CHRIS GILMOUR AND JOHN FRASER: Corporate control thwarts company scrutiny

Remember Steinhoff? Corporate fraud and auditor snoring on such a scale that this shamefully SA scandal has promoted books — and even a television series on Showmax, the same streaming service where you can catch The Sopranos. 

Corporate crooks will always try to get away with whatever they can, and Steinhoff’s elusive manner and evasive tactics when it came to the analyst community enabled it to get away with too much for too long. Now there are more assaults on the analyst brigade, who are actually a bunch of financial white knights. Well, potentially.

There is also a vital role in all this scrutiny for the media — and there are some stunningly good financial journalists (present company excluded). However, it is the investment analysts who can delve into the detail and make a call on a company. They have the training and the analytical tools, and often the salaries, to match. They are not quite a dying breed, but there are sinister, deliberate, underhand moves afoot to make it harder for analysts and journalists to do a proper job.

Companies the world over must present to as broad an investor base as possible on the release of their results to avoid any possible accusation of unfairness or insider trading. Although large institutions might argue that they deserve special treatment because of their size and importance, most regulators don’t see it that way and insist everyone is treated the same way, regardless of their standing in the investment community.

In practice, though, our experience is that many companies have a cynical approach to the whole exercise and do organise closed-circuit, invitation-only presentations to selected institutions. It’s impossible to gatecrash these events, even when word gets out that they are happening, due to the gatekeeping of in-house (sometimes outsourced) investor relations teams.

The JSE and Financial Sector Conduct Authority know about these abuses but tend to turn a blind eye. Before Covid the preferred channel for financial results and other corporate announcements was via presentations to a live audience. Since then, the shutters have come down and almost all presentations are now virtual, with very few being held live on stage, with the enticement of drinks, snacks, goodie bags and parking vouchers.

Afrimat was one of the first companies to get back in the saddle and restart offering real, live presentations. This is a no-nonsense, no-frills company that gets on with its business in a thoroughly workmanlike fashion, and really tries extremely hard to convey its message to investors. We believe it is the yardstick by which all companies on the JSE should be measured in terms of good communications. Without a lot of optimism. 

The way so many others do — or don’t — go about it is a great pity because live presentations offer major advantages over virtual ones. Virtual can mean virtually useless. Live presentations offer an opportunity for analysts and financial journalists to meet executives and discuss aspects of the business before, during and after the slide show.  

It is not always easy to arrange any encounter of any kind between the six-monthly results gatherings.  Unless you happen to stumble upon the right golf course. Or the right horse race in the case of Steinhoff. Virtual presentations cater for questions, but only at the allotted question time — invariably after the presentation. There may be filters, and it is difficult to pose a follow-up or query the dodging of a valid and important question. You can be muted with a click of a mouse

Control is in the hands of the host, and you need to be on-site. It is just too difficult to grill a computer screen. Not that we haven’t tried. Meanwhile, the body language of executives can be highly illuminating when observed up close. We will never forget when, a few years ago, top banking analyst Henry Hall asked an awkward question of then Absa CEO Maria Ramos and her CFO, David Hodnett.

Until then the presentation had gone effortlessly, but when Hall stuck the boot in they both crossed their arms in an almost comically defensive manner. Actions shouted far louder than words. Absa stopped doing live presentations not long after this, which is shameful for such an important player in SA. But it is not unusual.

The main organiser of company presentations for a long time was the Investment Analysts Society of SA (Iassa), a not-for-profit company. We use the past tense as its participation in this arena has shrunk to almost nothing. Founded in 1968, Iassa’s membership peaked at 2,029 in 2005. That number has since declined steadily to a feeble 769.

This is partly a reflection of a dwindling institutional investor base, coupled with a far smaller range of shares listed on the JSE. Once it was a prestigious convener of corporate presentations, but it is no longer necessary for anyone to use Iassa to access company presentations.

Have laptop, can’t be arsed to travel? An analyst who worked for either of us and preferred to lurk in his/her cubicle rather than go out, meeting and greeting, sniffing bottoms —  or whatever today’s analysts do when they encounter a CEO — would be for the scrap heap.

Probably the most valuable asset Iassa had in the old days was its mailing list, which was compiled over many years and guided companies on who they needed to invite to presentations. To illustrate its importance, we were once both on it. These days, few companies use Iassa for their presentations, many of them balking at the cost (about R7,000) of accessing the mailing list. That is when they make any effort at all.

Many companies prefer to construct and maintain their own mailing lists, and their investor relations pitbulls maintain them, often with remarkable inconsistency and caprice. Analysts who know when to expect an announcement can go to a company’s website and should manage to register to watch the webcast, live or recorded, with no third parties (in the form of Iassa) involved. And no physical contact of any kind.

Who wins from this? Some analysts may still receive one-on-one red carpet treatment. Good luck to them, just so long as these firsts among equals do not become too embedded, too pally with the kind of corporate creeps one might normally cross the street to avoid.  Or too trusting.   

The real losers from the implosion of Iassa and the dearth of corporate events are junior analysts and the financial journalist community, who can learn a lot from questions asked at presentations, the conversations they can strike up with colleagues, or with those executives who are polite enough not to immediately sprint off to a TV studio after their gig.

Networking is vital, and its impact is muted when everything is online. Iassa is crumbling before our eyes, but this must not allow companies to escape proper scrutiny and the attention of analysts by practising the dark arts of Steinhoff-like, absent-without-leave camouflage.

Investors beware!  

The authors have worked in investment analysis, journalism and investor relations over several decades.