STREET TALKING: Disclosure by deep throat
It is a bad sign
when markets are led by rumour. For the prudent investor, simply
staying up to date with the array of overland information sources on
public companies can be a full-time job. To add subterranean and back
alley news filtering to that workload is an unwelcome prospect. Yet,
sometimes, it almost seems as if that is where we are. In the last two
months, I have received material information about two major companies,
which are yet to issue any official statement on the events long after
they surfaced in the public domain. While companies are within their
prerogative in declining to respond to rumours, that is a poor excuse
and unforgiveable disservice to the trust that shareholders place in
them for transparency. Evasiveness will not cut it.
The first piece of
news had to do with the departure of the chief executive of a leading
conglomerate, and the second with a case of massive fraud at a leading
bank. Both companies have been studiously silent on these events,
leaving investors to grope in the dark for the true situation. Such
deliberate disdain for disclosure inclines the hasty to believe the
rumours. Worse, it besmirches the reputation of the boards at these
companies as unaccountable, implicated, and haughty.
On March 8, 2010,
an acquaintance informed me that Nosike Agokei, the chief executive
officer of John Holt, one of the oldest companies on the Nigerian Stock
Exchange, who was only appointed to that position in August 2009, may
have resigned from the company in unclear circumstances. Still
unconfirmed are stories that Agokei resigned over the overbearing
interference of non-executive board members and the disfavourable terms
of partnership with its UK-based parent. Whatever the reasons for his
departure, if indeed it is true, the company ought to have made a
formal statement notifying the public of the change at the top and
which officer will fill that office till a substantive appointment is
made.
Malfunctional corporate communications
The company’s
failure to do so is indicative of malfunctional corporate
communications and governance mechanisms. Right now, the link to
Agokei’s profile page on the John Holt website,
http://www.jhplc.com/corporate/directors/board-nagokei.php, returns a
404 error page, while the Management Page at
http://www.jhplc.com/corporate/management.php is blank. Similarly,
Nosike Agokei’s name has been removed from
http://www.jhplc.com/corporate/main-board.php , which lists the names
of board directors. I am unwilling to believe that the erasures are due
to accidental deletions by the website administrator.
Five weeks later,
on April 13, 2010, I received a Google alert from Zenith Bank with the
title, ‘Board Room Crises Rocks Zenith Bank as Zenith Manager Defrauds
Bank of N4.5Billion.’ The link, which led to a story on the Sahara
Reports website, exposed a mind boggling fraud of several billions at
one of the bank’s Abuja branches. Five days after that email alert, a
national daily carried the headline ‘N7.4bn fraud rocks Zenith Bank’,
inflating the original sum by close to N3 billion.
Although both
reports say that the bank’s management has reported the matter to the
police, its refusal to issue a statement on the situation, no matter
how terse, has left room for speculation. Currently, customers and
investors are asking several questions about Zenith Bank’s internal
controls, branch supervision, and risk management. When did the bank
become aware? Was the fraud committed over a single transaction or over
a series? This crescendo will not die down so easily.
Agent-principal dissonance
Generally,
agent-principal dissonance is most pronounced in the sphere of
information. However, while developed jurisdictions have taken bold
steps to ensure that the asymmetry is flattened, Nigerian companies and
regulators continue to act like it is all good.
In fact, because
they have been kept in the dark for so long, investors do not even know
that they should hold companies responsible to update them on certain
types of information. Disclosure is not a favour. It is not at
companies’ discretion. It is not a ‘dash’. It is a duty and the mark of
responsibility.
Disclosure has real
world implications on the cost of a company’s capital and valuation.
Good disclosure practices benefit both companies and their investors,
while bad disclosure culture hurts both, leading investors to price
risk wrongly thus misallocating assets, and hamstringing companies from
accessing the funds they need at attractive rates to fund their
operations and growth. In the end, the market suffers and everyone is
worse off.
In the past year,
there has been a lot of auditioning about the need for greater
disclosure among companies. Sadly, it appears that while the regulators
and boards may have crammed the lyrics, they have not learnt the
melody. Even if both companies issue statements today, they would still
have fallen short because disclosure is nothing if it is not timely.
Peer exchanges like the London Stock Exchange recognise this need by
providing services like the Regulatory News Service (RNS) for prompt
dissemination.
Our rejoicing at
the first wave of disclosure that swept through the banking sector
should not blind us to the fact that transparency is not limited to
financial statement matters or toxic assets alone. Admittedly, while
the journey has started, it is ‘not yet uhuru’. We still have many
rivers to cross. Let us hope we can find our way home.
The writer is the managing director of a full service investor relations firm based in Lagos.
