Keynote address
YBhg Datin Zarinah Anwar
Deputy Chief Executive, Securities Commission

at the
Capital Market Workshop (Directors’ Series) –
Investor Relations and Shareholder Communications:
What Every Director Should Know

16 September 2002
Conference Hall, Securities Commission

Good morning, ladies and gentlemen,

Welcome to the Securities Commission (SC) and to this one-day programme on “Investor Relations and Shareholder Communications” jointly organised by the Securities Industry Development Centre (SIDC) and the Malaysian Institute of Corporate Governance (MICG).

Communicating good CG practices to investors
2. As investors increasingly view corporate governance as a key factor in their investment decisions, it follows that a company’s reputation for good corporate governance is just as important as its practice of good governance. By and large, a company’s reputation and image follows its good practices and its consistency which in-turn is translated into a cash equivalent and factored into its share price. Extending that logic, if you multiply that by the other players of the same market then you get a robust capital market with an exemplary market reputation.
APEC report on the inadequacy of full and timely disclosures

An APEC Report on Strengthening Corporate Governance in the APEC region released in 1999 and endorsed by the Finance Ministers of member economies highlighted amongst others that the ethics of full and timely disclosures, the cornerstone of modern capital market regulation, had yet to be fully entrenched in many Asian companies giving rise to the perception of a dichotomy between market ‘insiders’ and ‘outsiders’ within the investing community. Given that finding, it is my belief that is what is also lacking is an efficient and effective channel of communication between most companies and their shareholders to facilitate that “full and timely disclosures” identified in the report.

4. Shareholder communication is a purposeful periodic release of accurate and relevant stakeholder information that seeks not only to enhance the company’s relationship with its current shareholders, but also to reinforce market perception or appreciation of the company’s corporate governance practices. In other words, transparency in all matters pertinent to the company’s activities that allows shareholders and potential investors to benchmark its current performance against historical performance and equip them with information that will allow them the freedom to form opinions and make informed decisions about future prospects of the company.
SC’s stance on investor relations

From the SC’s perspective, good corporate governance which necessarily includes timely and adequate financial reporting and disclosure, as well as internationally accepted accounting and auditing standards continue to be critical components of our reform agenda as outlined in the Capital Market Masterplan. We remain convinced that these elements, including the timely disclosure of material information, are fundamental to the proper functioning of our capital markets. This includes the reputation of the Malaysian capital market vis-a-vis the rest of the world. Indeed, it is in the best interest of those who have been entrusted with the power and authority to manage companies to maintain an active and open dialogue with shareholders and investors by publicly articulating their strategies, business strengths, and growth opportunities though an effective investor relations strategy.

As we have experienced in Malaysia and have seen elsewhere, markets can exact brutal discipline on companies that do not observe high disclosure standards in relation to their financial and other relevant information. When this happens, those running the companies can expect to be held accountable for their action or inaction. Therefore, there can never be a more appropriate time than now for those who have not started to think about providing channels of communication between the company and their shareholders as well as to potential investors. The SC as the statutory regulator and the Kuala Lumpur Stock Exchange as the front-line regulator will of course, continue to monitor the compliance by public listed companies (PLCs) on all disclosure requirements.

6. That notwithstanding, I urge all PLCs to come to the realisation that the need for disclosure should not only be for the purpose of complying with regulatory requirements, but it is also to meet growing needs of investors seeking reliable information in their search for quality investments. I firmly believe that investors will respond and reward companies and indeed markets that strive to earn a reputation for good practices and good governance by the provision of accurate and timely disclosure to all its shareholders.
Rationale for establishing effective communication channels
7. Ladies and gentlemen, the disclosure of material information is a powerful incentive for influencing investor behaviour and attracting capital but the reverse is equally true. Thus while market discipline should impose incentives on companies to conduct their business in a sound and efficient manner, it follows that the market’s assessment of corporate performance would be reflected in the company’s share prices, bond spreads and credit ratings, and companies that fail the test may well find it difficult and expensive to raise new capital.
8. I have always believed that the intrinsic value of information comes from its sharing, and in this regard, the channels of information dissemination are just as important to me as the quality of its content. That means we must pay attention not only to the quality of information but also the efficiency and effectiveness of the information dissemination process. To me these are crucial factors for the well-functioning of any market whether large or small. One can say that efficient information dissemination is only now beginning to emerge as a fundamental component of shareholder communication and reputation management.
SC encourages self-discipline and continuous proactive disclosure

Ladies and gentlemen, disclosure is an essential element of good corporate governance. But as we all know, laws and regulations can only do so much to enhance corporate governance. At the end of the day, it is market participants themselves who must do their part to enhance their level of self-discipline, exercise due diligence, and observe the highest standards of governance.

The basic proposition that underlies good corporate conduct, ie fairness, accountability, and responsibility – represent inherent values that underpin all forms of good management. From the perspective of management philosophy therefore, good governance is a means to an end and not an end in itself. For firms, markets and economies alike, good governance provides a means for achieving long-term stability and sustainable growth.

Good corporate governance practices should be adopted with the ultimate objective of realising and maximising shareholder value. As we have seen over and over in the recent past, where self-discipline is lacking, the full rigours of market discipline will ensure that companies that have poor governance track records are appropriately punished.

So I wish to emphasise here that the nonchalant stance taken by management of some PLCs, that leaves minority shareholders in the lurch and potential investors in the dark about the future direction of its business will not be tolerated. The plain truth is that the absence of information is tantamount to an abdication of responsibility assigned to directors and this would surely pave the way for shareholders to vote with their feet and for regulators to take a closer look at the transactions undertaken by the company.

SC’s Capital Market Plan recommendation to set up investor relations units for effective information dissemination
10. Consistent with the recommendations of the Capital Market Masterplan, the SC would urge all PLCs to set up investor relations units dedicated to dealing specifically with requests and queries by shareholders and to attract potential investors. The SC also encourages the use of electronic media to provide accurate, reliable, timely, up to date and readily available information to investors on a continuous basis. We believe this would go a long way towards the provision of not only timely disclosures but also quality information. This suggestion is not to impose an undue burden on PLCs but should be considered as part of the overall effort to enhance corporate governance practices of the company.
Rising to international standards and best governance practices
11. Taking this a step further, the standards for information dissemination that you set for your company i.e, the clarity of its content and its timeliness, determines your company’s image and reputation both locally and globally. Companies have the freedom of choice on whether or not to meet the best global practices of the day. Hence if you wish to tap international capital, then you have to meet international standards. The international investor has a freedom of choice, they do not have to invest in a particular market if they are not confident about its level of transparency and accountability. If their perception of a market is not up to their expectation then rightly or wrongly they will simply exit that particular investment or market and take their funds elsewhere. With the benefit of hindsight, we know all too well, the impact the international investing community’s collective action can have on unprepared economies.
About this programme

Ladies and gentlemen, We have with us today, a line-up of distinguished speakers from Malaysia as well as from abroad. They are all subject matter experts with a great deal of experience and they are here with us today to share their knowledge with us. We will hear of their experiences, their professional opinions, unique perspectives, modalities and solutions.

13. I hope all of you will actively participate in the discussions and leave this seminar with deeper insights on investor relationship building. I believe that you will benefit from the opportunity to learn more about the importance of developing an effective investor relations programme that can strengthen your company’s image and reputation.
14. In closing, I wish to say that if our markets are to thrive and move forward we have to constantly re-look at our modalities and ensure that we not only inculcate and reflect the best global practices of checks and balances, of transparency and accountability, but that these efforts are correctly communicated to investors if we are to meet the challenges of global competitiveness.

Thank you.