Turning the regulatory burden into opportunity

Posted in Reporting on 24 October 2019 By Jenni Fulton, Managing Director and Head of Growth

As more and more governance regulations and reporting requirements hit companies, AIM listed companies could be forgiven for giving a resigned shrug.

The profile of corporate governance has risen inexorably in recent years. Driven in part by a series of infamous corporate failings and the resulting pressure from the public – and subsequently government and regulators – for companies to do better, regulation on firms of all shapes and sizes has been ramped up.

Since this time last year, under AIM Rule 26, AIM companies have had to follow and apply a ‘recognised corporate governance code’, publicly stating how they meet that code’s requirements on their website and explaining any divergence, should it exist.

While many AIM companies already voluntarily reported on their governance, the rule is symptomatic of the growing disclosure requirements being placed on alternative listing markets.

A back-breaking burden?

And there’s more to come – this year the delights of the Section 172 (1) statement, greater disclosure on employee engagement and the Streamline Energy and Reporting framework requirements all extend to AIM companies that hit certain size thresholds. Unsurprisingly I have yet to meet a company secretarial, finance or IR team rubbing their hands in glee at the prospect of yet more content to include in the annual report! 

Alongside this, following the introduction of MiFID II, the extent and quality of investor research and corporate access has arguably declined – almost half of those providing the research believe the quality has decreased since the implementation of MiFID II.

Although Tim Ward of the QCA stops short of laying the blame squarely at the door of MiFID II, he does concede that ‘Whatever the cause, we are seeing a decline in the availability of research with a consequent perceived impact on liquidity’.

This means the cost burden of accessing the capital markets is shifting more to companies and IR professionals, putting a responsibility on firms to take greater ownership of their communications and finding proactive ways to reach out to investors.

On top of all of this, the rise of ESG as a key stakeholder concern is changing how and what companies communicate. According to the Global Sustainable Investment Alliance, ESG-conscious investments stood at $30.7 trillion at the start of 2018, a 34% increase in two years.

The pressure is on companies to deliver value beyond shareholder returns, while not forgetting about that key metric. Described as the new triple bottom line – people, planet, profit – responsible business is now an expectation rather than an exception.

And these are just a few high-profile examples of the rising reporting and IR burden landing on top of AIM companies. Against this backdrop, is it any wonder reporting and communications is often seen as a cross to bear, rather than an opportunity to do something exciting?

Seize the opportunity

But to see all this as simply a regulatory burden, is surely missing a trick. Telling the company’s story has always been fundamental to good investor engagement. Although these requirements can feel like time-consuming box-ticking, ultimately they are about encouraging firms to do just that – tell their story.

Look beyond the immediate purpose of the disclosure, at how they can add value to the company more broadly. For example, clearly identifying and presenting core components such as the strategy and business model becomes hugely important post-MiFID II, helping to compensate for the research deficit, and there are some fantastic examples of how companies are developing innovative and interesting ways of doing this.

Multi-channel approach

Rich content and a large number of excellent creative assets are produced in the reporting process and repurposing them across different channels can maximise the value of the necessary work that went into them.

Creating a unified suite of communications across different channels, including social media and the website (beyond just the AIM Rule 26 notice), which not only successfully capture the voice of the company but is accessible to all stakeholders, will deliver results. Multimedia such as video can be powerful, while for intricate business models or organisational structures, creative animation can simplify the message and guide audiences through any complexities.

The focus on ESG – and other non-financial aspects such as culture and purpose – plays a part here, with companies looking at ways to get their sustainability and social responsibility narrative across. A materiality assessment is a useful first step here and will help you identify which sustainability issues are most relevant to the company, important to its stakeholders, and central to operational longevity and success.

Your stakeholders want to know how you are addressing environmental, social and governance concerns. Investors see this as integral to the future sustainability of the company’s success, while employees and potential employees want to know what kind of company they will be working for; whether they share their concerns and are they trying to do more than just make a profit for shareholders.

Extracting maximum value from the process

The investor relations world never stands still. The driving forces will be continually shifting and stakeholders will look to companies for greater disclosure on existing and emerging areas alike.

So don’t fall into the trap of simply ticking the box. Rather than looking at it as just a ‘must-do’, ask how you can maximise the full potential from regulation – engaging investors and wider stakeholders and telling your story.

 

If you have any questions or would like to get in touch, please contact Jenni Fulton at [email protected].

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