After weathering the GFC-inspired lows in 2008 and 2009, investors have cheered the gains made by the S&P / ASX 200 index over the last nine months or so. Bank shareholders in particular are riding high, with both the Commonwealth Bank (ASX: CBA) and Westpac (ASX: WBC) hitting new all-time highs. Telstra (ASX: TLS) is again a favourite of retail income-seeking investors, and our supermarket giants Woolworths (ASX: WOW) and Wesfarmers (ASX: WES) are again market darlings. It would seem – at least from the outside – that all was again well with the world. While market gains are always…
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After weathering the GFC-inspired lows in 2008 and 2009, investors have cheered the gains made by the S&P / ASX 200 index over the last nine months or so.
Bank shareholders in particular are riding high, with both the Commonwealth Bank (ASX: CBA) and Westpac (ASX: WBC) hitting new all-time highs. Telstra (ASX: TLS) is again a favourite of retail income-seeking investors, and our supermarket giants Woolworths (ASX: WOW) and Wesfarmers (ASX: WES) are again market darlings.
It would seem – at least from the outside – that all was again well with the world.
While market gains are always welcome, it’s time that the majority of our listed companies treated shareholders with a little (and in some cases a lot) more respect. It almost seems an antiquated notion these days, but boards of directors and company management teams are employed by the owners of the company – its shareholders – to act in shareholders’ interests, and to be stewards of shareholders’ capital.
Give it to me straight
As shareholders, we are entitled to full, frank and fearless communication from our representatives – our employees. However, these groups often appear to be acting far more in their own interests than ours. Ask yourself this: when was the last time you read a company earnings release or annual report in which the company gave a full, warts and all assessment of the business’ operations, results and future risks and opportunities. Outside of Warren Buffett’s Berkshire Hathaway (NYSE: BRK-A, BRK-B), I can’t recall the last time I felt truly fully informed from one of those documents.
Instead, many are thinly veiled sales documents – ‘spinning’ results to cast management, the company, or both in the best possible light. If you owned a business outright, you’d expect management to tell you how that business was truly performing, the opportunities before it, and the potential risks. You’d want to know what was going well, what needed fixing, and how management was planning to run the business in the next twelve months and beyond.
Instead, we have selective quoting of certain performance metrics, the absence of less flattering ones, and the exclusion of so-called ‘one-off’ factors. None of these are – in and of themselves – problematic if used correctly and honestly, and when the goal is to ensure the company’s shareholders are fully informed. In the great majority of cases, however, that’s not the intent.
One in, all in
Another classic example of retail investors being treated poorly is companies conducting selective capital raisings. Companies are allowed to raise capital by selectively issuing new shares (subject to certain restrictions) as they see fit and to whom they see fit. In most cases, that means selling off some of the family jewels to specially chosen institutional clients, diluting the interests of retail shareholders in the process.
Rarely in these circumstances are retail investors given the same opportunity as was provided to those institutional shareholders, and simply have to accept the dilution. To invoke the overused pizza analogy, it’s as if management wandered up to your table, helped themselves to a small slice of your Hawaiian and sold it to another (preferred) customer.
Access to information
Lastly, it’s time that company conference calls were made open to the public. Restrictions put in place by ASIC have limited the information that companies can share selectively, instead requiring that these businesses inform all shareholders at the same time. It almost seems bizarre in hindsight that this wasn’t always the case.
However, ASIC – and good practice – haven’t yet gone far enough. It’s time that all company communications with analysts and brokers were made open to the public. It’s time that company conference calls – where analysts are given the opportunity to question management and management has the opportunity to clarify and explain – are opened to the full glare of retail investors.
Admittedly, in many cases retail investors couldn’t think of anything worse than sitting through thirty or sixty minutes of management-speak, but the opportunity must be provided to fully level the playing field.
Australia’s listed companies are not – and must not be allowed to be – a closed shop where those in the know receive an advantage. Retail investors are entitled to the same information, rights and opportunities as our institutional brethren, and all investors are entitled to be treated as owners of the business to whom complete and sometimes brutal honesty is afforded.
There are some wonderful businesses run by honest, competent and shareholder- friendly managers who are committed to treating shareholders properly as owners the company.
Finding them is simple. Next time a company issues an earnings announcement, read the first page. If on that page, you find the good and the bad, without selective quoting of certain figures, and written in a way that genuinely seeks to inform rather than ‘sell’, there’s a good chance you’ve found one of the rare, great management teams.
Unfortunately, such a discovery will be too infrequent – and it’s time for that change.
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The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Motley Fool investment analyst Scott Phillips owns shares in Telstra, Woolworths and Berkshire Hathaway.