Customs Street Advisors

Recently, Nestlé Switzerland, the global nutrition, health and wellness giant, invited me to share my thoughts on the age-old shareholder-stakeholder debate on the company’s corporate social responsibility blog, Creating Shared Value.  The article, which was published today, espouses my thoughts on the growing irrelevance of the traditional arguments that have pitted campaigners, advocacy groups and activists against corporations. I conclude  that there has never been a better time to move from tense face-offs to constructive engagement.

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. Read More…

This week in Alrroya, the United Arab Emirates (UAE) business and financial daily, I champion the beneficial role that media interviews can play in raising the profile of companies among the investment community and addressing malignant information asymmetry.

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. Read More…

This week in Street Talking on NEXT, I discuss the critical role company websites can play  in closing the mispricing gap between stock prices and the underlying value of companies on the Nigerian Stock Exchange.

I am appalled at the failure of most companies on the Nigerian Stock Exchange (NSE) to utilize the web for investor engagement. In fact, about half of the companies on the NSE do not have any web presence at all. Among those that do, only a small number leverage the channel for investor communications despite the fact that a growing number of investors make decisions to buy, hold or sell stocks based on information they find on the Internet. If it is axiomatic that information is the lifeblood of markets, then company websites ought to be the most credible and authoritative sources for relevant, reliable and timely information. Read More…

Five years is more than enough time for companies to answer the ‘to be or not to be’ question on the attractiveness of a strategic proposition and then conclude it. Five years after merger talks began between First Bank of Nigeria and Ecobank, both banks are yet to bring the deal to a cloture. This week on NEXT, I point out that the main obstacle to progress may lie in a fundamental disagreement on strategy for a future resulting entity.

Mergers and acquisitions (M&A) are not trivial events. Synergy evaluation, regulatory hurdles, valuation disputes, internal and external claimsholders’ buy-in, advisory fees, integration factors, cultural issues, competitor objections, unsolicited offers and ego management are just some of the mid-air sharp knives that task the juggling skills of those driving a transaction. Little wonder that veteran investment bankers love to decorate their offices with commemorative Lucite tombstones (‘deal toys’) of consummated deals as testimonies of battlefield scars. Nurturing a deal from the first date until the dotted lines are signed demands superior matchmaking skills. Read More…

At the best of times, most companies on the Nigerian Stock Exchange  put up a dismal performance at communicating with the investment community. The reverse in economic fortunes has exponentially amplified those failures. This week in Street Talking on NEXT I make a few recommendations for issuers on what they need to be telling investors at this time.

Bruce Wasserstein, the late chairman of Lazard, the storied investment bank and dealmaker extraordinaire, used to say that it was the lot of the corporate advisors to offer a lot of advice to companies for free, which can be a thankless task. The double facts that the counsel was valuable and free did not mean that the companies would take it. Companies are hard-wired to discount pro bono recommendations. Bearing the odds in mind, here are some suggestions to companies on the Nigerian Stock Exchange on keeping investors engaged through the recession. Actually, investors might also find them useful in judging companies. Read More…

As the Nigerian stock market convulsed in the past year analysts  have come to be regarded as shamans with the powers to conjure or calm the animal spirits at will. One day reassuring investors that the patient is making a full recovery and the next minute pouring the oil for Extreme Unction. Under circumstances of fear and loathing that have characterized investor sentiment over severe losses suffered, the pronouncements and prescriptions of analysts can and do have  significant effects on the share price of companies. In some cases, the very sustainability of the firm has been called into question. With this kind of power one only wonders how soon it will be before abuses start to appear. As history teaches with countless examples, power corrupts and absolute power corrupts even the best of men absolutely. Those responsible for good order in the market need not wait till then. In this post we discuss the vital role that analysts play in the market and why such influence as they have so clearly enjoyed in recent times is critical to their investment filtering function as well as the efficiency of markets. Next we discuss with a number of marquee  examples, cases where such powers have been applied to perverted ends. Recent allegations of purported analyst research used as a cover to de-market sector competitors accentuates the relevance of the subject.  Finally, we examine ways to ensure that such power is not misused for ends contrary to those for which they were originally intended.

Speaking in an November 2007 interview with the Times of London just a few days after downgrading Citigroup from Strongly Perform (SP) to Strongly Underperform (SU), Meredith Whitney, former executive director of equity research at CIBC World Markets, stated without mincing words: ‘People are scared to be negative, especially when a company has such a wide holding. Clients are not pleased with my call and I have had several death threats. But it was the most straightforward call I’ve made in my career and I am surprised my peer analysts have been resistant. It’s so straightforward, it’s indisputable.’ Read More…

The recommendations of the Dotun Suleiman Committee for the Review of Capital Market Structures and Processes have received a lot of attention in the press. As a result of public concerns over certain perceived abuses and improprieties on the Nigerian Stock Exchange, those  recommendations which  touch on the oversight functions of the Securities and Exchange Commission (SEC) over the exchange have been in the spotlight. However, one recommendation, so far adopted, that has received far less attention, is the introduction of book-building method in securities sales transactions. Known as Rule 78(c) it will have significant long-term impact on the Nigerian capital market through its potential to fundamentally change the content of public offering communications, structure of ownership of companies, surveillance of corporate governance, review of corporate performance and the quality of issuer-investor relations. In this post, we examine the trends that have led to the rise of institutional investors in Nigeria and why issuers may actually prefer them at first countenance. Then we discuss the likely implications of their established dominance on share registers and its implications for  companies planning to raise capital.

In a recent critical essay on the dereliction of duty by US money managers in the supervision of public companies  whose securities they buy and hold on behalf of private citizens, John Bogle, founder of the Vanguard Group, the giant fund manager, underlines the risks to the financial system as markets have gradually but surely transformed from owner-governed to agent-dominated systems. However, beyond his criticism of the ineluctable trend to greater ownership of corporations by fiduciaries, Bogle identifies their central role in contemporary capital markets, not simply as conduits of capital, but as watchmen of corporate governance and performance. Read More…

As in other parts of the world, the securities market regulator, stock exchange and central bank in Nigeria have been in the first line of fire from commentators for the turmoil that has engulfed the local economy in the past year. For what is now judged their reluctance and, in some cases, passive complicity, in what are now considered to be abuses and excesses as well as their failure to warn about the impending crisis, even denying the vulnerability of the economy, the regulators are now fingered as having the primary responsibility for the crisis. According to some commentators, while the regulators may not be the mechanical causes of the crisis, their inertia makes them accomplices. They argue that the regulators’ partial, even discriminatory, actions in the execution of their fiduciary responsibility to protect investors from market abuses by some issuers and intermediaries puts the blame squarely on their shoulders. Moreover, as the producers of the most visible and applauded metrics of economic success during the boom years, the collapse has raised major questions about, not simply the foundations of that boom, but the competence of its architects. It is in this context that BusinessDay, a leading source of economic, financial and business news in Nigeria, called for the resignation of Professor Ndi Okereke-Onyiuke, director-general of the Nigerian Stock Exchange, and Musa al-Faki, director-general of the Securities and Exchange Commission. According to the paper, the ripple effect from the developed markets’ financial crisis was not the cause of the local crisis. Rather, it only exposed festering maladies which had plagued the local stock market for quite some time. The paper adjudged that the regulators’ ‘light touch regulation’ was the cause of the crisis. In response, the Nigerian Stock Exchange issued an acerbic press release accusing BusinessDay of ‘hyperbole’, while identifying the paper as ‘the problem in the ongoing effort to restore investor confidence in the market, because confidence cannot be erected on obvious negative and baseless media publications on the market.’  The SEC has not issued a response. In this post, we provide a background to the issues then proceed to reconstruct the response of the NSE to BusinessDay.

In a presentation given in January 2009, Professor Charles Soludo, the governor of the Central Bank of Nigeria, offered a disgnosis of the causes and effects of the global economic crisis. According to him, the roots of the crisis are to be found in the banking system, and not in the securities or forex markets. Tracing the origins of the crisis to the United States, he explained that countries like Nigeria were swept up in the second round effects of the crisis.

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Last month’s announcement by Professor Soludo, the Central Bank governor, imposing stringent rules on the format of financial results ads has generated a lot of debate from all corners. Shortly after the announcement, Festus Odoko, the Central Bank spokesperson, went on air to clarify the regulator’s position on the matter. Speaking of a ‘deliberate attempt at distorting the decision taken at the last Bankers’ Committee Meeting . . . taken by the bankers themselves to moderate excessive competition and propaganda in the media,’ he assured stakeholders that ‘this is not a decision or directive of the CBN.’ Not satisfied, critics of the new policy have raised four main questions: first, about intent of the policy (can the simple change of colour tone reduce unhealthy competition in the banking sector, and, by the way, how is ‘unhealthy’ to be defined?); second, about the soundness of the logic (what proof is there that ‘excessive advertising’ is responsible for the inordinate rivalry in the sector or the de-marketing menace of anonymous text messages warning of the imminent failure of certain banks); third, the real causes of the phenomenon (is the negligence of regulators not to blame for the distrust of reported results); fourth and finally, the substance of the arguments (should the attention not be on the content of the advertized results and not on its format, so long as these are not intended to mislead, deceive or an invitation to transact in the securities of the institution). In this post, we provide a background to the new policy, cover each of the counter-arguments to the policy briefly, then we examine the opportunities the restrictions open for banks in using the web to communicate even more effectively with the investment community and finally, we show that the new rules may be just the shot-in-the-arm that the practice of investor relations has been waiting for to take off in Nigeria.

Depending on whom one is asking, the post-banking consolidation era, up until the crash of 2008, was either the golden age of banking in Nigeria or the prodigal years. Certainly, nothing quite like it had been seen before. Banking which used to be known for its dullness, suddenly assumed such bright attraction that it became impossible to open a newspaper, watch a TV program, listen to the radio or browse most Nigerian websites without coming across an advertisement, promotion or sponsorship of one of the local banks. No doubt, all this publicity was aimed at supporting the business goals of the banks which were to win mind share, grow the customer base and secure new deposits. No quarrel there. It all made perfect sense.

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On January 14 2009, Nortel Networks Corporation, the communications company, announced that it had filed for creditor protection in Canada, Europe and the US. According to a company press release, the decision to file for bankruptcy had become necessary if Nortel was to be ‘put on a sound financial footing once and for all. Eight years ago, the company had a market capitalization of US$250 billion and accounted for a third of the market value of the Toronto Stock Exchange. At the close of trading the day before the announcement, the company’s market value had dropped to about $155 million. In spite of numerous reasons to clam up, notably poor financial results, accounting manipulation, SEC investigations, senior management turnover, declining sales and increased competition, the company has maintained one of the most transparent corporate communications programs in the world. In this post we discuss the benefits of cogent and coherent communications to companies facing restructuring, bankruptcy and reorganization.

The natural reaction for most companies bleeding cash and losing market share is to try to tip the balance of coverage in favour of a grain of good news against a tonne of bad news. Not so for Bo Gowan. He leads New Media Strategy at Nortel. Actually, what he did in the circumstance, would get most people fired from their jobs, if they ever had the boldness to even try it. On Nortel Buzzboard, the company’s community site, Bo posted links to critical newspaper articles about the recent company’s Q3 2008 performance, that  ’provided a little more in-depth analysis and commentary that [would] provide some differentiation from the typical straight coverage.’ Basically, he had sent an official invitation the public to read about Nortel’s dismal performance from independent sources.

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