The Disclosure Advisory Board -- a 15-person council of leaders in the corporate, regulatory, investor, reporting and academic communities that was organized by PR Newswire -- announced today its recommendations for incorporating non-tangible, "hidden assets" into investor communications to improve corporate disclosure and help enhance stock valuation.
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In a white paper titled, "Return to Strategy," published in conjunction with the National Investor Relations Institute's (NIRI) annual conference in San Diego, June 8-11, the Disclosure Advisory Board (DAB) calls for companies to provide greater transparency on assets that are not mandated by disclosure regulations but which contribute to the overall value of a company.
According to the DAB, the investment community has become increasingly focused on near-term financial metrics as the primary means for evaluating a company. Non-financial value drivers, such as presenting a clear corporate strategy and creating explicit links between research and development spend and new revenues, are difficult to categorize on a balance sheet and also require investors to take a longer-term outlook. However, it is these "hidden assets" that the DAB contends are essential for providing analysts and investors with sufficient detail for developing a fair valuation of a company.
"The Disclosure Advisory Board has identified a number of challenges faced by investor relations professionals in communicating adequately to the markets. These difficulties range from gaining internal access to sufficient data, to management concerns about disclosing detailed and forward looking information, to inadequate consistency of reporting," commented Mark Hynes, managing director of Investor Relations at PR Newswire and Chair of the Disclosure Advisory Board. "Unfortunately, the mandated disclosures from most companies do not allow analysts to apply fully a premium to their growth potential. As such, companies whose stock market valuations do not accurately capture their 'hidden assets' should widen their communications to account for important qualitative measures, including brand value, corporate strategy and R&D expenditure.
"As the investment community operates on an increasingly shorter-term horizon, investor relations officers (IRO) should expand disclosure to include items that do not fall under SEC requirements, but are vitally important to understanding the full corporate and investment story. By tapping into overlooked assets such as executive expertise or intellectual property, IROs have the opportunity to improve their company's valuation," Hynes continued.
In "Return to Strategy," the DAB offers practical suggestions on achieving consistency, using mandated disclosures positively, and communicating strategy and competitive advantage. According to the DAB, investor relations professionals should consider the following best practices when developing investor communications programs:
-- Communicate a company's long-range strategy by linking the value
created by investments in intangible assets to the overall performance
of the company. When appropriate, articulate potential risks and
mitigations that enable analysts and investors to measure success.
-- Ensure that one's communications strategy is delivered consistently
- both regularly and by all parts of the organization. Update the
strategy to reflect market conditions, and if changes occur, be
prepared to explain the situation. Ensure coherence between mandated
disclosure materials and corporate communications.
-- Understand that disclosure materials represent an important
communications opportunity. Rather than simply focusing on meeting
government mandated requirements, approach these communications as an
opportunity to paint the full corporate picture. The role of the IR
professional is central to this. Being part of the planning team
allows the company to communicate its growth strategy coherently and
consistently.
-- Be aware that while trading is changing, and technology is allowing
systems to arbitrage, a long term investment plan is driving these
trades. Influencing the direction of that plan remains a key task for
investor relations.
Jack Kelly, former co-head of the industrial research team at Goldman Sachs and a member of the Disclosure Advisory Board, commented, "Factors such as investment in employees, intellectual property or the development of new products can have a significant impact on future earnings. While these items may not fall under required financial disclosure regulations, they can be released at the company's discretion to provide a better picture of the true value of the company. By creating an overall strategic communications plan that incorporates tangible and intangible assets, companies can optimize their relationship with Wall Street and earn higher valuations.
"It is important in the execution of a broadened disclosure strategy to ensure that the investor relations officer is kept abreast of the overall business strategy. The better versed the IRO is in the overall company strategy, the better the IRO will communicate the corporate message," Kelly continued.
The complete "Return to Strategy" white paper can be found at http://response.prnewswire.com/whitepaper/strategy.
A webinar featuring Kelly, who spent 25 years at Goldman Sachs valuing diversified companies, and William A. Relyea, director of Investment Banking Research at Midtown Partners, and an expert on valuing technology start ups, is available at http://www.thedisclosureadvisoryboard.com/. To read Mark Hynes' blog, Transparency Matters, go to http://transparencymatters.blogspot.com/.
About the Disclosure Advisory Board
The Disclosure Advisory Board was brought together by PR Newswire in June 2006 to assess and comment upon the state of corporate disclosure and transparency. Comprised of 15 individuals with a combined 450 years of regulatory and compliance experience, the aim of the Board is to debate current disclosure and governance issues, and based on the discussions, propose "best practices" for improved financial and corporate reporting. The Disclosure Advisory Board believes that communication - disclosure and transparency - lies at the heart of winning back public consent.
Members of the panel are: John Bierbusse, corporate director and retired equity research analyst at A G Edwards; Janet L. Fisher, partner, Cleary Gottlieb Steen & Hamilton LLP; Valerie Haertel, VP/director of investor relations, Medco Health Solutions, Inc.; Jerry Hostetter, VP/director of public relations and investor relations, Smithfield Foods Inc.; Deborah Kelly, partner, Genesis Inc.; Mark Hynes, managing director of Global Investor Relations Services for PR Newswire; Jack L. Kelly, former co-head, industrial research team, Goldman Sachs; Mary Beth Kissane, president and founder, Corporate Perception Research; Sam Levenson, SVP Investor Relations, Sony Corporation of America; William A. Relyea, managing director, H.C. Wainwright & Co., Inc.; Diane Salucci, SVP, Bear Wagner Specialists LLC; Martin Shea, EVP, investor relations, CBS Corporation; Kurt Stocker, member of the board of directors of NYSE Regulation, Inc. and chairman of the New York Stock Exchange Individual Investors Advisory Committee; Anna Sussman, director, Investor Relations and Corporate Communications, Pharmion Corporation; Louis M. Thompson, Jr., partner, Genesis Inc., and managing director, Kalorama Partners, and former CEO, president and board member of the National Investor Relations Institute.
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