Oran Hall | Why companies communicate with shareholders

Companies listed on the Jamaica Stock Exchange use several media – some direct, others general – to communicate with the shareholders who own them.

Shareholders benefit by knowing more about them and having a voice, while the companies become more visible, earn the trust of their owners and are challenged to be more relevant, accountable, and profitable.

Although the communication media vary, two or more of them may use similar approaches to the process of engaging with the owners of the companies. Commonly used media include shareholders’ meetings, the annual report and other periodic reports, investor briefings, websites and social media, and press releases.

The two means by which the directors of a company provide a comprehensive stewardship report of the affairs of a company are shareholders’ meeting and the annual report.

Companies generally have an annual general meeting that all shareholders have a right to attend. At this meeting, they elect the directors, appoint independent auditors, receive financial statements for the previous year, approve dividends and other distributions, and consider other important matters regarding the affairs of the company.

Annual general meetings have become very spirited and engaging affairs in Jamaica in the last three decades or so. Much of this has been due to shareholders interrogating the financial reports – distributed to them ahead of the meeting – and throwing testing questions at the directors about major decisions and plans as well as the performance of the companies. This is good because it puts the focus on accountability bearing in mind that the board of directors works on behalf of the shareholders and that the proverbial buck stops with them.

The meetings are also opportunities for the shareholders not only to see and hear the directors who attend the meetings, but to interact with them in some cases.

Beyond the annual meeting, special meetings may be called to deal with any matter that requires attention before the next annual meeting.

The annual report, which provides much of the financial data discussed at the general meeting, is distributed to all shareholders of a company. Digital copies have largely displaced hard copies. The report is a comprehensive review of the performance of the company and often provides comparative information for a period of up to 10 years.

The chairman of the board and the chief executive officer generally provide written statements in the report covering matters such as the economic and financial conditions in which the company operated in the year and material actions taken by the company. The future direction of the company and its prospects are often given.

Some reports give the make-up of board committees and the attendance of members, the shareholdings of directors and connected parties – highlighting accountability and transparency.

Some companies use investor briefings to share financial results with shareholders. Among the information generally presented are revenue, profit, and various financial ratios. The main objective of these briefings is to make shareholders aware of the performance of the company.

Companies communicate with their shareholders and the public through their websites, social media, and press releases through which they share information on significant events like new products and services, and mergers and acquisitions. They often use social media, their websites, as well as their annual reports to shine the light on corporate social responsibility initiatives.

General meetings are beneficial in several ways. They help to strengthen the bond between company and shareholders as they participate in decision-making, engage with the directors and other shareholders. Also, to the extent that the interactions with the directors are credible, shareholders develop trust in their companies and increase their loyalty to them when they see them as transparent and strong and are able to engage with them. The meetings also present opportunities for the directors to reduce misunderstandings and to manage shareholders’ expectations.

The publishing of quarterly financial reports, announcements of dividends and other distributions to shareholders, the announcement of board appointments and resignations as well as senior management changes through the Jamaica Stock Exchange – in keeping with the rules of the stock exchange - help shareholders to keep on top of significant developments directly affecting them.

Beyond these, company communication to shareholders – and the wider public, depending on the medium used – helps to raise awareness of the products and services of a company. This can translate to higher sales, higher profits, and higher stock prices, which generally put the company in a positive light in the eyes of the public. The interest that this can stimulate in a company can serve as a driver in helping it to raise new capital, such as in the case of an additional public offering.

At the end of the day, directors aim to present companies in the best possible light to shareholders and the general public. The benefits I mentioned previously, notwithstanding, it is important to examine carefully the information they present in whatever form.

_______

Oran A. Hall, author of Understanding Investments and principal author of The Handbook of Personal Financial Planning, offers personal financial planning advice and counsel.

_______

finviser.jm@gmail.com