Disclosure keeps the capital markets healthy – and we need more of it, not less
Published - 29 April, 2022
By David McKenna – Chief Operations Officer of Ince Pty Ltd
Despite our innumerable economic challenges – from rising inequality, poverty and unemployment – South Africa is still regarded as the most advanced, diversified and productive economy in Africa. One reason for this is our open, and deep (relative to our continental peers) capital markets, which provide the much-needed capital that helps to fund new businesses and grow existing ones – helping to stimulate our economy.
The one often forgotten aspect is that the money that fuels our capital markets is not impersonal. This is money that belongs to ordinary people who, through their savings, pensions and investments, entrust financial institutions to invest on their behalf. This places an important responsibility for market participants to operate with the principle of openness fundamentally in mind.
Openness is the backbone of efficient capital markets
The JSE sets clear rules on how price-sensitive – or market-moving – information must be released to all in the market at the same time, usually through an announcement on the exchange. From time to time, companies come under fire for disclosure missteps: sharing information with a select group of participants (rather than everyone) or not sharing enough information at the right time.
All of this points to the principle of openness as the golden standard. Openness – about operational and financial data, challenges and prospects – provides any company’s stakeholders with the comfort that their interests are safeguarded, and that the company is being run with the highest corporate governance standards in mind.
Simply put: our capital markets cannot function without a spirit of openness, which is so essential to building trust. This is a key ingredient that determines whether a retail investor buys or sells a share, or whether an institutional investor takes a position on behalf of their clients. Openness facilitates fair market activity: the more open a company is about making the necessary disclosures, the better the outcomes are for the broader market.
Market disclosure should therefore not be seen as a burdensome exercise, but rather, as a tool for listed companies or issuers to build greater trust and affinity with their stakeholders. The current trend of delistings on the JSE – and the overall slow listings environment – create an even more need for companies to demonstrate this spirit of openness now more than ever. There is a risk that as more companies delist, and fewer list on the JSE, public disclosure will become the preserve of only a handful of large companies and issuers. This is a risk that we cannot afford. Promoting disclosure as a public good that benefits all, rather than a nice to have, is imperative.
In this regard, it is important to also note that the need for adequate and useful disclosure is increasingly a business requirement for all types of issuers – be they private or public companies, or state-owned enterprises.
Smart technology can help build better disclosure
The rise of ESG, with a sharp focus on the metrics that prove the demonstrable impact that companies make to society and the environment more broadly, means that almost every business or organisation needs to consider how they communicate and disclose to their stakeholders.
In considering what we can collectively do to foster greater and more effective disclosure for the benefit of our markets, the role of smart technology cannot be underestimated. Over the years, we have witnessed numerous technological evolutions that have enabled companies to almost instantaneously share information with their stakeholders. Much of this technology is readily available, and used at varying levels, but the challenge is how to integrate these tools better.
The bulk of market communication — from public announcements on proposed transactions, release of annual financial reports or cautionary statements — are typically dense. In an information rich environment, an opportunity exists to use and integrate video, motion graphics and other tools to make market communication more dynamic and digestible. Thinking about how to better integrate tools, coupled with smart use of data and technology, provides us with an opportunity to promote better and useful disclosure in our capital markets. This is a task that each of us with an interest in building strong and open financial system cannot shirk.
David McKenna is Chief Operations Officer at Ince Pty Ltd. Ince is a investor marketing, digital and stakeholder advisory company helping clients — private and public issuers — connect better with stakeholders.