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TIME TO COME CLEAN
We’ve complained countless times in this column
about the reluctance of government sources to provide even basic
information to journalists. Given the snail’s pace of bureaucratic
opening, we’re sure to return again and again to the topic.
But for once we’re giving the officials a break, because in
all fairness they’ve prov-en in several instances to be at
least as open as their private sector counterparts – and sometimes
more. It’s a scary thought – less transparent than the
Egyptian government – but often true, even for some of the
country’s most exemplary corporates.
The symptoms are standard by now. Overly centralized organizations
require a top-management approval for the release of even basic
information. Other organiz-ations lack sufficiently independent
press and investor relations functions. And still others insist
that any information released be reviewed prior to publication.
To a degree, these shortcomings are un-derstandable. Unlike the
government, businesses here have little history of being accountable
to outsiders – with the exception of when they are borrowing
money. And in an information-poor environment, leading companies
rightly fear that disclosures will benefit their competitors. Fin-ally,
companies that have become much more sophisticated in building brand
names and corporate images are loathe to let off-message information
reach the public.
But considering that the Public Enter-prise Office will read you
a state-owned company’s financials over the telephone and the
Ministry of Economy will run on at length about any of a dozen subjects
without ever asking to see what you plan to print, the hesitance
of many businesses to open up to the press seems misplaced.
In an environment where private companies stay private, this lack
of openness is primarily an annoyance to journalists. But when private
companies start issuing shares, the consequences become more widespread.
When management becomes isolated from shareholders, prices fall.
Commercial International Bank’s experiences this year bear
out the point. When the bank reported that its earnings had contracted
in the first quarter and the first half as a result of an unexpected
surge in provisions, its share price tanked. And when the bank tried
to push through an employee rights issue that shareholders didn’t
want, share prices fell again.
The bank has recently started to reach back out to investors, and
its share price has turned around. But better dialogue at an earlier
stage would surely have limited the damage. Shareholders might sell
stock because they don’t like decisions a company is making,
but they’ll sell it faster if a company’s behavior is
unpredictable.
Essentially, publicly traded companies need to realize that when
they accepted all that easy cash in their initial public offerings,
they gave up a measure of control. Shareholders are owners, and
they have a right to have access to information that might affect
their decision to remain so. Financial journalists have a claim
on this information as well, considering their ability to reach
large numbers of existing and potential shareholders, many of whom
don’t have the time to seek out such information themselves.
Fortunately for the advocates of openness, the benefits of transparency
run both ways. Business owners and managers in the West have become
fantastically rich on stock options as companies focused on delivering
value to shareholders have driven share prices through the roof.
In Egypt’s often opaque environment, companies that do a good
job of keeping in-vestors informed have a clear advantage in attracting
capital. Keeping investors in the dark, meanwhile, clearly has its
costs.
“Little or no information implies high risk for investors,”
said Keith Harris, chief executive of HSBC Investment Bank, in September.
Private businessmen love to cheerlead transparency and reform. But
don’t kid us. If you believe it, practice it. Otherwise, your
pronouncements will produce more cynicism than results.
Andrew DowelL
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