Fending for Themselves: Who’s Looking out for Shareholders?
This week on Street Talking in NEXT, I deplore the atrocious treatment retail investors regularly receive from companies on the Nigerian Stock Exchange.
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. Read More…
Investor communications and disclosure: It’s Broke. Let’s fix it
This week in Alrroya, the United Arab Emirates (UAE) business and financial daily, I discuss the role that robust disclosure rules can play in averting a repetition of the turmoil that has engulfed the market in the past two years. I have no doubts that the markets would pick up again, but if shareholders fail to draw the right lessons from past experience and companies refuse to change their ways accordingly, then it is only a matter of time before we have another panic season on our hands.
All fingers have been burnt, but some are more charred than others. Across the world, what started as a localized US sub-prime crisis, and later snowballed into a global credit crunch, has not been good to shareholders. While business partners, customers, employees and host communities have all been hit by the turmoil, shareholders have borne the brunt of the pain. They were the first in and it is now clear that they will be the last out. Read More…
Signal versus Noise: Scrutinizing Share Buybacks
This week on Street Talking in NEXT, I share my reservations on the acclaimed merits of recent capital structure reconfigurations, especially share reconstructions and buy-backs by companies on the Nigerian Stock Exchange. In place of these unproven merits, I urge companies to focus, instead, on other less discussed, but surer benefits of such programs for shareholders.
Equity overhang is the new leprosy. On a single day last week, the papers carried reports about Investment & Allied Assurance’s share reconstruction plans and Custodian & Allied Assurance’s intention to buyback 5% of its outstanding shares through an open market repurchase program. Two months earlier, Goldlink Insurance had completed its own share reconstruction discipline. This week, one paper carried the headline ‘Low Share Prices - Firms Embrace Share Buy-backs’.’ Are we entering an enthusiastic era of aggressive buy-backs? Is stock-swamping an odious condition? Read More…
Next in line: Successor visibility at Public Companies
This week on Street Talking in NEXT, I discuss the importance of providing fora of visibility for those in the succession line at companies on the Nigerian Stock Exchange.
For an institution long considered key man-captive, UBA has proven the pundits wrong. Less than forty-eight hours after the new Central Bank of Nigeria rule on the tenure of bank chief executives, UBA, without skipping a heartbeat, announced that Phillips Oduoza would replace Tony Elumelu its helm. Three words rush to mind in describing the first phase of the transition: seamless, smooth, style. Up to that point, it was flawless. Read More…
Rebel with[out] a cause: Theory and Practice of Shareholder Activism
This week on Street Talking on NEXT, I review the tactics of shareholder agitants on the Nigerian Stock Exchange in 2009 and identify why they enjoy very limited success in galvanizing popular support.
In his famous 1947 essay, ‘The Sources of Soviet Power’, George Kennan, the late distinguished foreign policy wonk, writing under the pseudonym ‘X’, advised the US government that only ‘the adroit and vigilant application of counterforce at a series of constantly shifting geographical and political points’ could contain Russia’s imperial ambitions. His ideas would lead the US to sponsor several proxy wars in countries far removed from the epicenter of its vital interests such as Angola, Laos and Vietnam. Read More…
The place to be: Why the Internet is integral to investor communications
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…
Rebel Yodel: Shareholders’ rallying cry in 2010
This week in Street Talking on NEXT, I share my views on the probable preoccupations of shareholders and boards in the coming year.
As the year draws to an end, it is tempting to make prognostications for the coming year. If I had to identify the main trends contending for top spots on the investment community agenda in the coming year, I would forecast a rise in shareholder interest in corporate governance and heightened monitoring of capital structure evolution as it impacts the stakes of antecedent shareholders. My outlook is that passive shareholder acquiescence will be replaced by active participation in strategic decision-making, particularly among holders of non-negligible blocs of stock.
SEC’s Appeal - Will the Regulator ever get its mojo back?
At a time when investors need its protection the most, the Securities and Exchange Commission (SEC) seems to have gone AWOL. This week in Street Talking on NEXT, I point out the contradiction in the government’s attempt to rescue the market, albeit sincere, which has put investors at extreme risk of losing their investment completely. Until now, only the value of their shares were eroded. But with the Central Bank of Nigeria marshaled rescue, investors are now likely to lose the vote which their ownership entitles them to in determining the future of the companies. To stay relevant, the SEC needs to rediscover its primary mission and stand up for investors.
The Securities and Exchange Commission (SEC) has been in the spotlight a lot this year. It has not all been for glowing reasons. Justly or otherwise, the SEC, like other market regulatory agencies across the globe, has received a good dose of blame for what initially began as an economic problem, but has snowballed into a chorus of indictment over inadequate regulatory oversight. The metaphor ‘asleep at the switch,’ has been used by more than one commentator. Read More…
Lux fiat. But will there be?: A diagnosis of the implications of SEC’s Proposed Draft Rule B4(3) on Earnings Guidance for corporate issuers on the Nigerian Stock Exchange
In the past year, there have been calls from several quarters for the Nigerian Securities and Exchange Commission (SEC) to carry out an overhaul of the regulations guiding the country’s securities market. In June 2009, the SEC, as part of its response to the challenges of regulating participant relationships on the Nigerian Stock Exchange released a set of proposed draft rules and amendments. Among these, draft rule B4(3) would require securities issuers to provide investors with earnings guidance. Oddly, there has been little public debate on the draft proposals, while comments, inputs and submissions on the proposals were limited to less than three weeks from the date of publication. This contrasts sharply with the lively exchanges in developed country markets over the utility and costs of earnings guidance. The SEC’s draft proposal is a curious one considering that even in the United States, securities law does not require companies to provide earnings guidance. In this post, we briefly examine the key arguments of both sides of the debate, and proffer suggestions and safeguards Nigerian companies can adopt to limit the risks and meet the demands of makings these types of anticipatory business performance statements.
In his 2000 annual letter to Berkshire Hathaway shareholders, Warren Buffett came down hard on the practice of providing earnings guidance. In his view, the expectations that these projections created were clearly unsustainable, at best, and viciously misleading, at its worst. In addition, it created a perverse incentive for CEOs to manage earnings so that they could always beat the Street.
Lost in translation, apples and oranges, or tomahto to tomayto?: The need for companies on the Nigerian Stock Exchange to carry the investment community along in the transition to International Financial Reporting Standards (IFRS).
With less than seventeen months to go to the Central Bank of Nigeria mandated deadline for the adoption of the International Financial Reporting Standards (IFRS) by Nigerian banks, and twenty-seven months to its obligatory adoption by all companies listed on the Nigerian Stock Exchange, it is curious that no institution has made an effort to sensitize investors and analysts on the significance of the new accounting standards. Instead, those institutions that have adopted IFRS have presented the move as one of adherence to global best practices without seeding awareness about what the change means for the way they prepare financial statements. In fact, there seems to be a tendency to communicate the act of adoption as a commitment to the enhancement of shareholder value and corporate governance. While improved transparency, relevance, reliability and comprehensibility are among the anticipated goods of IFRS, it is a misnomer, or worse, misleading, to imply that an accounting standard change can, by itself, create value. Value is created when firms increase their cash-generating ability, not when they change methods of reporting business performance. In this post, we discuss the importance of communicating the effects of IFRS adoption by companies on the Nigerian Stock Exchange. We use illustrative cases of companies in the EU which placed a priority on preparing the market for the new order.
On April Fool’s Day, First Bank, a foremost Nigerian bank, issued a press release stating that it had adopted the International Financial Reporting Standards (IFRS). Without prior notice, the bank stated that the change to IFRS would take immediate effect and will apply to the bank’s financial report for the year ended March 31, 2009.
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