The guiding principles of Investor Relations (IR) are the same for Middle Eastern Investor Relations Officers (IROs) as they are for investor relations professionals globally: focus first on what you can control and what you can convey, or in football terms, “control the ball.” IR priorities may differ for Middle Eastern companies compared to other regions, but IROs in the region can still maintain an overall focus on enhancing shareholder engagement, thoughtful shareholder targeting, as well as IR basics such as disclosure, international media outreach, and greater management visibility. BNY Mellon’s ninth annual investor relations survey, conducted in 2013, has found that Middle Eastern respondents maintained a strong focus on these items when naming their top three IR goals, with 53 per cent focusing on increasing international ownership, 25 per cent on engagement with current shareholders, and 13 per cent on leveraging media.
The results of this survey yield some interesting comparisons between Middle East and global IR practices. Most of the results are expected and almost all are understandable, but they do raise some valid questions about where the emphasis of IR may more profitably be invested.
The spectre of regional political strife has dominated Middle Eastern and very often global news media in recent years. It is perhaps no wonder then that 28 IR professionals with companies across the Middle East who responded to the survey claimed that their domestic environment had been the number one factor in influencing demand for their company during the past 12 months.
It is also interesting to note that Middle East respondents reported they are seeking to add research coverage for their companies at a high 56 per cent, compared to 28 per cent of respondents globally. Again, an understandable focus when you consider the relative youth of the market and that 47 per cent of them were performance evaluated on this activity compared to just 28 per cent of their global colleagues. However, while some key performance indicators can be derived from the actions taken towards adding analyst coverage (for example, arranging management meetings and/or site visits), as a direct actionable item, this is an area that isn’t completely within the control of the IRO in the Middle East.
The centrepiece of IR planning in the Middle East should be first to focus on what is controllable while preparing for the necessary changes as the region comes into line with IR global best practices. For example, the structural differences between companies in the Middle East and their peers in other regions means that Middle Eastern boards of directors have less direct contact with investors: only 28 per cent of Middle East respondents reported that such contact has increased over the last five years, as compared to 41 per cent of EEA companies. IROs themselves report having less contact with their board of directors, with only 13 per cent of respondents reporting that they attend and present to board of directors’ meetings on a regular basis. In comparison, 28 per cent of IROs globally and 27 per cent in EEA report that they attend and report regularly to the board. Currently, almost a quarter of Middle East companies report having company policies against direct shareholder contact with the board, more than any other comparable region. If boards of directors in the Middle East eventually follow the global trend of engaging more with investors, the IRO job will need to change accordingly. Globally, 55 per cent of IROs provide feedback on investor sentiment to the board of directors and 54 per cent report on sell-side analyst opinions.
A growing subject of board conversations elsewhere, the issues of Environmental, Social and Governance (ESG) lag as a topic of focus within the region. Only a small sliver, i.e. 6 per cent of Middle East companies report reaching out to ESG investors regularly, as compared to 24 per cent of companies globally. Of the respondents in the region, 69 per cent say that this is not part of their current strategy. This situation also provides an opportunity. Just as IROs can prepare now for a future increase in board of directors’ engagement with investors by enhancing their own communications with their boards, they also have an opportunity to plan how to respond to future shareholder requests on ESG issues. Companies globally are increasingly viewing ESG disclosure through the lens of materiality; that is, the specific non-financial information a reasonable investor would find material in making their investment decision. Focusing on materiality now would allow IROs in the Middle East to prepare for questions from the investment community: company fundamentals and the factors that could truly drive an investment decision.
With so much change in the investment industry, and with regional political turmoil showing no signs of abating, it is clear that a focus on basics and company fundamentals will remain at the core of the job description for IROs. Fortunately, the regional IROs responding to the survey are already focused on many of these issues; with 79 per cent reporting that they distribute press releases outside their home market, much higher than the 50 per cent of respondents globally. Another happy note is that the survey revealed Middle Eastern IR teams to be younger in tenure than those globally, with 34 per cent having less than five years’ experience. As investors’ demands evolve, these IROs should, we hope, be able to evolve in tandem, complementing and enhancing their strategic outreach to investors in the Middle East and around the globe, while maintaining the “good ball control” of basic IR work.
In its role as depositary bank for Middle Eastern companies, BNY Mellon actively supports the IR activities of its client issuers. The report, Global Trends in Investor Relations 2013: A Survey Analysis of IR Practices in the Middle East [hyperlink to www.globalirsurvey.com], is just one of the ways in which we provide our clients with useful professional information while promoting best IR practices worldwide.
The writer is Senior Capital Markets Specialist in the Global Investor Relations Advisory Team of BNY Mellon Depositary Receipts. The views expressed herein are those of the author only and may not reflect the views of BNY Mellon. This does not constitute financial advice, or any other business or legal advice, and it should not be relied upon as such.
