Anil Dilawri » Corporate Governance Taking Investor Relations to the Next Level Fri, 24 Sep 2010 12:25:24 +0000 en hourly 1 How Sick is the CEO? Mon, 22 Jun 2009 19:38:32 +0000 Anil Dilawri Shareholders want to know everything.

The inner workings of the income statement, the line-item details of the balance sheet, the next stage in the product cycle, and the intricate moves of the competition….they want to know it all.

They even want to know the details of the physical health of the CEO. This morning it was reported that Steve Jobs, soon to return as CEO of Apple after a 6 month leave of absence, had a liver transplant a few months ago. A debate is now going on as to whether the Board of Directors should officially disclose the severity of Jobs’ medical condition upon his return.

Should a company have to disclose this level of detail? Disclosure is more of an art than a science. To effectively answer the question you need to ask – “How important is the CEO to the current and future prospects of the company?”

In this case, many would argue that Jobs is important enough to disclose the specifics of his personal medical problems.

It doesn’t stop at a manager’s health either. I have personally witnessed institutional shareholders ask a CEO what kind of car he drives and what part of town he lives in.

Should we be surprised? I don’t think so. A CEO and senior management team is often thought of as the key elements of success or significant points of failure in a company. When you are CEO of a publicly traded company, investors will want to get personal.

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The Insanity of it All Tue, 23 Sep 2008 15:49:00 +0000 Anil Dilawri Not much has happened in the financial markets over the past 10 days (he said sarcastically):

- Lehman Brothers, the 158 year old investment banking powerhouse, filed for bankruptcy protection.  It is the largest bankruptcy in US history.

- Bank of America acquired Merrill Lynch, thus removing another major investment bank from the scene.

- AIG, one of the world’s largest insurance companies, announces that it is looking to raise $20 billion (with a B) in capital and sell $20 billion in assets to help its liquidity situation.

- Upon failure to raise capital and sell assets, AIG asks the Federal Reserve for financial assistance to meet its liquidity obligations.

- The Federal Reserve bails out AIG to the tune of $85 billion (with a B) in capital.

- Washington Mutual, one of the largest savings and loan companies in the US, puts itself up for sale.

- The US government announces a $700 billion bailout package to help stabilize the US financial system.  Rumors are that the bailout may eventually go higher than $1 trillion (with a T).

- The Chinese Sovereign Wealth Fund is asked to invest in Morgan Stanley.  The Chinese take a pass on the “opportunity”.

- Mitsubishi Financial Bank, Japan’s largest bank, buys a 20% stake in Morgan Stanley.

- Goldman Sachs and Morgan Stanley announce that they will exit the traditional investment banking business and become bank holding companies.

These are significant and “once in a lifetime” events.  While the actions of the US government may have temporarily stabilized the situation, the tickle down effect on people and companies will likely last for months (and perhaps years).  Fasten your seatbelts!

Over the next couple of weeks I will be writing about the impact of the financial crisis on the investor relations functions for publicly traded companies.

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Do CEOs Get Paid Too Much? Fri, 11 Apr 2008 19:20:00 +0000 Anil Dilawri Barack Obama announced today that he wants shareholders to be heard when it comes to executive Stack_of_money_3compensation.

During periods of economic turmoil and downward moving stock prices we always see executive compensation come to the forefront as a topic.

When a company’s stock goes up, nobody complains about executive compensation.  When a stock goes down, everything is up for scrutiny (executive compensation, company strategy, financial discipline, product/service offering, etc.).

So, is it fair to pick on the CEO and the size of his/her compensation package during tough times?  Perhaps the better question is – who decides the CEO’s compensation? 

The answer is clearly the Board of Directors.  In my opinion there are two levels of accountability when it comes to executive compensation:
1) The CEO – being a CEO is high risk, high reward proposition.  If you do well, you do very well.  If you do poorly, you’re out (few questions asked).
2) The Board of Directors (more specifically the Compensation Committee) – it is the Board’s responsibility to represent the shareholders, ensure that a CEO is held accountable, and ensure that a CEO is compensated appropriately.

As opposed to getting all shareholders involved in a debate on executive compensation let’s look towards the Board of Directors to be more accountable in managing the CEO.

After all, if shareholders don’t like the job that the Board is doing, the mechanisms are already in place to vote them out.

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Does the SEC Go Too Far? Fri, 14 Dec 2007 13:08:00 +0000 Anil Dilawri In case anyone hasn’t noticed, more and more North American companies are choosing toGavel go abroad to raise capital via an IPO (initial public offering).


It’s clearly due to the burden of the strict regulatory environment in North America.
Put simply, Sarbanes Oxley is driving companies abroad to raise capital.

And how can you blame them when even the “good guys” get hit by the regulatory bug….and hit hard.

Exhibit A: Cognos Inc.

In May of 2006 the SEC (Securities and Exchange Commission) announced a “Staff Review” of Cognos’ revenue allocation practices.  When the company broke the news the stock was hit by a sledge hammer.  A 13% decline in stock price!  When the SEC announced the conclusion of the Staff Review on July 20, 2006 and Cognos’ revenue allocation practices were given the thumbs up, guess what happened to the stock price?  Nothing!  It barley moved, never mind recovering the 13% it had lost months before.

So much for an efficient market!

Has the SEC gone too far with its regulatory power?
The more appropriate question is probably – does the market appropriately react to the SEC’s actions?  Newly listed companies are certainly casting their votes by choosing to go abroad and leaving the headaches of over-regulation to their US listed peers.

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To Guide or Not to Guide Tue, 23 Oct 2007 15:22:00 +0000 Anil Dilawri Guidance_2

The offering of financial guidance by publicly traded companies has become a hotly debated topic.

Some companies offer quarterly financial guidance on revenue, earnings, and other meaningful financial metrics. Other companies offer no financial guidance at all. Most fall somewhere in between.

So who has it right?

That’s an easy question with no easy answer.

For many companies that do provide financial guidance, be it quarterly figures or annual figures, the pros and cons are evident. The most notable advantage is that guidance gives a group of covering financial analysts and investors some sense of where their respective financial models should be for a given quarter or year. The most notable disadvantage is that the company has publicly stated a goal that it is now obligated to meet (despite what is said in a forward-looking statement or safe harbor disclaimer).

So what is a company to do?  Should they guide or not guide?

The reason why so many companies differ on their opinion is because each company and industry is so different. Some have very steady revenue streams with high quality visibility into the future. Others have lumpy revenue streams and virtually no future visibility. Some have stable expense lines while others need to remain flexible with expenses to capitalize on certain opportunities. Some businesses are quite seasonal, others are not. The list of differences goes on and on.

When Google went public they stated that they would not provide financial guidance because they felt it focused too much on the near-term and, as a company, they were more focused on the long-term. I believe this was code for “given how young this company is and how insane the potential growth opportunities are, we have no idea on the extent to which we will grow, nor do we have a good idea of how much we will need to invest in the near or long term, so we won’t be providing guidance”.

In the end, it really comes down to how comfortable management is with their visibility into future business and how comfortable they are with predicting their company’s success rate going forward.  After all, if offering guidance is too much of a guessing game for management, then are they really doing themselves or shareholders any favors by offering it?

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Blog Action Day – Investor Relations Mon, 15 Oct 2007 19:08:00 +0000 Anil Dilawri

Today is Blog Action Day – a day when bloggers throughout the world blog about the environment.Blogaction_2

Who knew?

Blogging about the environment from an investor relations perspective isn’t simple, but there are aspects we can touch on. So here I go.

Something that has increased in popularity over the years is socially responsible funds, otherwise known as environmental funds or green funds. These are mutual funds that, based on various criteria, have a mandate to invest in socially responsible companies with a good environmental record. An example of such a fund is the Winslow Green Growth Fund.

TD Asset Management recently signed on to license the Dow Jones Sustainability Index (DJSI) to assist with research of companies that receive two thumbs up for corporate sustainability.  The DJSI is a good way for environmentally and socially responsible companies to get on the radar screen of environmental funds.

Now, is the market close to seeing large portfolio managers and analysts drive their buying decisions and recommendations based on a company’s environmental record?  In my opinion, not even close. One only needs to look as far as the components of the Dow 30 to see that the most significant elements of North America’s investment dollars are not exactly the picture of environmental perfection.

Having said this, the investment community is getting better and the emergence and growth of environmental funds is certainly giving discriminating investors an option.

Happy Blog Action Day!

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Shhhhh – It’s Quiet Period Fri, 28 Sep 2007 17:46:00 +0000 Anil Dilawri Prior to IPOs and any financial results announcement companies go through what is usually called a “quietQuiet period”.  Quiet periods are designed so that members of company management don’t engage in what is called selective and unfair disclosure.  Selective and unfair disclosure is a fancy term for management spilling the beans about important company information before the general public is aware of that information.  The most famous and recent case of a quiet period misstep was Google’s interview with Playboy ahead of their 2004 IPO.

The problem that I have seen with quiet periods over the years is that there are no standards.  I know of companies who have a 3 or 4 day quiet period before a quarterly earnings call, and others who have a 3 week quiet period.  Some companies are willing to communicate with the investment community about certain areas of the business during a quiet period while others go completely dark.

Don’t get me wrong, I fully appreciate the fact that every company and every sector is different and that these differences need to be taken into consideration when setting quiet periods.  I also appreciate that more regulation in the public markets is the last thing anyone needs.  However, what I think would be useful for public companies and investors are some formal guidelines on quiet periods.  It can only help in the quest for truly fair disclosure.

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The Hunt for Insider Trading Wed, 19 Sep 2007 18:54:00 +0000 Anil Dilawri Is good corporate governance just a bunch of hype?Big_brother_2
Are regulators serious about cracking down on those who don’t follow the rules?

Apparently the SEC is.

Since April 2006, the United States Securities and Exchange Commission (SEC) has filed insider trading-related lawsuits against more than a dozen investment bankers, analysts and executives.  That’s more than during all of the 1990s.

With the wild M&A activity this past summer one has to wonder if a dozen lawsuits will pale in comparison to what the SEC comes up with over the next 12 months.  After all, mergers and acquisitions are prime breeding grounds for insider trading activity.

The SEC is certainly keeping a close eye on things.  Are regulators in Canada, Australia, and Europe following suit?

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Every “I” Dotted, Every “T” Crossed Fri, 03 Aug 2007 16:29:00 +0000 Anil Dilawri This week I had the pleasure of spending some time with two senior executives of CNW GroupCalendar, a major Canadian news and information publication company.  The CEO, Tom Enright, made an interesting observation about this year’s Q2 financial reporting season.  Apparently companies are taking longer to report their financial results following the end of a quarter.  In 2005, 290 Canadian companies had reported results by August 2nd.  In 2006 that number was down to 263 and in 2007 the number was down again to 256.

The major reasons given for the extra time to report earnings were the added regulations in today’s Sarbanes Oxley obsessed world, the implementation of disclosure control processes within companies, and the ever-looming risk of civil liability legislation that makes management accountable.

While the short-term focus of many institutional investors continues to drive companies to report quickly, it is nice to see that companies are taking the time to ensure that every “I” is dotted, every “T” is crossed, and that the rules are followed.

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Should CEOs Blog? Tue, 31 Jul 2007 17:54:00 +0000 Anil Dilawri Man_typing_2I was asked recently to comment on the topic of CEOs having blogs and the implications on disclosure and investor relations.  In short, I think blogging is a great way for the head of a company to communicate with a variety of key stakeholders (customers, suppliers, employees, shareholders), as long as the CEO is smart from a disclosure perspective. Those CEOs who do blog likely go through an extensive legal review before posts are made public (or at least I hope they go through a legal review).

A more important question is – should any/all CEOs blog?  My quick answer to that is NO!

Jonathan Schwartz, CEO at Sun Microsystems, is probably the most popular and high profile CEO with a blog.  He writes well, he posts fairly often, and he “gets it”.  However, not every CEO is like Jonathan Schwartz.

In my view, many CEOs would have two key factors working against them when thinking of firing up a blog. 1) They are often too busy to regularly contribute to a blog.  2) Not all CEOs are good writers.  In some cases, they may even be poor writers….there’s a reason why a lot of CEOs don’t write their own speeches, presentations, etc. 

Point number 2 is critical when thinking of investor relations.  Investors and analysts have high expectations of CEOs.  They watch a CEOs every move, in some cases literally.  A mediocre blog from a CEO can certainly do more harm than good from an IR standpoint.

So, in the end, not only does fair and timely disclosure need to be considered when a CEO decides to blog but good, insightful, and well written content is paramount….after all, it’s guaranteed that financial analysts will scrutinize every word.

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