The Covid-19 crisis is roiling the world’s financial markets. Some investors are turning bearish, sceptical about the chances of a quick return to robust growth. Investors in the Middle East have not been spared this crisis of confidence either. Many listed firms in Saudi Arabia appear caught off guard and vulnerable, struggling to rally investors in trying times.
While some Saudi CEOs are pulling out all the right stops to sustain shareholder loyalty, others surprisingly are overlooking the very tool that can help them right now: investor relations.
At a time when it is needed more than ever, investor relations are woefully lacking. This is leading in many cases to a damaging lapse in communication and is producing a generation of disgruntled investors who feel wrongly left in the lurch.
In too many cases, companies are letting their shareholders down by going into a version of C-Suite lockdown
Corporate immune system
In normal times, investor relations officers (IROs) are the glue between board room and shareholders, ensuring investors’ enquiries are addressed quickly and effectively, and management decisions are communicated and explained.
In a sense, IROs are a company’s primary line of defence, like a form of corporate immune system, promoting the overarching growth narrative and eliminating ambiguities through regular doses of transparency.
In the Covid-19 era, the importance of the IRO role has never been greater, given the exponential rise in uncertainty caused by the pandemic. A new set of risks has suddenly arisen and investors are demanding information on business continuity plans, the effects of the pandemic on profitability, as well as specifics on a firm’s post-Covid recovery plan.
For corporates, investor relations serves as a fundamental asset to accessing new capital while simultaneously reducing cost of funds, which is of increased necessity during these unprecedented times.
Amid decreased interest rates, corporations are pondering enacting sizable business decisions that significantly impact the structure of their establishments, such as rights issuances. An efficient investor relations strategy highly contributes to the success of these undertakings and bolsters investors’ confidence in them, too.
A majority of senior corporate leaders in Saudi Arabia have opted not to boost the information flow, but rather do the opposite
Withdrawing financial guidance
But, in too many cases, companies are letting their shareholders down by going into a version of C-Suite lockdown, actually restricting and limiting the flow of information to investors at a time when it is most needed.
A majority of senior corporate leaders in Saudi Arabia have opted not to boost the information flow, but rather do the opposite – by withdrawing financial guidance completely to their investors.
According to a recent survey by Deloitte, more than 60 per cent of listed company CFOs who usually provide shareholders with earnings guidance have withdrawn, rather than revised, this guidance.
Although this withdrawal often leads investors to make misinformed judgments about a corporation’s financial health, and leads to inaccurate valuations and higher volatility, depending on the industry it is quite difficult to make multiple adjustments to the guidance. And more importantly it is the time to assess providing additional disclosures.
Investor relations plan
As Covid-19 continues to weigh on the growth of corporations across the Middle East, some businesses will likely be forced to take unprecedented decisions to retain their operational and financial health, such as initiating share buy-backs or, in more dire cases, declaring bankruptcy.
But even then, an efficient and strategic investor relations plan is essential to mitigating investor panic and restoring faith in a company’s growth prospects.
Industries across the Middle East have been drastically affected by Covid-19 and investors are now focusing on a new set of performance indicators. According to a recent survey by BCG, almost 70 per cent of investors are focused on liquidity and financial resilience and believe it is important for companies to preserve cash flow during this period.
Yet too often, managers of listed companies are refusing to provide this critical information. As a result, investors rebuffed in their demands for transparency are beginning to make assumptions, some inaccurate, that lead to greater volatility and lost market value.
Instead of going into a protective crouch and withholding information, the board of directors at listed companies should ask their C-level executives to increase their level of investor relations activity
Even as financial markets begin to emerge from the crisis, investor relations will continue to play a pertinent role in the value creation story as corporations navigate a ‘new normal’.
Proactive and robust communication efforts with shareholders will be needed more than ever and should be placed at the forefront of post-Covid recovery strategies.
Investors and corporate managers in the Middle East should take away several lessons from the Covid-19 crisis.
Instead of going into a protective crouch and withholding information, which usually provides no protection at all, the board of directors at listed companies should ask their C-level executives to increase their level of investor relations activity to keep shareholders close and better informed than ever.
Investors, on the other hand, demand greater transparency from the companies they invest in, which have a fiduciary obligation to keep them informed. If that trust is denied, or abused, then investors have a legitimate reason to look to put their money elsewhere.
In the Middle East, like anywhere else, one realises who one’s friends are when the going gets rough. As corporations strive to regain financial health in the post-Covid era, it is imperative that more start treating investor relations as “an essential” part of their organisations. Because now, more than ever, it is.
If they do not, they will be putting their own company’s health at risk. And that is bad shareholder relations.
About the author
Rayan al-Karawi is founder and chairman of the Middle East Investor Relations Association (Meira) – Saudi chapter
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