Listed companies have an obligation to be clear in their disclosures and fair

Saturday August 27, 2011

When and how to tell

A QUESTION OF BUSINESS
By P. GUNASEGARAN

Listed companies have an obligation to be clear in their disclosures and fair

Sometimes it is just better to keep quiet, if you do not have anything concrete to say yet, until you have formulated your action plan. Then you are in a position to explain to investors and the public how you intend to run your operation.

If you happen to be a listed company which is giving that explanation then you have other obligations to think about too. You cannot give material information to one group and not to another because that gives an advantage to one group.

Malaysian listed companies have been and continue to be seriously remiss about this very often despite the heavy responsibilities that they have under Bursa Malaysia listing requirements and under the law to ensure fair, timely and appropriate disclosure of information.

In the past, some very large Malaysian companies have come under fire for apparent disclosure of material information to selected brokerages and at selected meetings. Some have learnt their lesson and open their analyst briefings to the press and other interested parties.

Also, they put their slide and other presentations on their website the moment the briefing opens so that anyone anywhere can access this information at exactly the same time and have equal opportunity to analyse it.

Some companies are so serious about fair dissemination of information that they even broadcast their briefings live on the Internet. This is particularly so among some of the larger companies across the Causeway.

But in Malaysia, until today, the press is routinely barred from the analyst briefings of some large companies on all sorts of pretexts. One typical condescending “reason” advanced is that newsmen won't understand what's going on. That's not always true.

If a presentation is true, accurate and made with full explanation, some business reporters are fully capable of understanding them and coming to their own conclusions about them. The trouble arises when the company does not agree with what reporters, analysts and other commentators say about their operations.

But still, listed companies have the obligation to disclose relevant information and to disclose it fairly to all stakeholders.

Earlier this week the media was told by one airline that there would be a briefing for them over the release of its quarterly results. But later, there was another statement to say that the briefing was cancelled “due to unforeseen circumstances”. But there was an analysts' conference call though.

The media reported a day later what had transpired from these conference calls, some of which could be considered to be quite material. Also, some of the material disclosed appeared to be somewhat contradictory compared to what had transpired at an earlier press conference. It would have been a simple matter to include the press on the call or to just put the relevant information on the website. But that was not done.

Sometimes, it would seem, public listed companies are just unaware of their responsibilities. They could not only be flouting listing rules but may well be flouting the law as well.

Under Section 188 of the Capital Markets and Services Act, an insider (a person, such as a director, with material information) is prohibited from communicating such information to a third party who is likely to trade on it.

If analysts are given such information ahead of a general announcement of such information to everyone, that gives them an advantage over other sections of the public and provides an unfair advantage to him, his firm and its clients.

The punishment for such an offence is a prison term of up to 10 years and/or a fine of at least RM1mil. Still, companies continue to take this matter very lightly.

It is high time the authorities set clear, unambiguous standards for disclosure and enforced them. This is really not difficult to do and enforce. Below are 10 things they can be required to do almost immediately.

1. Have one briefing for all stakeholders, including analysts and journalists, and give them all one set of identical documents. That way everyone gets all the information simultaneously

2. At the same time as these documents are distributed have them available at the website so that those unable to attend can get the documents too.

3. Have a live webcast of the briefing and leave this on the website for anyone who wants to watch them. Set a deadline for companies to do this.

4. In the interim, require the company to post a transcript of the proceedings within 12 hours on the website.

5. At all Bursa Malaysia investor conferences, open company briefings to everyone who is interested.

6. Ask all companies to clearly identify publicly available information, distribute and display them, and update them regularly.

7. Tell companies and remind them that they are not supposed to disclose any further hard material facts to individuals and companies whether they represent funds or not.

8. Monitor all brokers' reports regularly and closely to ensure that insider information is not being disclosed to selected analysts and funds.

9. Monitor closely unusual market activities and take action when necessary.

10. Make sure that these measures are followed and come down hard on those who still will not follow.

Fair, timely and appropriate disclosure is a cornerstone of a healthy stock market. The sooner the authorities and listed companies take all reasonable measures to comply with this, the better it will be for the market.

Managing editor P Gunasegaram agrees it is better to be late than never.