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Text © 2010 Mohamed Abdulla Isa, CPA, MBA, DTM
ISBN-13: 978-1-4566-0412-7
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the copyright owners.
Designed & Produced by Media Express, Bahrain
Mohamed Abdulla Isa
CPA, MBA, DTM
ABOUT THE AUTHOR
Mohamed Abdulla Isa is a Certified Public Accountant from Colorado State Board of Accountancy in USA. He also holds a BSc in Accounting from University of Bahrain and a Master of Business Administration from University of Hull in UK.
He worked for the multinational giant – Unilever – in its offices in United Arab Emirates and Kingdom of Saudi Arabia. His last post with the company was Regional Finance Manager for North Africa, Middle East and Turkey.
He is currently the Chief Financial Officer of a Public Company in Bahrain. Since he joined this company, he played an instrumental role in achieving several corporate milestones such as handling the company’s Initial Public Offering, its cross – listing on different Stock Exchanges, the re-launch of its new corporate identity and its corporate restructuring program.
Mohamed was awarded the Distinguished Toastmaster (DTM) status by Toastmasters International (USA) in April 2009. He also won plethora of speech contests in Bahrain and across the Middle East. In addition, he is the first Certified World Class Speaking Coach in the Middle East & Africa Regions.
He is happily married with two children – Dana and Abdulla – who are very calm and cool until they wake up.
Mohamed can be reached on www.IR-Review.com
ACKNOWLEDGMENTS
First, I would like to thank my better-half for her unlimited support in all my life endeavors, my daughter Dana, for her charming smile that keeps me going during tough times and to my son Abdulla for arriving at the beginning of 2010.
My deepest thanks go to Ali Khalil Ebrahim, Fatima Al-Khoor and Aisha Al-Zayani for assisting me in the websites analysis coding and to all the interviewees for taking the time to meet me and to share their experience, knowledge, and views on the subject matter of this book.
I would like to thank my friends and colleagues who contributed without hesitation to this book especially Dr. Salman Al-Fardan and my friends who are scattered around the world including Riyadh Mahmood, Arif Amiri, Alex Menage, Michael Chojnacki, Jalal Hassan, Arnold Champon and the IR Couple – Anthea Ameer and Tijjay Majiyagbe. Your insights and suggestions added colors to this book.
Last but not least, this book is dedicated to my mother who taught me patience, persistence and perseverance. Thanks for showing me the way.
EXECUTIVE SUMMARY
The subject of Investor Relations (IR) was conceived in the 1960s in the United States of America, it then spread to Europe and the rest of the world. According to the National Investor Relations Institute in USA, IR is a strategic management function that integrates finance, communication, marketing and securities law compliance to enable an effective two-way communication between a company and the financial community which ultimately contributes to a company’s securities achieving fair valuation. The IR profession is growing in importance as confirmed by several studies in Europe and USA as well as the formation of IR Societies internationally in countries like Turkey and the United Arab Emirates.
Internet technologies revolutionized IR practices. Websites and other online tools are giving listed companies better capabilities to reach out to their investors and the financial community at large. These new tools are cost-efficient, fast and allow companies to study the behavior of their investors. These tools include the Online Annual Report, Blogs, Webcasts, E-Proxies and newsletters. The website is the best source of information for investors. According to one survey, almost 90% of investors state that websites greatly affect their perception about companies.
The main objective of this book is to review Investor Relations Practices of Bahraini Listed Companies and offer recommendations to improve these Practices.
The author adopted the phenomenological paradigm to carry out this review, which is suitable to study the subject matter, as IR practices are not static but continue to evolve over time to match the environmental changes that occur within the financial community.
The author collected both primary and secondary research data to review IR Practices in Bahrain. The primary research data were collected through conducting semi-structured interviews with representatives from the financial community ranging from auditors to investment professionals. In addition, the author conducted a website content analysis exercise to evaluate the websites of Bahraini listed companies on Bahrain Stock Exchange using his own checklist. The checklist had 36 criteria of evaluation grouped into six categories, which are the company profile, the financial profile, application of technology, design, interactivity and timeliness. The results of the websites analysis were validated against the results of an independent study to test the reliability and accuracy of the study outcome.
Moreover, the author conducted a review of IR literature to collect secondary research data from sources such as books, professional publications, surveys, and best practices guidelines issued by different IR societies such as the National Investor Relations Institute in USA, Malaysian Investor Relations Society and the Investor Relations Society in UK. This procedure was carried out to find out what are the international best practices in IR and to see how companies could leverage on new internet technologies to improve their reach to the financial community.
The findings were either expected or striking. As expected, the interviewees unanimously agreed that there is a great room for improving IR practices of Bahraini listed companies especially when it comes to holding the Annual General Meetings, and the quality of results announcement releases. In addition, they stressed the importance of being transparent in times of financial distress, upgrading the awareness of their Board of Directors on IR issues, and improving the customer service to their shareholders using the different channels of delivery by phone, email and otherwise.
Beyond the companies’ scope, the interviewees argued that local newspapers should upgrade the skills of their business journalists to cover the business news in a more professional manner by revealing the stories behind the numbers. In addition, they argued that the regulators should re-consider some of the regulatory requirements to encourage shareholders activism and introduce cumulative voting in Annual General Meetings to defy the current market ownership structure where the majority of shares are owned by institutional investors and governmental entities. Logically, shareholders activism will mount the pressures on listed companies to improve their IR practices.
On one hand, it was striking to note that 20% of Bahraini listed companies do not have a website. It was more striking to find that these companies without websites operate within the service sector. Moreover, it was found that 23 of the 40 Bahraini listed companies scored 50% or less on the scoring system developed by the author. On the other hand, as expected, financial institutions that are regulated by the Central Bank of Bahrain topped the companies in terms of the scoring. The highest-ranking website in terms of scores is the website of Investcorp followed by both the Arab Group Insurance Company and Gulf Finance House.
It is worth noting that the average score of companies having a website was only 53%. The average was pushed down by the poor scores companies received for the limited financial disclosure and not implementing internet technologies and