For example, given the way in which the funds my team manages at MFC Global are constructed, we consider it significant if we beat the stock market by 20 basis points or so on a particular day. In contrast, a 20-basis point swing for my small-cap counterpart is considered typical. But get a load of this: there was a day in July when we beat the stock market by well over 100 basis points – most likely my best day ever as a portfolio manager – and then, in the very same week, underperformed by well over 100 basis points on another day. Can you imagine having your best day ever and your worse day ever in the same week? The word volatile just doesn’t seem to capture the experience.

In the current economic climate, where the terms ‘credit crunch’ and ‘illiquid markets’ are discussed daily in national newspapers, companies have good reason to reconsider whether their financial reporting is sufficient. Analysts and investors will be poring over your company’s next financial statements and Management’s Discussion and Analysis (MD&A); looking for evidence of how the company is managing through the present market conditions.

Any web search for “business implications of climate change” will bring up hundreds if not thousands of articles, reports, studies and surveys on the topic. Recently introduced guidelines, laws, accords, mandates and commitments aimed at reducing our negative impact on the environment is a major business issue in Canada and around the world. As an investor relations professional, you must be prepared to address this increasing focus on environmental risk and ensure that investors understand the potential effects of your business on the environment and the impact of environmental regulation on your business.

What Investors Want to Know
In a February 13, 2008 news release, the Canada Pension Plan (CPP) Investment Board encouraged Canada’s largest companies to disclose more information on the business risks and opportunities they face as a result of climate change. The CPP Investment Board reported that it is one of 385 institutional investors around the world representing a total of US$57 trillion in assets under management that supports the Carbon Disclosure Project (CDP). The CDP is an independent not-for-profit organization aimed at creating “a lasting relationship between shareholders and corporations regarding the implications for shareholder value and commercial operations presented by climate change. Its goal is to facilitate a dialogue, supported by quality information, from which a rational response to climate change will emerge.”

When Montreal-based CGI Group announced a restructuring in 2006, communicating the news posed a translation headache on an epic scale. “In English,” says Lorne Gorber, Vice-President, Global Communications and IR for CGI, “restructuring means we’re tightening our belts and taking measures to improve things. But when you use the French equivalent−restructuration−it means you’re practically preparing for Chapter 11.”

Therein lies the challenge of translating disclosure documents that many investors will pore over, trying to read between the lines and obtain clues about future performance. Often, says Gorber, a literal translation doesn’t capture the nuances of what’s afoot because words like restructuring carry so much emotional baggage. In the end, CGI abandoned the English word “restructuring” altogether, describing what was occurring as “a competitive position strengthening program,” recalls Gorber.

I’ve been working in this business for almost 30 years now. On many occasions I have observed situations that reaffirm my long-held view: institutional investing should, like jumbo shrimp, be considered an oxymoron. Determining value, reading market fluctuations and acknowledging the conundrums of perception are just a few themes that come to mind.

One obvious example is phone calls from institutional salespeople who work for brokerage firms. These are the people who call every day to share the pearls of wisdom their associates have developed about stocks, bonds, interest rates, earnings forecasts, commodity price forecasts – you get the picture. What is most interesting is that there is a distinct relationship between the direction of the stock market and the volume of calls from these people. As the market rises, so does the number of calls. As the market falls, the call volume shrinks. Shouldn’t it be the other way around?

CSA staff provided guidance on May 9, 2008 regarding the disclosures expected from issuers intending to adopt IFRS before, on, or after January 1, 2011. This guidance applies to disclosure “relating to each financial reporting period in the three years before the first year that the issuer prepares financial statements in accordance with IFRS.” For public companies in Canada, the disclosure will begin as early as the second quarter 2008 MD&A (for companies with developed IFRS changeover plans), and no later than the annual 2008 MD&A. Management and IROs need to focus carefully on the guidance received from the CSA, the expected disclosures, and how best to communicate the change in accounting standards.

IFRS Changeover – a Significant Undertaking
The Staff Notice underscores the significance of the changeover to IFRS. It says that “…changing from current Canadian GAAP to IFRS will be a significant undertaking that may materially affect an issuer’s reported financial position and results of operations. It may also affect certain business functions. Investors and other market participants will need timely and meaningful information about these matters during the reporting periods leading up to an issuer’s changeover to IFRS.”

The CSA notes that since adopting IFRS is a change due to new accounting standards, it falls within the scope of current MD&A form requirements for annual and interim MD&A filed in compliance with National Instrument 51-102, Continuous Disclosure Obligations, as well as MD&A included in a prospectus.

The CSA encourages companies to consider whether any additional disclosure beyond MD&A could inform investors about how a company might be affected by the changeover to IFRS – and if other securities legislation requires the issuer to disclose specific information about the broader implications of its changeover to IFRS.

Incremental Approach To Disclosure
A company’s ability to provide information will naturally increase over time as it rolls out its IFRS implementation plan. The CSA therefore outlines an incremental approach to disclosure. The level of detail and the amount of quantified information increase as a company moves closer to its changeover date.

Key elements of a changeover plan may address, for example, the impact of IFRS on:

• accounting policies, including choices among policies permitted under IFRS, and implementation decisions such as whether or not certain changes will be applied on a retrospective or a prospective basis;
• information technology and data systems;
• internal controls over financial reporting;
• disclosure controls and procedures, including investor relations and external communications plans;
• sufficiency of financial reporting expertise, including training requirements;
• business activities that may be influenced by GAAP measures, such as foreign currency, hedging, debt covenants, capital requirements and compensation arrangements. Following is a summary of the expected annual and interim MD&A disclosures in the years leading up to changeover.

2008 Interim MD&A

• If the company has developed an IFRS changeover plan, discuss key elements and timing.
• If the company is well advanced in its IFRS project, discuss the impact of the changeover on its financial reporting.

2008 Annual MD&A

• No later than three years before the changeover date, discuss the status of the key elements and the timing.
• If the company is well advanced in the IFRS changeover project, discuss the impact on its financial reporting.

2009 Interim MD&A

• Update the progress of the IFRS changeover plan and note any changes.

2009 Annual MD&A

• Discuss preparations for changeover to IFRS, building on aspects discussed in 2008 and interim 2009 MD&A.
• To ensure investors understand the key elements of the financial statements that will be affected, provide a narrative description of the major identified differences between the company’s current accounting policies and those it must/expects to apply in preparing IFRS financial statements, including any assumptions about future changes to IFRS.

2010 Interim and Annual MD&A

• Provide updated discussion of preparations for changeover to IFRS, building on aspects discussed in 2008, 2009, and interim 2010 MD&A.
• Discuss in more detail the key decisions and changes that have been or will be made relating to the changeover to IFRS, including decisions about accounting policy choices under IFRS 1 and other relevant individual IFRS standards.
• When preparing interim and annual MD&A, if a company has quantified information on IFRS’s impact on key line items in its financial statements, this information should be included.

The Staff Notice also outlines the specific requirements for disclosure by investment funds.

Next Steps
The changeover to IFRS is a major undertaking with potentially significant implications for issuers, investors and other market participants. Communicating timely and clearly with shareholders about the company’s progress and the expected impact of the conversion to IFRS on its reported financial position and results will help shareholder understanding and reduce the element of surprise. Many European companies, after their IFRS conversions in 2005, noted that they should have communicated better with their stakeholders in advance about the expected impact. We have the opportunity to learn from their experience. •

Rob Brouwer is a Partner and Mag Stewart is a Senior Manager with KPMG, Toronto.

Rumours of the demise of the annual report are greatly exaggerated, if leading Canadian companies are any indication.

It’s true that the traditional annual report may be nearly dead – the kind that served as a ‘tour of the empire’, exhaustively and exclusively describing a company’s projects and properties. On the other hand, annual reports that make a compelling case for investment, discussing sustainability and good corporate citizenship, are popping up everywhere, as leading companies experiment with new formats and approaches to making information relevant to shareholders.

TELUS is a case in point. “We view the annual report as more than reporting our

What’s wrong with promoting your company? Nothing – subject to ‘truth in advertising’ laws and other prohibitions on anti-competitive behavior, that’s what marketing is all about: promoting your company and the goods or services that it sells.

What’s wrong with promoting the securities of your company? Nothing again, so long as you follow the rules – and there are quite a lot of them. Laws relating to the promotion of securities can be categorized in two basic rules – the registration rule and the prospectus rule. These rules reflect key objectives of Canadian securities laws: investor protection, investor confidence and capital market efficiency.

To understand the two basic rules, you need to know the meaning of a couple of important terms used in securities legislation: “trade” and “distribution”.

A “trade” includes:

"Put it before them briefly so they will read it, clearly so they will appreciate it, picturesquely so they will remember it and, above all, accurately so they will be guided by its light." ~ Joseph Pulitzer

In the extremely hectic world of IR, we are often stretched too thin – consumed with day to day tasks and putting out fires – to even consider adding to our workload with board reporting. Some of us barely make it through year-end with all our faculties intact! But in our constantly evolving profession, it has never been more important to implement some form of report to the board from the IR perspective. New and changing regulations, the advent of additional investment vehicles, laws, and market events – all impact our companies and are growing concerns for our shareholders. And your board needs to hear what you know, since you are closest to shareholders and the Street.

Two significant announcements were made recently that pave the way for Canada’s move to International Financial Reporting Standards (IFRS). The Canadian Accounting Standards Board (AcSB) confirmed that the mandatory changeover date from existing Canadian generally accepted accounting principles (GAAP) to IFRS will be fiscal years beginning on or after January 1, 2011. For companies with calendar year-ends this means that their first quarter results in 2011 will show an additional opening IFRS balance sheet and comparative financials for 2011 and 2010 prepared in accordance with IFRS. The other announcement was made through the release of a Canadian Securities Administrators (CSA) concept paper that considers possible changes to securities rules on acceptable accounting principles in light of the transition from existing Canadian GAAP to IFRS.

The concept paper explores some of the issues surrounding Canada’s transition to IFRS in view of amendments that may be required to National Instrument 52-107, Acceptable Accounting Principles, Auditing Standards and Reporting Currency (NI 52-107). It focuses on some pertinent issues relating to the Canadian adoption of IFRS. Two of these are discussed below.

Use of IFRS by domestic issuers before January 1, 2011
Many companies filing financial statements in Canada are either subsidiaries of overseas companies that have already adopted IFRS, or have subsidiaries already reporting using IFRS. For Canadian companies in either of these situations, adopting IFRS earlier than 2011 has some clear benefits. Currently these groups of companies track differences between Canadian and international reporting standards and need to keep two sets of financial information for local and group needs. The opportunity to align accounting policies of all the companies in multinational organizations would eliminate the need to track and remain up-to-date on two separate sets of accounting standards.

Canadian domestic issuers that are also SEC registrants may also be interested in early adoption of IFRS. The SEC’s elimination of the need for a reconciliation between IFRS compliant financial statements and U.S. GAAP makes the transition to IFRS extremely attractive for companies that must reconcile their Canadian financial statements to U.S. GAAP. Adopting IFRS early would allow these companies to prepare only one set of financial statements using an accounting model accepted in both Canada and the U.S., thereby avoiding the need for reconciliations.

We’ve all witnessed that annual reports have been getting heavier over the past few years – to the point that some observers expect that by next year-end, only analysts and significant investors will likely be printing full annual reports from websites. In fact, the costs of shipping these large, heavy versions of the annual report are making companies question whether a blanket mailing is the best way to distribute this information. Why the additional increase in girth of annual reports?

The most recent cause of the increasing density is new financial instruments disclosure requirements in CICA 3862, the standard that became effective for fiscal periods beginning on or after October 1, 2007. It is based on International Financial Reporting Standard 7 (IFRS 7), which went into effect at the same time. Companies can adopt the standard early, but many are waiting until it becomes mandatory in the first quarter of 2008 for calendar-year public companies.

Canadian public companies were given a year to transition to the new standard, and many took advantage of the ability to use CICA 3861 for their 2007 year-end, as this disclosure standard was much closer to the existing requirements for financial instruments. The additional disclosures required by the new standard and IFRS 7 were developed in response to risk management concepts and approaches that have evolved in recent years, and new techniques used for measuring and managing exposures to risks arising from financial instruments.

Canadian companies in the mining and oil and gas industries have reason to be particularly attuned to accounting developments internationally and in the U.S. these days. As Canada approaches the transition to International Financial Reporting Standards (IFRS), oil and gas companies are realizing that there is no comprehensive international equivalent to Canadian standards on full-cost accounting.

The International Accounting Standards Board has initiated a comprehensive research project to develop guidance on accounting issues unique to companies in extractive industries, but any new comprehensive standard will not be published before the Canadian transition to IFRS. The move to international standards in their current form will likely mean that exploration and evaluation costs will hit the P&L much sooner than they would have under Canadian GAAP; therefore, some Canadian SEC registrants have been considering moving to U.S. GAAP to defer the adoption of IFRS. Under U.S. GAAP (FAS 19), the successful efforts method is used to account for exploration costs, which allows some costs to be capitalized that may not be permitted under current IFRS.

Portfolio managers know, all too well, that we live in a relative world; in many circumstances, it’s not how well you perform in absolute terms, but in relative ones, that count. If we deliver decent absolute returns for our clients year in and year out, but underperform most competitors, our jobs are at risk. (And heaven help us if the results are poor or even terrible in both absolute and relative terms.)

We also know that clients can occasionally have incredibly short memories. It’s the ‘What have you done for me lately’ syndrome. That is, from time to time, clients forget good past results and focus (in many cases, exclusively) on poor or relatively poor current results. And just in case our clients do not take the time to make sure we are delivering good absolute and relative returns, pension consultants and fund measurement services will graciously inform them of our performance.

The recent surge in private equity buyouts has some IROs questioning what they’d do if private equity investors came knocking. Already 3,000 private equity funds have raised $500 billion worldwide, according to the Private Equity Council. Some have been particularly aggressive in the Canadian market, including major U.S. buyout group KKR and the Ontario Teachers’ Pension Plan’s private equity arm. The question of what happens to investor relations at target companies largely depends on the private equity buyers but experts say IR should be aware of the options these deals present.

“It is an interesting journey to go through the process of being with a publicly held company and taking it private,” says Smooch Reynolds, Chief Executive Officer of IR-specialized recruiting firm The Repovich-Reynolds Group (TRRG). “But it really depends on whether the private equity firm wants the IR person to stay. If there are bondholders, there is still an investor component and it can be a worthwhile chapter of experience in doing a different type of IR.”

Katherine Vyse has special insight into this unique form of IR. As Senior Vice President, Global Marketing and Client Communications at Brookfield Asset Management, she’s in charge of raising her company’s profile with potential investors in Brookfield’s private equity funds. “My private equity IRO role is still evolving but currently it focuses on bringing some of the traditional IR tools and techniques to the private equity side of the business,” she says.

“Regard your good name as the richest jewel you can possibly be possessed of – for credit is like fire; when once you have kindled it you may easily preserve it, but if you once extinguish it, you will find it an arduous task to rekindle it again. The way to gain a good reputation is to endeavor to be what you desire to appear.”

Socrates Greek philosopher in Athens (469 BC - 399 BC)

This might seem like a dramatic way to begin a column about the art of investor relations, but it is directly on point with regard to my subject for this issue – reputation management. In the forum of public markets, fortunes (and stock prices) rise or fall in reaction to sometimes unforeseen or uncontrollable events.

Along with additional line items on the balance sheet, and a new statement of other comprehensive income, the enhanced disclosure and presentation standards provide more qualitative information about the risks that companies manage. By the first quarter of next year, that information will grow to include quantitative measures of risks managed by the company. Here is a brief description of some highlights.

CICA Handbook Section 3855, Financial Instruments – Recognition and Measurement,

Investor relations professionals from all sectors should be communicating their companys’ climate change efforts to investors and analysts, CSR experts say. “The more clearly you can communicate how your company is preparing for a carbon-constrained world, the better,” says Toby Heaps, Editor of Corporate Knights. “Most competitive companies now recognize that responding to climate change is part of identifying risks and opportunities,” adds Wesley Gee, CSR Advisor and Member Development Manager for Canadian Business for Social Responsibility (CBSR).

Companies in high-emitting sectors like oil and gas, utilities and automotive industries have long been aware of investors’ growing interest in climate change. In recent years, companies like Nexen, Petro-Canada and Imperial Oil have received shareholder proposals requesting information on their greenhouse gas emissions (GHG). This year U.S. shareholders filed more than 40 climate-related proposals compared to 27 in 2006, with the majority targeting high-emitting industries, according to PROXY Governance.

In the last CIRI Newsline issue, we discussed the benefits and consequences of being an IRO for a company with predictable earnings. But we only just scratched the surface. In this issue, we’ll discuss some more ‘delicate’ ramifications of being a ‘predictable-earnings IRO’.

Canadian generally accepted accounting principles (GAAP), as we currently know them, will cease to exist as Canadian GAAP for all public companies on a target date of some time in 2011. Subsequently, publicly traded companies will be required to report under International Financial Reporting Standards (IFRS).

As the Hollywood actress Shelley Winters once said: “All marriages are happy – it’s the living together afterwards that causes all the problems.” Winters was not talking about corporate mergers and acquisitions (M&A), although she might as well have been. After all, two firms that decide to spend the rest of their lives together probably have more need of marriage guidance than even the most ill-suited of human couples.

Regular readers of this article know that I am a fan of companies with predictable earnings. We all have a general idea as to what that means – companies that are blessed with this characteristic tend to generate quarterly results that fall in line with expectations, time and time again – but, specifically and from a statistical perspective, predictable earnings mean that the standard deviation of the historical earnings are smaller (and here one can also substitute ‘better’) than others. And what this means is that you and I have a better chance of ‘predicting’ what the next quarters’ earnings are going to be – by constructing an elaborate earnings model and spreadsheet, or even by laying a ruler along a graph of the pattern of previous earnings.

Companies with defined benefit plans should prepare themselves and the investment community for what could be a dramatically different looking balance sheet as early as this December. The CICA has proposed revisions to HB 3461, Employee Future Benefits, which will require presentation of the funded status of all defined benefit plans on the balance sheet. The funded status of the plans is currently only disclosed in the notes that accompany the financial statements.

At a time when the world is beginning to face the realities of global warming, investors are also warming up to the idea of one set of global financial reporting standards. In our last Newsline article we examined the transition to International Financial Reporting Standards (IFRS) in Canada. In this issue we are going to present the results of an international survey of investors that is providing some strong and encouraging views that the global convergence of accounting standards is a move in the right direction.

Today most investor relations professionals are actively targeting investor pools outside their domestic market and there are plenty of theories on the best way to pursue shareholders beyond your home terrain. Some IROs claim a secondary listing is the best strategy to tap into foreign institutional dollars while others say a single listing on a high profile exchange is enough to provide the liquidity and speed of execution that global institutions require.

Dea Katel on what to look for in this year’s crop of annual reports

The annual report is not new on the menu of IR tools, but this year it’s being served up with a combination of simplicity and spice that gives it a new flavor altogether. In the US, Sarbanes-Oxley and its rules around reporting on financial controls have had a big impact. Luckily, production can be speeded up to meet tight reporting deadlines, but the pressure for companies to achieve maximum transparency has never been higher.

This year a lot of companies have thrown away the management discussion and analysis (MD&A) boilerplate and taken a fresh look at this section of their 10K, often redesigning it to meet the SEC’s ideal of plain English and transparency. This has changed the look of a lot of books, with MD&A and other sections getting sharper and more concise. In terms of web reports, companies are moving away from PDFs of the print version and toward navigable HTML reports. As always, a lot of attention is paid to the chairman’s letter, and designers keep coming up with ways to make their book stand out from the pile.

Once you take care of the minimum disclosure necessary for a 10K or 20F, there’s virtually no limit to what can be added to an annual report. But Robert Grupp, VP of corporate communications for Pennsylvania-based Cephalon, which uses Baker Brand Communications for its annual, has noticed a trend towards smaller annual reports over the last few years as many companies have taken the simple route with a 10K wrap. However, he thinks this trend is on its way out. Cephalon decided against a bare-bones 10K wrap because, like many companies, it wants its annual to explain the company, its offering, its strategy and its results to a lot of different stakeholders.

‘It is becoming increasingly difficult to communicate intangible assets, and the annual report is the flagship opportunity to do that,’ Grupp says. ‘Our audiences have very little time to read long narrative, and through the nature of our book, the hope is that investors or other important audiences will page through and take away a few important messages.’

Wrap party
By contrast, Tanya Jernigan, VP of IR for California’s Impac Mortgage Holdings, is a 10K wrap believer. ‘In terms of technology, most people have access to financial information the day it’s filed,’ she says. ‘So why spend all that money and time printing a document that comes out later? The focus should be on sending a message to shareholders, which can be done just as effectively with a 10K wrap.’ Design company Mentus helped Impac cut costs in half by coupling the 10K with the annual report, resulting in one document instead of two separate ones as in the past. Also, in an effort to make the company easy to understand, all charts and copy have been simplified.

At one of Mentus’ new clients, AtheroGenics, manager of corporate communications Donna Glasky has a different view. She thinks annual reports are getting more creative in both cover design and narrative. Since AtheroGenics went public in August 2000, she’s made sure her company’s annuals are no exception.

After winning top awards from the League of American Communications Professionals (LACP) for the past four years, AtheroGenics wanted to do something even better with this year’s annual. Glasky went on the LACP web site and looked at her favorite reports. When she realized that all her picks led back to Mentus, Glasky decided to move her business there.

‘The writing and concept for the narrative has gotten jazzier and a lot more fun to read, which helps folks who don’t know the industry that well,’ Glasky says. ‘We have to make sure all of our messages are in there, and we have to make sure it’s clean and neat and aesthetically pleasing while including the company’s milestones.’

Graphic power
Having worked on Camden Property Trust’s annual report for six years, VP of marketing and communications Trish Hoffman has noticed a recent trend toward powerful graphics. Pictures communicate a message the second you pick up a book, before words even come into play, she says. A less-is-more approach to the shareholder letter is appropriate for an audience that typically has little time to read a report.

Camden decided a couple of years ago to forgo including all the company’s accomplishments in the chairman’s letter. Instead, some are displayed graphically right at the front of the book while others are included in the text of the letter.

How does Hoffman measure the success of Camden’s annual? ‘Sometimes we measure our success in awards, but sometimes those doing the awarding are not our target audience,’ she says. ‘We have been recognized by the International Association of Business Communicators, among others, and coupled with feedback we get directly, that is how we evaluate how we are doing. Our real priority is to develop a synergy with a designer and come to an understanding about particular styles we like.’

Deborah Wasser, senior VP of IR at Veeco Instruments, has cost conservation on her mind when planning the annual report. Today Veeco spends about half as much on its annual report as it did five years ago. That’s because it has switched to a glossy 10K wrap from a full book. Wasser says Veeco will not get rid of its print annual report, even if the SEC passes its proposal to let shareholders opt in to print versions rather than opt out as they do today.

‘There is a big open question about whether more annual reports will be distributed electronically,’ Wasser points out. ‘Ultimately, regulations may end up letting companies distribute only electronic reports, and then we will obviously have to make decisions about what makes sense for our company. For now, though, regardless of what regulations tell us we can do, we will continue to do a printed book because it serves many purposes.’

Focus finding
Veeco’s recent strategy has been improving its operational performance. The company has restructured its book so it tells a very different story than it has for the last ten years, moving the focus from Veeco’s technology to operational efficiency and profitability.

‘Insight into management strategy is the most important thing investors want to read about. The strategy for the future of the company should be clear. If all the book does is report on the past year, there’s probably no point in producing it,’ says Wasser.

Tom Glover, director of public relations for ITT Industries, is on the same page. While working on ITT’s annual report with design firm Addison, he’s aware that the annual report is still one of the first sources of information anyone turns to when they’re looking into a company.

‘We keep in mind that our employees probably read our annual report as closely, if not more closely, than anyone else,’ Glover says. ‘For global, multi-industry companies like ITT, the annual is another channel we can use to educate all kinds of key audiences about who we are and what we do.’

According to Natalie Cox, director of corporate communications at Nova Chemicals, the SEC’s shortened 60-day filing deadline has sent companies using the annual report as both a financial document and a corporate branding vehicle into a spin. And she believes elaborate annual reports are disappearing.

‘There will be a more basic approach to required filings – 10K wraps instead of four-color books, for example,’ Cox predicts. ‘Companies will provide their MD&A and financial statements in a basic format, then perhaps produce a separate narrative or promotional piece, which may include substantial background on the company.’

Like Wasser, Cox believes paper will survive. ‘The electronic version of the report is used more and more each year. However, the printed version will always be a viable and necessary alternative, just as face-to-face communications and one-on-one customer relationships remain an important element of doing business,’ she says.

Providing answers
For Dan McCarthy at PPL Corporation, the top priority in creating the annual report is still to provide answers to shareholders’ questions in the most transparent way possible. As PPL’s director of corporate communications, McCarthy is responsible for setting the tone of the annual report. He believes the chairman’s letter is emerging as the focus of most reports produced by his company and its peers, especially with shareholders seeking assurances about company strategy and direction in addition to financial information.

‘Reports are now less about glitz and more about delivering important messages in memorable ways,’ McCarthy concludes. ‘Good photography and design are very important, but a no-nonsense message is what will really win the day with today’s investors.’

by Dea Katel

Thanks to IR Magazine for allowing us to bring this article to you.

Dea Katel looks at trends in web sites and online annual reports

In the online world, less is sometimes more. Many IR teams, however, are taking the opposite approach, aggressively adding new features such as video webcasts, interactive annual reports and RSS feeds to their web sites. The result is often a more complete company story than plain black-and-white financial data can provide.

In the early days of online annual reports, most companies would simply make a PDF version of the print annual and make it available for downloading. The majority of companies still do this, despite the lengthy download time and lack of user-friendliness that this approach entails. But many have moved toward an interactive version of the annual report, complete with search capabilities, hyperlinks and an ease of navigation that lets users get to any page of the document in two clicks or less.

According to Steve Chuck, VP at Rivel Research Group, much of the annual report’s evolution has to do with its effectiveness as a true marketing tool, not just an historical record. ‘It is one of the few times that investors can really take a look and understand what the corporate vision is, and investors these days are looking for that,’ he says.

Thomson Financial’s most recent annual web site study, surveying 304 US analysts and investors, shows not only retail investors but also analysts regularly using IR sites to download presentations and video webcasts and get non-financial information in areas like CSR and governance.

Thomson’s David Bairstow says fatter 10Ks and proposed SEC rules for the online distribution of proxy materials are driving the trend toward interactive annual reports. ‘We will see a significant pickup in how things are done online over the next couple of years. As more and more users are pointed to the online environment instead of hard copy, companies will continue to upgrade what they are doing online to make the experience richer.’

IR magazine’s Investor Perception Study, US 2006 also shows analysts and investors across the board using online resources intensively, with over 70 percent of retail investors citing the internet as a source for finding potential investment targets. The study also finds sell-side analysts spending almost 18 hours a week on the net, with the buy side not far behind at 17 hours.

San Jose, California-based Cisco Systems has started to provide MP3 audio files and PDFs for most of the presentations on its web site. And there are a lot – the tech giant is famous for an educational speaker series that drives a lot of traffic to the webcast section of its site.

‘Back in the day, when we had hotlines and people were making phone calls, there was a big delay in getting information to the investor in real time,’ says Lisa Magleby, Cisco’s IR web communications manager. ‘New technological developments are all about meeting investors’ needs. We now have a lot more investors who are traveling and we need to give them access to information remotely.’

Hotline or not?
With a lot more investors wanting a lot more information than in the past, many IR departments struggle with the decision of whether to include direct contact information on their sites. While most companies, like Cisco, provide general contact IR information on the web, Nokia goes a step further: it believes anybody should be able to contact IROs directly without getting stuck in a queue or voicemail limbo. The Finnish company’s web site provides direct contact information for everyone on the large and international IR team.

‘These days a good corporate IR web site is like hygiene: people would be disappointed if it did not provide everything they wanted, so they expect it to be there and to be adequate,’ says Bill Seymour, Nokia’s US-based vice president of investor relations. ‘The purpose of Reg FD and other such legislation is for companies to serve a broad investor base equally. With a good corporate web site, a retail investor can just go to the web site and get access to everything the institutional investor has access to.’

Seymour believes shareholders come to the IR web site with firm ideas about what they want, and he wants them to be able to find it fast. According to Seymour, topping the priority list for shareholders are contact information, the last conference call, other recent presentations, the last earnings release and the latest filings.

About 45 percent of Nokia’s investors are US-based, with most of the rest spread out across the major western European countries. Nokia, like many international companies, posts its 20F (the annual report filed with the SEC by foreign companies listed in the US) in different languages.

An end to print?
Sallie Cooke Pilot, communications director for UK marketing and communications firm Black Sun, says future legislation may threaten the survival of the print annual report in the UK. As early as 2007, companies may be able to communicate with shareholders entirely via the internet unless shareholders specifically opt to receive printed copies of materials like the annual report. A similar rule has been proposed by the SEC in the US: companies could ask shareholders to opt in to print rather than opting out of it, as the current rule stipulates. Black Sun’s research finds that every FTSE 100 company posted an annual report online last year, with 38 percent presenting the report in interactive HTML format.

‘Demands are being made for more detailed and comparable information to be made more accessible, more quickly, to more people. Against this backdrop, the pursuit of fresh ideas and original thinking in shaping corporate communications is more important than ever before,’ Pilot says.

According to a Nasdaq official, pre-recorded presentations covering quarterly or semi-annual results, posted online as a precursor to a conference call, represent a rising new international trend. Nasdaq also sees a global increase in companies following traffic and gathering information on web site visitors, allowing IROs to communicate more effectively with their existing and prospective shareholders.

Anne MacMicken, manager of IR and employee relations at BFI Canada Income Fund, says feedback about the firm’s web site shows just how important a tool it is. ‘We get a lot of e-mails asking about information on our site, so I know investors are really using it,’ she explains. ‘Use of the net is definitely increasing, and people are going to the web for their initial investment research. With new disclosure regulations, it’s crucial that information is kept up to date and that companies have enough information on their IR web sites for investors to make investment decisions.’

For BFI’s IR web site, MacMicken uses integration software so she can manage information on her own without having to do any complex web design. Like many companies, BFI also provides e-mail alerts that blast information out to the investment audience the moment an update is made to the site.

BFI’s latest online annual, created by PrecisionIR, is designed so investors can view parts of it without having to download everything. Instead they can jump to any section, and there’s a print option for individual pages.

Toronto Stock Exchange guidelines against participating in chat rooms make Canadian IROs like MacMicken hesitant about the newer technology of blogging. RSS, on the other hand, is likely to spread further and faster. This XML application lets users sign up for a ‘feed’ of information as it’s updated on a web site. A lack of familiarity with RSS, though, means IROs are unlikely to adopt it for their sites unless they’ve used it themselves elsewhere. The primary misconception about RSS is that it needs to be understood in order to be used. Bairstow says Thomson’s survey showed that ‘the number of analysts who said RSS was their preferred way to receive information was not huge, but RSS was not even on the map last year.’

RSS, podcasts and blogs – they’re just the latest new twists in the exciting story of the internet, following the plot of webcasts, interactive annuals and other past innovations. Most companies are playing ‘wait and see’ with the new technologies, but their attention, like the attention of many investors and analysts, is on those pioneers bringing innovation to their IR web sites and online annuals.

by Dea Katel
Thanks to IR Magazine for allowing us to bring this article to you.

Wallace Partners’ Michael Wallace tracks the growing demand for CSR reporting

Over the past several years we have been hearing more and more about corporate responsibility. Corporate scandals and regulatory responses such as the Sarbanes-Oxley Act of 2002 are keeping phrases like corporate governance and corporate responsibility in the headlines of financial, technical and industry journals. Influential market participants such as institutional investors, rating agencies and corporations are creating a convergence of these terms into what is generally labeled corporate social responsibility (CSR).

An increasing number of experts agree poor CSR performance can pose risks and cause costly interruptions to business operations. Traditional financial institutions are asking companies to measure and disclose information on sustainable development policies, their triple bottom line performance and corporate citizenship initiatives.

Corporations are taking notice of these shareholder demands and responding. A recent study by KPMG reveals that more than 50 percent of the world’s largest firms are voluntarily publishing CSR information. Corporate disclosure on these issues comes through either an addition to traditional financial reports or publication of printed and/or web-based annual reports.

The demand for CSR information is primarily being driven by institutional investors. Increasing numbers of them are requesting and – in some cases – demanding disclosure and transparency on a much wider range of seemingly non-financial issues. Investors pushing for this disclosure include some of the world’s largest institutional investors such as Universities Superannuation Scheme, Calpers and the California State Teachers’ Retirement System.

These investors believe attention to CSR issues can reduce operational costs, minimize unexpected losses and enable companies to foresee and more effectively manage long-term global trends. Using rigorous financial analysis and shareholder resolutions, these groups are wielding their collective influence to increase corporate disclosure on CSR performance.

They are also aligning their interests and developing coalitions, initiatives, strategic shareholder resolutions and legal strategies to address what they deem to be high-priority CSR issues. The market influence of these groups and the amount of investment leverage they wield is significant enough to influence the behavior of many companies.

Although companies spend millions of dollars managing their financial reputation through traditional channels, few realize they’re actively tracked and judged on CSR performance by a wide variety of influential shareholders. A number of third parties are collecting data on CSR disclosure and performance and providing it to interested buy-side fund managers – so it is in the best interest of companies to be in control of that data.

The bottom line is that regardless of the timeliness, accuracy or reliability of CSR information, it is reaching the public domain and being used by a variety of stakeholders to assess CSR performance. Investor relations professionals may not have encountered questions from investors on CSR yet but it is definitely one of the intangible assets used by some to measure long-term performance prospects, and IR needs to be aware of how it’s being viewed by these investors.

Thanks to IR Magazine for allowing us to bring this article to you.

IR for a multi-billion-dollar IPO is no easy task. Ben Bland finds out how this US insurer hit the ground running

Google might have been the biggest IPO of 2004 in terms of hype, but Genworth Financial was the biggest in terms of capital raised: $2.8 bn to Google’s $1.7 bn. While Google’s founders were busy talking to Playboy and running the gauntlet of the SEC’s quiet period rule, Genworth was spun off from General Electric (GE) in a less controversial – though no less successful – manner. Since the IPO in May 2004, GE has raised another $5.6 bn in two secondary offerings of Genworth stock, leaving it holding 27 percent of the shares.

The new, NYSE-listed insurance holding company was a subsidiary of giant conglomerate GE until it was sold off as part of a plan to streamline GE’s businesses. Although Genworth was considered a somewhat minor part of GE, in its new guise it has become one of the world’s leading insurance companies, with 15 mn customers and operations in 24 countries. But while Genworth had no problem gaining recognition from its customer base, the same was not true of an investor base that knew little about it.

‘At the time of the IPO, we had a business that was not broadly known and had not been taken to investors on its own footing,’ explains Jean Peters, senior vice president of investor relations and corporate communications at Genworth’s headquarters in Richmond, Virginia. ‘An investor’s first decision point is to ask, How believable is that story? So we spent a great deal of time building a story as a company that would execute its growth plans.’

IR from scratch Before Peters and her colleagues could hit the road selling the Genworth story, they had to set about constructing an IR mentality within the company. And in Peters, who has years of experience at a number of leading insurance companies including John Hancock Financial Services (acquired by Canada’s Manulife Financial in 2004), Allmerica Financial and Providian Financial (since merged with Washington Mutual), Genworth secured the perfect candidate for the job. Peters profited from her well-developed understanding of the requirements of IR in the insurance sector. Specifically, she was aware of the need for a detailed quarterly financial supplement to help explain the accounting methods behind the company’s diverse range of financial products. ‘

We have built an arrangement at the organization so each of the business segments goes through a quarterly assessment of what the Street is writing about the industry, about our competitors and about us, then building messages that speak to the issues that are most important to investors,’ Peters explains. ‘We do it in a very disciplined way.’ And the Street certainly seems to agree, judging by the number of analysts who have heaped praise on Genworth’s quarterly supplements.

Working in unison Disciplined planning and a targeted approach are behind Genworth’s IR. As Peters points out, ‘We’ve sold $9 bn of stock for GE in the past 16 months and we’ve had better subscriptions in each subsequent sale as a result of clarifying the message and gaining the support of investors and analysts.’

This impressive performance has been achieved by a reasonably small group of people. Peters, who reports to the CEO, is responsible for corporate communications and investor relations; Alicia Charity is vice president of IR. Charity, who also worked alongside her boss at John Hancock, is assisted by two analysts but, Peters highlights, the IR team is only one part of the process of communicating with investors. ‘We work hand in glove with the CFO and the finance team on issues of planning and control,’ she says.

‘Part of what allows us to operate is the way we manage throughout the organization on a matrix basis,’ Charity says. ‘We work very closely with our finance team and our business units, and really embed ourselves in their financial review process, their operations and their strategy sessions. That level of understanding within IR and the support we get by putting ourselves within the financial review structure allow us to have the knowledge we need to communicate effectively externally but also to leverage work that’s already been done in the organization.’

Peters and Charity have put these strong links with senior management to good use on roadshows in the US, Canada and Europe. Given the obvious time constraints on the top brass, they like to piggyback meetings. ‘When our leaders are in Europe doing business reviews, we use those opportunities to meet with investors,’ Peters explains.

The IR team has also clocked up the miles in North America. ‘We’ve done three roadshows in a little under a year and a half,’ Charity notes. ‘For the first couple of offerings we were really focused on the large cities. But for the latest offering [in September 2005], we split into two teams and were able to cover a lot more geographic diversity, hit some middle-market cities, hit Canada, and spend a little more time with investors we hadn’t touched before to give them another level and depth of knowledge. It was good from our perspective because we were able to bring in some great new names.’

Looking ahead
Although its initial focus was the institutional market, Genworth is now planning to shore up its retail investor base, which currently accounts for less than 10 percent of the shares. ‘We’re going to be developing a program targeted specifically at retail shareholders and building that out as we go into 2006,’ Charity says.

A substantial proportion of Genworth’s business comes from overseas so another goal for the coming year is to bring in more foreign investors and push cent mark. ‘We see this as an important activity in the coming year now that we have a much broader liquidity and shareholder base,’ Peters says. ‘After all, GE is becoming a less significant factor and will eventually be out of the stock entirely.’

Talking to a selection of Genworth’s analysts, it becomes clear the IR team’s deep understanding of the company’s various businesses continues to underpin the IR effort. One analyst even suggests that Peters ‘would be a qualified CFO at any of Genworth’s peers’. While she might not be about to switch jobs just yet, Peters agrees that, in IR, proactive engagement with your own business is as crucial as proactive engagement with your investors.

‘My philosophy is that we have to understand the businesses to be able to communicate effectively with investors,’ she concludes. ‘We have to understand their competitive issues, their finances, so I don’t want a lot of layers between myself and the businesses. I want to be able to go out there and see what’s going on, learn it first hand – and then be able to communicate it.’

by Ben Bland

Thanks to IR Magazine for allowing us to bring this article to you.

Internal Control: The Next Wave of Certification - Helping Smaller Public Companies with Certification and Disclosure about Internal Control over Financial Reporting is now available on the CICA web site. This useful, straightforward publication is designed to help smaller Canadian TSX and TSX-V exchange listed companies comply with the certification and related disclosure requirements that became effective in 2006 regarding the design of internal control over financial reporting (ICFR). It focuses in particular on situations where management’s assessment of ICFR design has identified one or more unremediated ICFR design weaknesses, and the CEO and CFO are therefore faced with important certification and MD&A disclosure decisions.

Click on the link below to access and download the document:

http://www.rmgb.ca/3/3/5/0/5/index1.shtml

The 'Halloween massacre' has come and gone, but the discussion regarding the taxation of income trusts continues. Why is this happening? Will anything be accomplished? And, more importantly, do unitholders care?

As most of our readers should be aware, the Canadian Accounting Standards Board (AcSB) has announced a significant strategic decision to adopt International Financial Reporting Standards (IFRS) for all public companies, with a target date of 2011. What readers may not appreciate, however, is that the transition to IFRS represents the single largest change in financial reporting in the last 20 years. While many accountants will welcome the return to a conceptual accounting framework that relies more on professional judgment and less on the American style of prescriptive rulemaking, the transition itself will present some major challenges.

If you have been an IRO for any length of time, you have likely crafted both good news and bad. Delivering the good news is usually easier. When you have bad news, you have typically had some considerable time to mull it over with colleagues and to figure out the best way to position it to investors. If the bad news is of your own making (that is, if it relates to your business performance and internal factors that lead to less than stellar results), you can likely clearly explain it and can give some 'upside' to assure investors that things will look up again soon.

What happens when some external force drops a bomb on you, literally or figuratively, and you have to communicate its impact? For instance, your plant burns down, you have a product recall, or the Federal Government announces a change to the Income Tax Act that essentially wipes out your raison d'être? On October 31, 2006, the Federal Government did just that when it announced it would “level the playing field” between income trusts and corporations.

Most people claim to have been truly shocked by the announcement, and therefore I assume that most IROs working for income trusts were shocked, and went to work on November 1 wondering what they could or should say to avoid a unit price meltdown. Given the rapid market response, clearly the answer was most likely 'nothing'. Markets have a life of their own in the face of this type of bombshell, and I do not think any words could have been crafted to mitigate what did in fact happen, at least not in the immediate term. However, most communications professionals felt compelled to say something, particularly since the timing of the announcement meant that most IROs were on the verge of a quarterly earnings release.

With 74 income trusts in the S&P/TSX Income Trust Index, 56 said something on the subject in the first press release after the Government's announcement. Among the 18 that said nothing, five were REITS, that, depending on structure, may not be affected by the tax changes. The most common theme from income trusts making this statement was, 'we are not sure we like this and we are examining its possible consequences. We'll get back to you.' I've been following up on the 'get back to you's', and many income trusts have not said much more on the subject since. Of course, this is not true of the energy trust sector, which became downright militant, formed a coalition, and paid a lot of money to produce a 233-page report to discredit the Government's action. This monumental effort has had little or no effect and the Government announced on December 19, 2006 that it is standing its ground. Granted, trying to change the course of a Government once the Minister has appeared on The National may have been more difficult than changing the course of the Bow River, but the coalition had to try.

As an aside, I have to ask, and not altogether facetiously, should we have been so surprised by the announcement? I'm not prescient, but the announcement was only a matter of time. Remember that income trusts are the brainchild of a few particularly smart lawyers (and maybe an accountant or two) who figured out how to structure mature cash-cow businesses to reduce tax paid at the corporate level. Of course, the tax effectiveness was widely publicized by new 'income trust departments' in major law firms, and over the last seven to eight years we have seen the conversion of all kinds of businesses to the structure, many of which are not exactly cash cows. The shareholders of these businesses were getting tired of waiting for growth in value through improved operations and therefore took the lure to bump it up on conversion. (Read here that I am not entirely sympathetic to the shareholders who are now crying foul).

The Income Tax Act is as thick as the Toronto phone book for one reason: the CRA eventually catches up to the smart lawyers. When assisting your CFO in drafting MD&A, I suggest you take a fresh look at “Risk Factors” and ask yourself whether you have addressed any competitive advantage that arises from some kind of external condition, such as a law, that could swiftly and arbitrarily change. Ensure you have thought about 'plan B'.

So what are some of the types of messages that income trust IROs have crafted since October 31 in an attempt to recover unit value, and are they working? I have very simplistically analyzed them, and have arrived at what should not be a surprising conclusion: if the underlying business is sound, if growth prospects are good, and there really is a cash cow – the message is simple: we are disappointed, but we have a strong business that will continue to make money, whether we or our holders are paying the tax. For these types of trusts, unit price dipped post October 31, but is rallying. For some, unit price has reached a 52-week high due to outstanding business results and future prospects. Several have had lots of good news to deliver since the initial reaction, including increased distribution rates and vigorous 2007 business plans. It's easy to spin that story.

For the businesses that were likely never suitable for the income trust structure or that have underperformed since conversion, the messages can be paraphrased: we're not sure what we will do, but please hang in there for the four-year tax holiday. If tax planning emerges as your number one growth opportunity, there are some real flaws in your underlying business model, and perhaps a going-private transaction should be considered. The alternative would be to use the four years to help senior management come up with a viable business model that, on an apples to apples comparison, will be as attractive an investment as the best equities in your sector. Then you will have a story to tell.

The lesson from this: in the face of an unexpected IR crisis, no message can change your fortunes if your underlying facts and circumstances make it unbelievable. Crisis communication requires a cool head, a sober assessment of the facts and their potential impact, and a commitment to avoid any unjustified reassurances. Apply the same integrity to your crisis communications as you do to your routine disclosure.
Claire Milton, General Counsel and Secretary, High Liner Foods Incorporated

Base metal stocks are rocking (pardon the pun) but it wasn’t always so. In the 80s and 90s, base metal stocks were generally poor investments because the underlying commodities didn’t do anything. However, during that time frame, Noranda was one of the best performing base metals companies, if not the best. It was 50% owned by Brascan Financial and paid the parent company (as well as the rest of the shareholders) a massive quarterly dividend, far in excess of its competitors’ payouts (or those of any rational resource company, for that matter). As a result, Noranda did not have the necessary resources to finance grassroots exploration and development and, unlike its peers, did not undertake the capital expenditure programs that provided poor returns. Consequently it didn’t fritter away precious financial resources. Ironically, Noranda was a great performer because its (financial) hands were tied. In other words, it was the best stock in a very bad sector.

Weaknesses in the Design of Internal Control over Financial Reporting Should be Disclosed CEOs and CFOs are required to certify the design of internal control over financial reporting (ICFR) for financial years ending on or after June 30, 2006. These new certification requirements are in addition to the company’s requirement to disclose in its MD&A its conclusion as to the effectiveness of its disclosure controls and procedures (DC&P). In September, the CSA issued a notice communicating staff’s views regarding the ability of the certifying officers of a reporting issuer to certify the design of the issuer’s ICFR if the certifying officers are aware of a weakness in the design of the issuer’s ICFR that has not been remediated.

The notice indicated that there are circumstances in which the certifying officers can conclude that they are able to certify on the design of the issuer’s ICFR as required even though they have identified a weakness in the design. In the CSA’s view, the certifying officers can certify the design of ICFR provided the issuer’s disclosure in the annual MD&A about the identified weakness presents an accurate and complete picture of the condition of the design of the ICFR. This may be the case for a small company where the CFO prepares all journal entries related to complex matters. In this situation, the CFO may be able to conclude that disclosure controls and procedures are effective because of his or her direct knowledge of the transactions, despite ineffective internal control procedures.

“The Halloween massacre” is how Anne-Marie Buchmuller describes the day Finance Minister Jim Flaherty changed the tax rules governing income trusts. The head of IR for Calgary-based Sound Energy Trust had only been on the job for two weeks when the Minister dropped his tax bombshell and sent the market into a tailspin. The surprise announcement translated into a $20 billion drop in the S&P/TSX composite index on November 1 with sharp losses for the trust sector, which has yet to recover.

“We have had many calls from investors, mostly retail, who are very upset – they lost a lot of money,” reports Buchmuller. “Shock and outrage is the best to describe how our investor base has reacted,” adds David Carey, Senior Vice President, Capital Markets for ARC Energy Trust. “We lost 25% overnight and are still down 20% a month later. A lot of people were caught unaware; our phone lines lit up and email system overflowed with questions from unitholders.”

Mike Reilly looks at the ‘other’ over-the-counter market as the Pink Sheets launches a US version of Aim

There’s a new wrinkle in the fabric of the markets – one that may bring an alternative for US investors hungry to own more international shares and for foreign issuers eager to raise their profile but unwilling to take on the costs of SEC registration, exchange listing requirements and Sox compliance.

The Pink Sheets – or the Pinks, as it is known on Wall Street – dates back almost to the beginning of the 20th century. It has traditionally been seen – and still is by many today – as an outdated paper-based quotes arena for a wide array of shares – and mostly dicey penny stocks at that.

But under the stewardship of a savvy New York area native named R Cromwell Coulson, the Pink Sheets has become a robust contender for the attention of many companies, including western Europeans who have recently shied away from the US.

With a snappy internet venue for its now all-electronic quotations, the Pink Sheets has steadily added features to make the market attractive to all constituents – issuers, market-makers and, most importantly, investors. Its quotes are distributed by all the major vendors, from Reuters to Bloomberg. Now it plans an elite quotation that will require high levels of disclosure, though not as high or as extensive and expensive as those required by SEC registration.

Here comes OTCQX
The Pink Sheets’ new OTCQX is touted as being similar to London’s Alternative Investment Market (Aim) in its structure, and Coulson has created a chart on the new web site (www.otcqx.com) showing the parallels. The chart also shows how the new service will stand out from both the Pink Sheets and the OTC Bulletin Board, on which many over-the-counter stocks are posted under the aegis of NASD.

The bottom line for non-US companies is that by backing a US quote of their stock listed, say, in London or Frankfurt, a ready market is presented for US investors. Such quote generation is done by market-makers, typically broker-dealers, who simply begin to make a market in a given stock and then post their bid and ask prices. This may come from their own belief that interest is out there, or it could be generated by institutions that let the dealers know they want to see prices.

Companies like Nestlé, Roche and Heineken already trade on the Pink Sheets and enjoy US visibility without the high costs of Sox regulations or registration and listing fees. ‘Look at consumer brands with US employees, with big US customer bases,’ says Coulson. ‘If you are Volkswagen, you want people who buy your cars to be able to buy the shares easily. It increases the number of repeat customers.’

The overall move in European markets toward greater transparency and best practice in disclosure plays directly into the new OTCQX proposition. By offering a venue that guarantees only companies with strong disclosure habits and regular financial reporting that meets its listing standards, the OTCQX hopes to attract more investors and well-regarded issuers, regardless of size.

More varied IR
The new service will create three tiers of companies, with the highest level of well-qualified firms having to hit several marks in addition to regular financial reporting and good disclosure. Added criteria include management certifications, quarterly reporting and the appointment of a ‘designated advisor’ – a kind of monitor to ensure compliance.

Since there is no exchange listing and the requirements of SEC filings are limited to matching those of companies’ home countries, there can often be a certain relaxation of IR among Pink Sheets stocks. There is no retail component to IR for Roche, for example, since its shares are mostly owned by institutions and it does not seek retail investors in the US. Then there are the special situations, which abound on the Pinks. Owens Corning, driven to bankruptcy by asbestos lawsuits, moved over to the Pink Sheets while working itself out of its problems.

Sox pushed some US companies onto the Pinks along with foreign ones. Moving off the American Exchange shortly after Sox came over the horizon was a strategic choice for the Ziegler Companies, a Midwestern financial services firm with billions of dollars in business and billions more under management for clients.

‘I immediately perceived Sox as highly problematic from an expense and management point of view,’ says Ziegler CEO John Mulherin. ‘Requirements for new board committees, Section 404 compliance, extra auditing – all these combined to create a task we could not afford. We decided to de-list and deregister.’

But unlike Owens Corning and others who almost seem to be hiding on the Pinks, Ziegler cares a lot about its shareholders and their perception. ‘We made a lot of calls, wrote letters and had conversations with shareholders, clients, employees and other constituents. We spent a great deal of time explaining to people how to use the Pink Sheets,’ Mulherin recalls. ‘It was important we be very clear about our views on corporate governance and transparency.’

Did the move to the Pinks pay off? ‘The effort was endorsed by shareholders, who saw that we were saving capital and guarding profits. The stock price appreciated by 10 percent,’ the Ziegler CEO states.

Foreign companies unwilling to take the expensive and rules-strewn path of a full exchange listing may be encouraged by the new ‘premium’ OTCQX. After all, Federal Reserve figures show non-US stocks represented just shy of 16 percent of US portfolios at the end of 2005 – a record level, but one that leaves a lot of room for growth.

by Mike Reilly
Thanks to IR Magazine for allowing us to bring this article to you.

When do you need outside help? Dea Katel looks at how companies work with IR and financial PR agencies

The scope of IR consultants’ relationships with both clients and the investment community is now broader than ever before. The hot competition for capital means more companies are seeking market intelligence like peer research, while others are doing more with less by outsourcing IR chores. Whether a company needs to get creative, diversify its shareholder base, go global with its message or survive a crisis, help isn’t far away. IR magazine talked to seven companies about how they use consultants.

Hedge funds are famous for being illusive and cunning asset managers that lurk in the shadows, digging for insight into stocks beyond what’s been disclosed. They’re also gaining a reputation as activists that buy up stakes in companies and publicly press for management to make changes. It’s imperative, however, that IROs not let these stereotypes taint their perceptions of the industry. Many hedge funds are long-term, loyal holders that can serve as sources of market intelligence for investor relations.

In September, the Canadian Securities Administrators (CSA) issued a report on findings and recommendations arising from its second targeted continuous disclosure review of business income trust issuers. The report posted some rather dim results, given that of the 45 income trusts issuers reviewed only seven had no identified deficiencies in their continuous disclosure. The CSA once again identified the presentation of non-GAAP measures as a significant issue. The report followed on the heels of the publication of a revised staff notice on Non-GAAP Financial Measures. The revised staff notice narrows the definition of what is acceptable disclosure of non-GAAP financial measures. This article will explore the impact of these revisions so that IROs can better evaluate the use of non-GAAP measures in their MD&As.

WASHINGTON – With state-run Chinese firms raising increasing sums in US markets, there's growing speculation that US regulators may step in to protect investors.

The tech market meltdown of recent years was one of the comparisons made at this month's hearing on China and the capital markets, held by the US-China Economic and Security Review Commission (USCC).

One worry is that China continues to experience financial scandals in its banks, even as it rushes to overhaul and list state banks such as the Bank of China and China Construction Bank to meet the WTO’s financial market requirements by late 2006. Citing poor transparency and other problems at banks and other state-owned firms expected to list in New York, USCC chairman Richard D'Amato warned of a prospective China 'bubble'.

USCC members have suggested the Securities Exchange Commission (SEC) could scrutinize new China offerings for risk and standards of corporate governance. But what steps might US regulators take? According to Commissioner Michael Wessel, who co-chaired the hearing, 'Sarbanes-Oxley and other securities laws on the books provide substantial authority to the SEC and other authorities to ensure greater scrutiny of Chinese banks seeking to raise funds in the U.S.' And, he adds, 'If the law does not provide adequate authority, the SEC should provide guidance to Congress about what additional tools they may need.'

It was suggested at the hearing that US regulators avoid driving Chinese companies to list elsewhere. Still, says Wessel, 'The SEC has the duty to ensure that US investors have the information they need to make informed decisions – and they need to ensure that any material information is available and scrutinized.'

One wild card is the expected shift of SEC policy now that Republican congressman Christopher Cox has been confirmed as head of the Securities and Exchange Commission (SEC). Many predict a much more relaxed regulatory regime than under predecessor William Donaldson.

Even if this is the case, the SEC may not relax when it comes to China listings. 'It's too early to prejudge what the SEC will do under Chairman Cox,' cautions Wessel. 'He has a strong record on China as it relates to economic and national security. I have confidence that he’ll use the legal authority and tools available to ensure that investors have the information they need or – if he needs additional authority – that he will ask for it.'

NEW YORK -- UK companies continue to lead the way in terms of best practices in corporate governance and Canadian firms are a close second, according to recent ratings from New York-based Governance Metrics International (GMI).

Twice a year GMI looks at the corporate governance practices of 3,200 companies worldwide and rates them on scale from one to ten. As was seen in March, which is the last time GMI did this study, UK companies hold the top position with an overall governance average of 7.33. Similarly, Canadian firms continue to rank second with an average score of 7.31 and US companies come in third with a score of 7.

Notably, GMI's rankings suggest a link between good practices in corporate governance and shareholder returns. It finds that top-rated companies outperformed the S&P500 index by 15.19 percent in terms of total shareholder returns over a five-year period ending September 1, 2005.

The agency also compares the performance of US companies that received top grades (nine or above) to poor performing companies (three and below) in four out of the six studies they have conducted over the last three years. GMI discovers that firms that are consistent low scorers had an average shareholder return of 8.7 percent whereas well-governed companies achieved an average return of 15.9 percent over three years. During the same time period, the S&P500 had an average return of 11.9 percent.

Gavin Anderson, GMI's CEO, explains that companies with poor governance scores were more likely to have restated earnings and been subject to accounting investigations by regulators. 'These firms reported more related-party transactions involving senior officers and directors,' he says. 'They were more likely to have multiple classes of voting stock and their boards had fewer independent directors than companies with consistently good ratings.'

As part of this research, GMI also looks at the governance practices of controlled companies, which are identified as firms where a single entity holds at least 50 percent of the voting power. For this section, GMI analyzes 390 controlled firms including 152 from North America, 156 European companies and 82 headquartered in the Asia-Pacific region. It finds that, as a group, controlled companies achieve an average rating of five, significantly lower then the average score of widely held firms (6.5).

GMI also shows that controlled companies with the poorest results are mostly located in Asia and Europe. Out of the controlled firms achieving a rating of four or lower, 65.4 percent were from Europe, 25.6 percent from Asia Pacific, and 9 percent from North America. The most common governance issue for controlled firms is lack of independent directors on the board.

Some controlled companies strive to attain best practices in corporate governance, GMI finds. Examples from its rankings include Talbots (8.5), UnionBanCal (8.5), Genworth Financial (8), Interactive Data (8), Kraft Foods (8) and Telstra (8.5).

IROs should take note of findings linking best governance practices to shareholder returns, says Anderson. 'It is clear that there is some correlation between governance and performance and while corporate governance screening is not number one, and should not be the most important aspect of investment research, it is nonetheless an area that should be looked at as part of the overall research process,' he concludes.

LONDON -- UK listed companies must complete an Operating and Financial Review (OFR) report for annual reports published after April 1, 2005. The report is the responsibility of the board of directors and must present a clear picture of a company's future prospects as well as review its financial and non-financial metrics. Some companies are looking for guidance in preparing the document for the first time and certain organizations are meeting this demand.

Yesterday, the Institute of Practitioners of Advertising (IPA) in association with the Workshipful Company of Marketors and the Marketing Society released an OFR checklist. The list offers an easy-to-follow format for verifying and preparing the OFR report. Divided into three general sections, the list details all the essential elements of the report including key performance indicators used by the board to assess the company's performance; sources of cash flow and relationships with key stakeholders.

'We all have a strong interest in supporting the OFR and [the IPA] felt it would be constructive to support the checklist,' says Hamish Pringle, director general at the IPA. 'A vast amount of paperwork is being generated in preparing the report and we wanted to try to make it as easy as possible for companies.'

Pringle notes a general lack of awareness among companies surrounding the OFR and its preparation. Many boards are not informed about the intangible drivers underlying a company's performance, he claims, which complicates the OFR task that demands a strong knowledge of non-financial assets including brand valuation.

For investors in the world’s second-largest capital market, it should be a historic summer. In fact, the year has already been historic thanks to developments sparked by Livedoor’s hostile takeover bid for Nippon Broadcasting System in February. After dominating business news for months, anti-takeover plans are dominating the agendas of shareholder meetings, which, in Japan, tend to be scheduled for the first half of summer.

Whenever you try to launch a major new process, unexpected issues arise – and Sarbanes-Oxley Section 404 proved no exception. As public companies and their auditors grappled with the complexities of the new internal control rule the first time around, some things got way out of control – especially costs and resources.

Washington, DC -- The SEC has filed changes against two former Kmart executives for providing misleading information a few months before the company filed for bankruptcy.

LONDON -- Many of the largest companies in the UK are stifling their key messages in annual reports, according to a recent study by London-based consultancy Merchant Group.

The study shows that 37 percent of FTSE 500 companies neglect to define a clear or measurable strategy in their annual report. Merchant defines a clear strategy as a statement including a quantifiable or measurable factor that allows investors and analysts to measure a company's progress. 'It comes back to the old adage: what do you use the book for?' explains Merchant's Ben Hardy. 'Do you want to communicate with shareholders and investors, or is it just a statutory document?'

LONDON -- A growing number of UK large-cap companies are webcasting their annual general meetings via their corporate web site, while others are using video and dedicated web sites to offer stakeholders a richer multimedia experience.

SYDNEY -- In an unprecedented move, the Australian Securities and Investments Commission (Asic) has announced it is investigating Australia's largest company, the national telecommunications carrier Telstra, for alleged breaches of continuous disclosure.

The announcement has shocked the Australian market, which is still reeling from a comment by one of the company's top executives, Phil Burgess, that he 'wouldn't recommend them [Telstra shares] to my mother.'

In a statement released to the market yesterday, Asic said it was 'investigating Telstra's compliance with its continuous disclosure obligations following its announcement to the market yesterday signalling an earnings downgrade.'

Asic also confirmed it is working with the Australian Stock Exchange in relation to this matter. The alleged breach being investigated by Asic concerns a briefing document Telstra released to its major shareholder, the Australian government, before the wider announcement of its earnings downgrade to the market.

Leaked extracts of the document appeared in newspapers before Telstra issued its downgrade last week, prompting the investigation. However, it is likely to be some months before Asic releases findings from its investigation.

Under new powers it was awarded on January 1 this year Asic can now issue fines to companies in breach of continuous disclosure laws.

SINGAPORE -- Shaken by recent scandals, Singapore's business community sees a need for higher standards of corporate governance here. That's the central message from a survey of senior executives at Singapore's listed companies.

NEW YORK -- Companies choosing to send out financials using the XBRL (Extensible Business Reporting Language) format may be interested in a new XBRL Smart Release service launched by Business Wire. The service essentially incorporates the XBRL format into the newswires' releases, which already have the ability to add multimedia elements such as video and audio clips.

'The XBRL standard can be applied to a wide range of business and financial data, including internal and external financial reporting, and to all types of regulatory documents,' says Michael Lissauer, Business Wire's senior vice president of marketing and business strategy. Regulators and exchanges around the world, including the SEC and the Tokyo Stock Exchange, support XBRL formatting in corporate reporting.

'Since XBRL has the potential to revolutionize business reporting as we know it by providing significant benefits in the preparation, analysis and communication of this information, we created the XBRL Smart News Release to make it easier for Business Wire members to send their XBRL news release to myriad sources,' adds Lissauer.

NEW YORK -- Just shy of its fifth anniversary, the most restrictive disclosure rule in US history was dealt a blow yesterday when a Manhattan judge dismissed an SEC claim that California-based Siebel Systems violated Reg FD.

There is a lot of confusion among companies about what sort of information they should be providing investors and analysts on climate change. Some companies have never been asked for this data by shareholders so the buy side’s expectations can seem obscure. ‘No-one ever, and I really do mean ever, has asked us about this,’ one IRO from a Eurotop 300 company said recently. ‘Not once. Not one fund manager or analyst has ever brought this up.’

His company is taking climate change and other corp