The COVID-19 pandemic contains a number of shareholder communication issues for companies to consider.
The prolonged uncertainties of the COVID-19 pandemic, and the accompanying economic and social dislocation, create particular challenges for Australian companies in their communication with their shareholders and other stakeholders. This environment also, however, provides an opportunity for companies to build trust through their actions and communication.
Sustaining social licence
Although the current environment makes it difficult to estimate accurately the impact of the pandemic on operations and earnings, institutional and retail investors alike will judge companies according to perceptions of how the board and management respond in this environment. This includes the degree of transparency about implications for operations and earnings, and how the company balances its obligations to its multiple stakeholder groups (shareholders, customers, employees, suppliers, and the communities in which the company operates).
Decisions about operations – such as changing work practices and redeploying or standing down staff – need to be framed and evaluated through the lens of a company’s social licence and its “footprint in society”. This should then be reflected in communication strategies, including evaluation and selection of the most appropriate channels. External investor communication expertise can provide boards and management teams with useful critique of proposed activities and valuable perspective.
Boards and company management will also have to make considered judgements about communicating updates to earnings guidance, in particular whether guidance issued before the onset of the COVID-19 pandemic needs to be updated. Again, this is an area where communication decision-making will be scrutinised, and companies would be well-advised to over- rather than under-communicate. Companies should consider carefully the extent to which the market listing rules, collective disclosure requirements, and the expectations of a reasonable person would prompt market disclosure, such as in the case of material operational changes, internal expectations of revised earnings expectations, or any decision to proceed with a capital raising.
While videoconferencing and other digital communication channels offer significant potential time and efficiency gains for interactions with, for example, major shareholders and analysts, company representatives should ensure that when operating in a new communication medium, they do not inadvertently disclose material information selectively.
Companies wanting to increase their use of technology in shareholder communication also need to ensure that this does not privilege certain shareholder groups above others. If there is a shift towards greater use of hybrid annual general meetings, for example, companies should make a special effort to ensure that retail shareholders have the opportunity to have their voice heard.
Another key issue for companies to consider is the framing of and communication with shareholders about executive remuneration. Salaries and short- and long-term incentive structures which breach new social norms will attract increased scrutiny from the media, proxy advisers, and potentially widespread opprobrium from the broader community. This will particularly affect companies which have received taxpayer support. In this environment, again, companies will need to consider these sensitivities carefully and are likely to benefit from external advice before communicating these decisions.
Many companies may be considering raising additional capital, following the introduction of a temporary increase in the percentage of shares a company can issue in a placement. Companies will be judged on perceptions of how equitably share placements have been made among shareholder types. Companies therefore need to ensure that their communication discloses transparently the rationale behind the decision-making, and demonstrate that the company has assessed the implications for the different shareholder types to ensure that to the maximum extent possible they are being treated equally. This includes communicating that the capital raising has had thorough board oversight and consideration, and that the board and management have actively sought to balance the needs of existing shareholders with any strategic objective of bringing new owners onto the register.
By actively considering the social licence implications of their decision-making and communication, acting and communicating with integrity and transparency, and seeking expert external advice before communicating, companies can minimise the potential for long-lasting financial and reputational damage and strengthen their ability to emerge from the COVID-19 pandemic well-positioned for the future.
Phillip Gray (firstname.lastname@example.org) is an Account Director with Financial & Corporate Relations (FCR).