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| The London Stock Exchange |
| Beginning Life as a UK-Listed Company |
Why effective financial communications is more than just good practice
In 2005 the London Stock Exchange attracted a record 139 companies, from 29 countries, to its Main Market and Alternative Investment Market (AIM). International companies raised a total of £6.7 billion in new issues - the highest value since the heady days of 2000. This year is already shaping up to be as strong, with companies from around the globe, in businesses as diverse as timber, copper mining, poultry farming, reality television and healthcare IT, all signalling their intentions to make the UK's stock markets their home.
An effective international marketing campaign by the London Stock Exchange has been one factor in this impressive growth. Cost has been another: some industry sources put the annual cost of Sarbanes-Oxley compliance at $2 million a year to US-listed companies.
Coupled with the perceived increased personal risk to management associated with that regulatory burden, this has contributed to the increasing number of non-UK companies turning from the US to London's capital markets as a natural place to start their lives as a public company.
But while the UK equity market's healthy appetite for international companies has shown no signs of waning, investors' tastes appear to be becoming more discerning. Some critics have recently warned that London could come to be seen as a haven for 'refugees' from tougher regulatory environments.
 | But while the UK equity market's healthy appetite for international companies has shown no signs of waning, investors' tastes appear to be becoming more discerning. |  |
This has already been somewhat validated by some high-profile collapses of newly-listed smaller companies and the underperformance of a number of AIM stocks listed within the last 12 months.
Along with the heightened competition for attention from growing numbers of potential new issues, would-be and newly public companies now also face far greater scrutiny from potential investors and market commentators.
There may still be demand for international companies, particularly from those in the much-hyped high-growth BRIC region - Brazil, Russia, India and China – but with a greater variety of issues on offer, the urgency to simply ‘invest in the region before it's too late' has dimmed substantially.
Regardless of sector or geography, investors and analysts still cite management credibility as one of the primary factors in their decision to invest in or issue positive research coverage on a company. For a young company, with a limited track record, investors are ultimately making a bet on the management team and a belief in its ability to execute to plan.
| Now, more than ever before, a management team needs to be able to communicate its investment proposition and build credibility in a consistent, compelling and effective manner to ensure a successful float and healthy aftermarket. | |
Now, more than ever before, a management team needs to be able to communicate its investment proposition and build credibility in a consistent, compelling and effective manner to ensure a successful float and healthy aftermarket.
For non-UK companies, the challenges can be even greater. In addition to potentially having to communicate in a language other than one's own - or through an interpreter - the cultural and social differences may also be obstacles that need to be mastered with the aid of a guide.
As an objective third party interacting daily with a would-be public company's key audiences, namely the City and the financial media, a company's financial communications agency is well positioned to provide vital counsel on appropriate investor and media messaging.
The agency can also coach the team on its presentation and prepare management for the inevitable tough questions that come on the road to a successful IPO, with the candour and objectivity that an internal advisor would be hard-pressed to replicate, and the bonus of insight from extensive City and media relationships to which other advisors may not have access.
In reality, despite the intense preparation and effort that goes into it, a successful listing only marks the start of the hard work - the 24/7 public scrutiny of management by a company's new followers and co-owners. Aside from the ever-present demands from the media and analysts, the rise and rise of activist shareholders has added another dimension to the pressures on the management teams of public companies.
A recent study by Cranfield School of Management in the UK indicated that the average tenure of chief executives has fallen by more than a third in the past two-and-a-half years. The study found one of the biggest problems facing top managers was unrealistic demands and objectives from investors: witness recent high-profile boardroom departures at SkyePharma, Scottish Power and Morgan Stanley, to name but a few.
This intense scrutiny of investors and analysts has led to some companies focusing on short-term goals, to their detriment. While a company's performance will ultimately drive shareholder sentiment over the longer-term, effective communications can have a tangible, positive impact on a company's valuation and therefore its cost of capital.
To create long-term shareholder value, companies must not only deliver superior corporate performance, but also actively develop and maintain corporate credibility through effective and honest communications with the investment community. The external perception of a company, the credibility of its management team and the perceived successful execution of its strategy are dictated by the manner in which it communicates.
The winners in the public markets are determined as much by a company's ability to deliver on market's expectations, as by absolute performance. For new public companies, financial communications has become more than just good practice - it is now at the very heart of delivering shareholder value.
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| Ian Bailey, managing director, Weber Shandwick | Square Mile, Financial Communications
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