movements as a justification to provide shareholders with information that they should have reveals a perverse culture. It is a good-in-itself. Until companies recognize this, retail shareholders, like ghetto children, have little choice but to go on digging in dustbins and dirt heaps. But mark my words the cost of a wasted generation of shareholders will boomerang on the companies themselves.

The original article may be read here on the NEXT website.

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Normative extremism in the shareholder versus stakeholder debate may well be on its way out. If shareholder value was the pre-eminent metric of corporate entity success in the past two decades, in the new decade it will be far less so. The undisputed twenty-plus-year reign of financialization could be drawing to an overdue end. Similarly, the exclusive rights on do-gooder patents that activist groups, environmental campaigners, social crusaders and community advocates have hitherto laid claim to might be nearer its expiry date than its partisans realize. After waging an acrimonious war for so long, veterans on both sides have almost failed to notice how close they are to a final settlement. My prognosis is that the fanatical bi-polarism of hardliners on either side of the debate will give way to one that vigorously searches for common ground.

Responding to questions in a 2006 interview, Peter Brabeck-Letmathe, the former Nestlé chief executive, urged companies to strike a balance between, ‘financial fundamentalists’, stubbornly wedded to the view that a public company’s main mission is to enhance shareholder value at all costs and oversee a steady rise in the stock price, on the one hand, and, on the other, ‘ethical stakeholders’ who are actively sympathetic to the position that the creation of a financial surplus is not the primary goal of companies, but rather the delivery of social benefits.

In reality, this either-or conception is an anachronism, at least, within many boardrooms. Most contemporary boards recognize the need to accommodate the interests of a broader set of interests in the formulation and execution of their business strategy. Saddled with multifarious pressures to implement proposals that benefit a basket of diverse constituencies, and not only shareholders, boards have grown quite adept at appraising their responsibilities and integrating its fulfillment in their corporate plans. While ‘ethical shareholders’, who, by the way, do not form a monolithic interest bloc, are content to make demands from vertical silos, boards which are charged with reviewing, analyzing, prioritizing and approving them, are obliged to progress much further to dealing with their implications on the business model, competitiveness, and profitability of the firm. Resolving these dilemmas require delicacy, tact and a firm grasp of the competing arguments.

The responses of boards to these demands, under the rubric generally referred to as corporate social responsibility (CSR), have undergone a significant evolution in recent years. From the philanthropy-dense activities of early years, today many companies have learned to distinguish between spontaneous charitable instincts and business-inspired programs. The January 2010 announcement that Goldman Sachs, the investment bank, would require its partners and senior executives to donate to charity falls in the former category. Noble as these gifts may be, their discretionary character and isolation from the investment bank’s value chain disqualifies them as CSR initiatives

In its slightly tongue-in-cheek introduction to a widely debated collection of probing essays on stakeholder  demands and expectations among corporations, The Economist magazine, observed that:

It will no longer do for a company to go quietly about its business, telling no lies and breaking no laws, selling things that people want, and making money. That is so passé. Today, all companies, but especially big ones, are enjoined from every side to worry less about profits and be socially responsible instead. Surprisingly, perhaps, these demands have elicited a willing, not to say avid, response in enlightened boardrooms everywhere. Companies at every opportunity now pay elaborate obeisance to the principles of corporate social responsibility.

Professor Geoffrey Heal’s definition of CSR as ‘a program of actions taken to reduce externalized costs or to avoid distributional conflicts’ brings to the fore the fundamental nature of such activities. Heal’s definition presumes productive activities which generate these costs and a cumulative value chain whose end product ownership is disputed by each link on the assembly line with a legitimate claim on it.

In their path-breaking paper, ‘Strategy and Society: The Link between Competitive Advantage and Corporate Social Responsibility,’ published in the December 2006 edition of the Harvard Business Review, Michael E. Porter and Mark R. Kramer argue that the time has come to stop treating ‘corporate success and social welfare as a zero-sum game.’ According to the researchers, ‘if corporations were to analyze their prospects for social responsibility using the same frameworks that guide their core business choices, they would discover that CSR can be much more than a cost, a constraint, or a charitable deed – it can be a source of opportunity, innovation and competitive advantage.’

Increasingly, many companies are bringing the same dispassionate criteria they use for business decision-making to their CSR agenda setting. In his speech, ‘A Conflict of Interests? Reconciling the Interests of Shareholders and Stakeholders,’ delivered at a 2008 RiskMetrics conference, Sir Stephen Green, chairman of HSBC Group, pointed out that sustainability is about ‘bringing relevant issues together into your own business model.’

CSR has outgrown its humanitarian-moralist origins to assume its proper stature as an integral part of value creation and assurance process at corporations. Undoubtedly, articulating the social contract that binds shareowners and staketenants has grown in importance.

In its 2007 Creating Shared Value Report, Nestlé explains that ‘to be successful in the long term it has to create value, not only for its shareholders but also for society . . . not as philanthropy or an add-on, but a fundamental part of our business strategy.’ For corporations whose survival skills are sharply honed, co-opting the new thinking is a clear-headed choice for Darwinian longevity. From building water processing plants in Nigeria to training women in sustainable farming in Pakistan to micro-finance loans for dairy farmers in South America, the company has dovetailed its CSR initiatives with its business goals. In fact, Nestlé has been so successful at establishing and communicating the synthesis of interests between its financial statements and CSR activities that it has won shareholder support for them.

This progress presents an historic opportunity for activists and campaigners who have long complained about the indifference and insincerity of companies to socially responsible practices. Will they take the companies up on their word or prefer to keep barking at an uprooted tree? The convergence of values must not go unnoticed. Companies, like individuals, are still far from the ideal in what they aspire to become within their communities. But strident criticism and persistent condemnation of former practices that companies have taken bold steps to correct is counter-productive and undermines the stated goals of these organizations. Around the world, companies are extending the hand of reconciliation. Would the other side accept it? The time to seize the day is now.

The original article may be read here on Nestlé’s Creating Shared Value blog.

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It was never going to be easy sailing. As a rule, any legislation intended to overhaul an industry used to having its way is bound to meet with a hailstorm of protest. It either goes too far for the industry’s supporters and beneficiaries or is too soft for its critics. Just ask Paul Volcker, the former US Federal Reserve chairman. He has been at the forefront of efforts to introduce sweeping reforms in the US banking sector. In the opinion of Wall Street executives, like Barry Zubrow, chief risk officer at JPMorgan Chase, these proposals would ‘likely come at the expense of economic growth.’ On the other side of the divide, Senator Chris Dodd, chairman of the US Senate Banking Committee, expressed his dismay that ‘the refusal of large financial firms to work constructively with Congress borders on insulting to citizens.’

These sentiments could well be applied to the Petroleum Industry Bill (PIB) which has sparked its own round of passioned debates. In the sling match that has ensued, both sides have accused each other of attempts to kill the goose that lays the golden eggs.

At 200 pages, the PIB has several flavours of bicker sauce on the menu for passengers in every coach on the stakeholder train. In her presentation, ‘Nigeria’s Position as a Key Player in Global Oil and Gas Markets,’ delivered at the 2010 edition Nigerian Oil & Gas Forum held this week, Ann Pickard, Shell Petroleum’s regional executive vice-president, Exploration & Production in Africa, condescendingly dismissed it as ‘a cumbersome document that lacks insight into the very basics of our industry.’ Levi Ajuonuma, group general manager, group public affairs at the Nigerian National Petroleum Company (NNPC) has risen in staunch defense of the bill arguing that ‘there is no country in the world that does not get value for its natural resources.’ Dora Akunyile, the minister of Information, says that the bill will ‘ensure a level playing field for all stakeholders’. Comrade Bayo Olowosile, general secretary of the Petroleum and Natural Gas Senior Staff Association (PENGASSAN), condemned the bill for the government’s failure ‘to address our concerns or assuage our fears.’ The Ijaw National Congress, a major ethnic association of the dominant group in the Niger Delta, does not mince words. It calls the bill ‘demonic.’ With all the name-calling, moving from rhetoric to the motivating ideas behind the bill can be quite tasking.

The main points of the bill, which Pickard describes as ‘simple, passionately stated priorities’, are well known: improve transparency associated with the various Memoranda of Understanding signed with the oil majors in 1986, atomization of the NNPC into seventeen separate companies to improve efficiency, the adoption of fair and unambiguous rules for all players across the entire industry value chain, creation of a self-funding national energy champion capable of meeting its joint venture cash-call obligations, higher government revenue derivation regime for deepwater projects, elimination of tax loopholes, development of the country’s gas reserves, and the return of acreage that oil companies have failed to explore.

A member of the Oil & Gas Implementation Committee (OGIC), Dr. Mohammed Ibrahim, puts it succinctly. The objective of the bill is to transform Nigeria from ‘a crude oil exporter to a crude oil exporter and processor’. His statement hits the nail on the head on what the bill is really about, which is, how the country can reclaim what its leaders believe rightfully belongs to Nigerians and move up the value production chain. The PIB is 1970s resource nationalism faintly disguised in new costumes for the 21^st century. All else are footnotes.

In this respect, Nigeria is not unique. Two identifiable trends have bolstered the country’s confidence to confront the oil majors namely, the pre-2008 oil boom and China. Here, it is important to recall that the bill’s conception dates back to the early days of the Yar’Adua presidency in 2007 when oil prices were at a peak. At the time, the government was resentful that contracts negotiated in the trough era of the eighties when oil sold for less than US$20 per barrel, now placed them at a huge disadvantage. Several oil producers around the globe demanded the renegotiation of terms.

The list is long. Hugo Chavez’s gauntlet in Venezuela’s Orinoco River basin, Vladimir Putin’s brinkmanship with Russia’s Sakhalin project, Evo Morales forceful takeover of Bolivia’s natural gas fields, Rafael Correa’s populist policies in Ecuador’s energy sector, and Luiz Inacio “Lula” da Silva’s new stricter tax framework for foreign companies exploring Brazil’s new-found offshore oil, all fall in this broad category.

During a January 2008 interview, Chakib Khelil, the Algerian minister of Energy & Mines, which has vigorously pursued its own energy sector reforms, explained the oil producer’s position on what he termed ‘these structural changes’:

We imposed tax on exceptional profits which is not considered to be resource nationalism. It just takes into account that when the contracts were signed in the 80’s the oil price was at $15/bbl, now the oil price is at $90/bbl. Some of these contracts didn’t include the mechanism by which the state would receive a fair share when the oil price would go that high. The state of Algeria has taken the decision that it would get a fair share and that is not specific to Algeria. Even Alberta has put tax on royalties and the US has put on taxes on offshore assets in the Gulf of Mexico.

It’s just a matter of tremendous changes in the market and to avoid upheavals. Our demands are based on logic: if you sign a contract based on $15/bbl you expect a certain return. But if you get $90/bbl you are getting more than what you expected. In any case it is the same company that is making very good returns. They have a choice not to come to Algeria: we are not forcing them. They are free to go to Libya and to any other country that offers them better conditions.

The message was clear. Put up or shut up.

The aggressive push by China National Petroleum Corporation (CNPC), China Petroleum & Chemical Corporation (Sinopec), and China National Offshore Oil Corporation (CNOOC) into the Gulf of Guinea has presented an irresistible alternative for the continent’s energy producers. In Angola, Gabon, Nigeria and Equatorial Guinea, the Chinese with their country’s voracious appetite for energy and commodities have elbowed their way in. With deep pockets and a willingness to work on the producers’ terms, the Chinese have gained ground where Western majors have slipped out of favour. This has further emboldened the producers to place more stringent demands on their traditional oil exploration partners. Arguably, the origins of new-found assertiveness can be traced back to Beijing’s door.

Whether the bill passes in its current form or admits more amendments, the glory days of exclusivity and privilege enjoyed by the oil majors in Nigeria are numbered. Yet the question remains: will the devil that Nigeria has known since crude oil was discovered in Oloibiri half a century ago be better than the angels it is yet to be fully acquainted with? The euphoria of self-determination can often hide the brutal uncertainties of sovereignty. In the final analysis, arm-twisting the oil companies is the easy part. The real measure of success will be how successful the PIB will be in delivering the goods from higher revenues to local citizens. Nigerians will be watching their leaders closely to see.

The original article may be read here on the NEXT website.

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I am not a huge fan of market closing price league tables. I studiously ignore titles like ‘Today’s 10 Bottom Stocks,’ ‘5 Leading Losers,’ ‘10 Market Chargers,’ ‘10 Exchange Laggards’ on the Markets pages and financial websites. These companies are not in any competition with each other in that sense. I am not aware of any chief executive that purposely determines that his company stock should rise the most or fall the least on any given day.

On these celebrated ranking scales, one would find utilities and beverage companies and on another, IT and entertainment companies, all with no relationship to one another. The only tenuous connection being that their prices went in the same direction on that day whatever the reasons. By an insidious transformation, these market close summaries have become value-laden commentaries on corporations. ‘Losers drag down the index,’ ‘Gallant bulls wrestle bears to a standstill,’ ‘Stubborn bears not going down without a fight.’ Gainers are good, and losers are bad. Pick your choice.

Needless to say, I am neither a club supporter of the dizzying price movement overload that distracts viewers of financial news channels. Sometimes, these tickers run at both the top and bottom of the screen. It is a wonder that more people do not suffer from photosensitive seizures after prolonged viewing. This visual multi-tasking is a veritable health hazard for epilepsy patients.

But do not get me wrong. I have nothing personal against prices bobbing either way. In any market, prices cannot be static. I also recognize that many traders and investors earn their livelihoods from these changes in values, upwards and downwards, however wide or infinitesimal. A closed trade demonstrates that there has been a willing buyer and a willing seller who have transacted based on their own independent analysis of the value of the traded security. Contrary to what many commentators have argued, I do not think day traders, short-sellers, black box programs or algo-traders are destructive, distortive, evil or parasitic. In their own unconventional ways, they play important roles in the price discovery process.

Where I have an issue is with the resignation of companies to this prevalent culture that confuses an image slide, that is, a temporary mispricing, with a picture book, that is, a sustained change in the valuation. Companies feel helpless to actively intervene in investors’ information input flow.

The fault does not lie with the websites, newspapers or cable channels that feed this frenzy. Websites want visitors, newspapers want readers and cable channels want viewers. They are just being what they are. All those green- and red-colour arrows, minuses and plus signs, blue- and amber-hue figures serve one purpose: to retain the audience. They could not careless if visitors, readers, and viewers called their brokers afterwards.

The problem lies with companies who have lost the initiative in the contest of value story-telling. Can one blame investors who actively trade stocks of companies but know next to nothing about these companies’ market share, management experience, revenues, sector dynamics, strategy or competitive position? Do companies accord the same prominence to these issues that the media gives to those league tables? Unfortunately, they often do not. Executives have abdicated their responsibility to evangelize their companies. The result is the dominance of these ever-present price league tables, where companies are judged based on the latest closing prices and investors are encouraged to have short memory spans. The shorter, the better. Churn is the new morality.

Recently, I reread the 2008 annual report of Logica, the top-tier European IT and business services company. If there was an award for clarity and precision in investor communications, I would nominate Logica for it. In the introduction, the company explains that the report sets out to provide answers to six basic questions. First, what makes our company distinctive? Second, what is our strategic plan? Third, how are we executing our plan? Fourth, do we have the right operational and financial resources to succeed? Fifth, do we have the right strategy in the current market conditions? Finally, how are we getting closer to customers? If Einstein’s dictum that things should be made as simple as possible, but not simpler, was a virtue, this schematic would be its manifestation for the capital markets.

I am always amazed that companies which commit intensive management energy to their marketing campaigns have a hard time accepting that they need to push their value messages toward investors with the same passion. Regrettably, most companies continue to falsely believe that once a quarter is more than enough interaction with the market. As we have seen, these companies are ranked each day without their consent. Seeking refuge by burying their heads in the sand, thinking that investors know better, can only work against them. Companies should be proactive in articulating and pushing out their own wider set of performance measures or else their fates become mere chips in a grand casinos and slips in corner betting shops. Capital for production, not speculation, should be their gospel. It is high time to shift the paradigm.

The original article may be read here on the Alrroya website.

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Today, my story begins with the unlikely case of Brazil. By the way, my interests have not shifted to football. Nonetheless, it is still a bit of deviation from my usual neck of the woods. First, a little bit of background to provide some colour.

In his now famous November 2001 paper, ‘Building Better Global Economic BRICs’, Jim O’Neill, chief economist at Goldman Sachs, the Wall Street juggernaut, created a novel cognitive map for the future of the global economy when he coined the building-inspired acronym to collectively identify Brazil, Russia, India and China.

The Brazilian success story fascinates me because the country has risen beyond the status of dirt playground for hot money briefcase foreign investors. Brazil has earned its place of honour as an economic powerhouse and global policy voice. It was no birthright. ‘Exotic’ does not apply to Brazil. In Brazil, rules apply.

Last weekend, I was catching up with a Brazilian colleague, Fabiane Goldstein, who runs an investor relations firm in Sao Paulo. After a few minutes, she spun the conversation to politics, a subject I studiously avoid. The Workers’ Party, Brazil’s ruling party, had just announced its selection of Dilma Rousseff as its candidate for the October presidential elections. Rousseff, a favorite of President Luiz Inácio Lula da Silva, popularly called Lula, currently serves as the cabinet chief minister. Lula, Fabiane confessed, had been good for Brazil. Brazilian citizens, she explained, agreed that he had brought the country luck, plus World Cup and Olympic hosting rights to boot. In a sports mad country, he is widely seen as blessed by the gods.

Yet, she admitted that Lula’s leftist credentials had worried many in the business community at the time of his 2002 election. But looking back now, ‘Brazilians,’ in her words, ‘had never had it so good.’ Lula had allowed Brazilian businesspeople to ignore politics and to focus on creating wealth. If stories she heard were true, a good number of leading Brazilian businessmen were putting pressure on him to accept the position of the Central Bank governor or chief minister if Dilma Rousseff, his anointed candidate, wins in October.

Responding to rumours this week that Henrique Meirelles, the current central bank governor, might resign to pursue the presidential ticket, Lula told a press conference that

I am not worried. Today, we could make those changes without  any difficulty, or fear, because the whole world knows if there is something notable about our government, it is the seriousness of economic policy.

Investors agree and have rewarded the São Paulo Stock, Mercantile & Futures Exchange’s Ibovespa index handsomely. Without putting to simplistic a point to it, politics in Brazil has provided the scaffolding for Brazil’s prosperous economic edifice.

Contrast the market calm in Brazil over Meirelle’s resignation plans with the situation in neighbouring Argentina. A few days ago, Jude Webber of the Financial Times wrote a damning article, ‘Argentina: A Profligate President’, criticizing the economic policies of President Cristina Fernández de Kirchner. The president’s botched removal of Martin Redrado, the former Argentine Central Bank governor, in January over his refusal to comply with her demand to surrender reserves to a government debt payment fund has further worsened perceptions of her government.

This week, the country’s seven-percent bonds due in 2015, fell to their lowest level in five months on fears that Amado Boudou, the respected economy minister, may leave the government over differences of principle and ideology with President Fernández de Kirchner. Investors have been on a panic binge since last year. In February 2009, MSCI Barra, the index creator, had demoted the country from its emerging market status to frontier markets class. Argentinean politics has a bad habit of putting investors in anxiety overdrive.

Ideally, investors want to take politics for granted because they cannot diversify it away. Politics is a systematic risk investors in any economy must bear.

At the end of a series of meetings held with leading frontier markets investors in the US last week, Christopher Hartland-Peel and Ashley Bendell of Exotix, the London-based boutique investment bank focused on frontier markets, shared these fund managers’ top-line impressions of recent events in Nigeria. In their words, ‘Nigeria remains one of, if not the most favored African and frontier stock market, and [while] investors are interested in, in the Nigerian political situation, they are not hung up on it.’ This is certainly more than a cautious tip to the benefit of doubt.

The Nigerian stock market’s best is yet to come. I believe that so wholeheartedly. Nigerian investors have been through stormy seas in the past two years. Their confidence has been dented. But the country’s economic potential is vast and undeniable. In spite of the day-to-day roller coaster of politics in recent months, when one steps back and takes a wider frame view, it is obvious that the country has made giant strides in the past decade. Faltered sometimes, but getting up and striving ahead again.

Disclosure, access, engagement, water-tight risk management culture, attuned corporate strategy, sound corporate financial planning are all well and good. But they can only bear fruits for investors when the markets do not lose sleep over politics. To stir the hornet’s nest now would be foolhardy after the progress of these years. If the politicians heed good advice, O’Neill’s BRIC acronym may one day become BRINC (Brazil, Russia, India, Nigeria and China). But will the politicians pull back from the cliff?

The original article may be read here on the NEXT website.

Readers may find the following economic research papers by Goldman Sachs Economic Research department informative.

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Most public company executives regard media interviews as a distraction. In their view, they would rather be running their companies. As far as they are concerned, there is a dichotomy between minding the store and talking about the store.

When approached for interviews at conferences or random bump-ins, these executives offer a half-hearted smile and respond with the deceptively receptive suggestion, ‘please call my secretary to arrange a date. Here’s her number.’ For most reporters, this subtle reply means ‘don’t call us, we’ll call you.’ Email requests fare no better. ‘We are sorry to decline your request at this time’ is a common refrain.

Indeed, C-suite executives are very busy people. Plausibly, they have more important things to do than help a media outlet increase its circulation or viewership by providing an exclusive. A less euphemistic reason may be that these executives have a visceral disdain for publicity which, in their consideration, is not directly tied to the bottom line. After all, they rationalize, the Management Discussion & Analysis (MD & A) and financial statements cover all areas of investor interest satisfactorily.

On the surface, this makes perfect sense. If the CEO manages the business well, expands market share, raises profit margins, oversees a steady rise in its share price, drives its competition out of business, signs on the best management talent, does not attract regulatory scrutiny, has a pipeline of blockbuster products, enjoys unlimited patents, pays increasing dividends year-on-year, wins adulatory praise from all stakeholders and increases its backlog of contracts, then it can safely ignore the rest of the world. The record would speak for itself. Alas! If wishes were Arabian horses, executives would win the Derby. In reality, companies face a more prosaic existence.

Therefore, if this the case, should executives not even spend more time in pursuit of this Eldorado and less on distractions like media interviews?

On the contrary, it should make them determine to allot more face time with these important gatekeepers of information and shapers of investor sentiment. The daunting challenges that businesses face will not be blunted by refusing to tell their story. Disseminating its own why-and-how narratives through popular channels affords companies the luxury of placing their financial performance and strategic options within the contextual topography of their own choosing. This encourages the investment community to see the world just a little bit more from the eyes of the company. How can they say no to an offer to influence perception formation?

The fact remains that whether executives grant these interviews or not, the media will write their stories and investors will form their own opinions anyway. While it is true that companies regularly meet with financial analysts and institutional investors, nothing compares to the scope of intelligent coverage that the media provides. In the communications toolbox, targeted media interviews may well be the most effective and transparent means for influencing the investment community.

Although, a sell-side analyst at an investment bank may produce an incisive report on the company for its own clients, the content and distribution channels of equity research limit it to a slim section of the investment community. Moreover, because these reports are, by design, explicitly written to generate buy-sell signals, they are of a fundamentally different quality from interviews which are not necessarily trading signal focused. As first-party advocates, executives’ views enjoy the status of fact prima facie. To leverage on that benefit of doubt should be a no-brainer. The media interview was hand-made for such.

Still, media interviews, as an integral part of the investor relations mix, can also serve an explicit trading signal function. It is taken for granted that an undisputed good for any public company should be a reduction in the information asymmetry between the company and providers of risk capital.

In the following interview, Lloyd Blankfein, chief executive officer of Goldman Sachs discusses the investment bank’s culture, risk management and lessons learned from the credit and economic crisis.

Several studies reveal a strong correlation between heightened media visibility and subsequent changes in perceptions of risk and cost of capital. In their seminal paper, ‘The Quantity and Quality of Media Coverage and Its Impact on Stock Price Informativeness and Trading Activity: Evidence from China,’ Stephen Gong and Ferdinand Gul demonstrate a clear relationship between the media visibility of companies and the liquidity of a stock.

In another brilliant paper, ‘Media Coverage and the Cross-Section of Stock Returns’, Lily Fang and Joel Peress, referring to Richard Merton’s ‘investor recognition hypothesis’, show that because of the poor information environment around companies with low media visibility, they have a higher cost of capital in public markets since investors demand a higher return. On any number of proxies (margin spread, price volatility, order aggressiveness, trading volume and order flow), media visibility can and does have a positive impact on a company’s cost of capital. At the end of the day, markets thrive on information. In this game, those companies that have a consistent and coherent strategy for engaging the media will come out victorious. Undoubtedly, it’s good to talk.

The original article may be read here on the Alrroya website.

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