There's something very unhealthy about the degree to which some of our pollies and journos interact with each other.
They need each other, and use each other for their own purposes. The pollies to stay in power, and the journos for access and exclusives.
Can a journo on the political beat really afford to be offside with the people they cover? Maybe one of the two parties, if you're a partisan commentator, but certainly not both.
The pressure on daily filing of stories makes it so.
Am I really writing a Monday morning piece on politics? No.
But I'm using it as a parallel to highlight a potentially similar phenomenon for investors: the rise of 'investor relations'.
See, if there's a competition for euphemisms, 'investor relations' won't win, but it'll probably get a spot on the podium.
You only have to peruse August's earnings releases to see it in action: investor presentations full of selectively chosen numbers, tables and charts, press releases highlighting the good stuff and burying the bad, and CEOs prepped to within an inch of their lives to make sure they get the 'talking points' out.
Now, ask yourself: if you owned one of these companies, outright, how would you feel about your CEO giving you selected highlights and only telling you what she wants you to hear?
Frankly, I'd sack that CEO, and so would you.
But, somehow, public company CEOs and Boards are happy to go along with (and use our money for!) these dog and pony shows.
Yes, your and my returns are lower because our companies are paying people to spin corporate communications that are sent to… us!
It truly is as dystopian as it sounds.
So why do they do it?
Frankly, two reasons:
First, they want to look good, smart and successful. So they can keep their jobs, and so their results look better to the outside world, probably for reasons of ego and their next gig.
Second, because many people who own those companies' shares just want the share price to go up, soon, so they look smart and clever. Fund managers with short-term growth incentives. Shareholders who think they're long-term investors, but really just want the shares to go up, and now.
How much has any of that got to do with actual value creation?
None of it.
Worse, companies spend time and money on the circus act – time that could be otherwise spent on improving the actual business, and money that would otherwise be available to fund that improvement, or returned to shareholders.
As I said, dystopian.
When was the last time you noticed a company actually trying to help you understand the business, rather than just magnifying the highlights and minimising the lowlights?
And it's a measure of how ubiquitous this sort of stuff is that we don't notice, and most of us have stopped even talking about it. We just shrug and think 'well, that's just how it is'.
Which… is not okay.
It's yet another example of the boiling frog. Slowly, ever so slowly, we accept changes because we hardly notice them.
And yet, if we gave a copy of last month's earnings release from a random ASX company to an investor in 1990, they'd be shocked at the amount of spin it contained.
It's bad enough that we have spin in politics and marketing. But at least we're not paying (directly, at least) for that spin. But when our own companies are spinning like that – to their very owners – it's surely gone too far.
The gold standard? Unsurprisingly, it's Warren Buffett's Berkshire Hathaway (I own shares, for the record). At the top of each quarterly press release are the words:
"However, we urge investors and reporters to read our 10-Q, which has been posted at www.berkshirehathaway.com. The limited information that follows in this press release is not adequate for making an informed investment judgment." [original author's emphasis].
Then, a couple of paragraphs later, in both bold and italics:
"The amount of investment gains (losses) in any given quarter is usually meaningless and delivers figures for net earnings per share that can be extremely misleading to investors who have little or no knowledge of accounting rules."
Can you remember the last time you read either sentiment in any ASX company's press release?
They usually let themselves be credited for the gains, and blame anyone and everyone else for the bad stuff.
And Berkshire always presents the information in the same way. No selective reporting of different figures each time, based on what's going to tell the best story.
So, what should investors expect from the companies in which they own shares?
Maybe we can start with honesty. Then add candour. Consistency of metrics and layout would be nice.
Or, as Buffett puts it in his letters to shareholders, the words of which change each year, but not the sentiment:
"Berkshire has more than three million shareholder accounts. I am charged with writing a letter every year that will be useful to this diverse and ever-changing group of owners, many of whom wish to learn more about their investment."
This year, he went on to talk about the person he visualises when he writes his letter, and settled on his sister, Bertie. He ends the introductory section with a simple rhetorical question:
"So, what would interest Bertie this year?"
Not 'What would make the share price go up in the short term?'.
Not 'What do the professional analysts want to know so they can update their spreadsheet models?'
Not 'What makes me look best?'
And not 'What do my highly paid investor relations people think will have the most positive impact on investor sentiment?'
At their best, investor relations professionals can help investors – experienced and rookie alike – understand the company better, by answering questions and sharing illuminating information.
At worst, they make political operatives look like rank amateurs, with their ability to spin and 'message' company announcements.
So, consider yourselves warned.
And, when you find a company that values honesty and candour above all, don't take it for granted… and value it very highly, indeed.
Fool on!
