Regardless of whether you are a private company or a public company, effective communication with shareholders is a critical component of good corporate governance and plays a pivotal role in maintaining investor confidence, managing market perceptions and expectations and promoting the long-term success of a company. When executed properly, shareholder communication fosters trust, aligns expectations and supports the company’s strategic objectives. Conversely, poor communication can lead to a loss of business confidence, legal challenges and a decline in shareholder value.
The importance of shareholder communication lies in its ability to create transparency and foster a sense of partnership and trust between the company and its investors. Shareholders, as the owners of the company, require timely, accurate and relevant information to make informed decisions about their investments. Regular updates on financial performance, strategic direction, risk management and governance practices are essential. When shareholders are well-informed, they are more likely to support management decisions and less likely to be difficult or activist.
A good example of effective shareholder communication is the Commonwealth Bank. It maintains a robust communication strategy that includes clear and consistent messaging across its earnings calls, annual reports and shareholder meetings. It provides detailed insights into financial performance, product strategy and market outlook, while also addressing shareholder concerns and questions transparently. Its ability to articulate its vision and operational strategy has not only built trust among shareholders but has also contributed to its sustained market leadership and robust stock performance. Transparency and consistency in communication has played a significant role in maintaining investor confidence, even during challenging market conditions.
On the other hand, an example of poor shareholder communication can be observed in the case of Enron Corporation. Prior to its collapse, Enron was praised for its innovative business model and rapid growth.
However, the company engaged in deceptive practices, including the manipulation of financial statements and the concealment of debt through off-balance-sheet entities. Enron’s failure to communicate honestly with its shareholders about its financial health and business risks ultimately led to one of the largest
bankruptcies in history. The lack of transparency and the misleading information provided to shareholders resulted in a complete erosion of trust, significant financial losses for investors, and a broader crisis in corporate governance.
The consequences of poor communication extend beyond financial losses. They can lead to legal actions, regulatory scrutiny and long-term damage to a company’s reputation. In contrast, companies that prioritize clear and consistent communication can build a strong foundation of trust with their shareholders, leading to greater investor loyalty, a more stable share price and the ability to navigate challenges and crises more effectively.
Shareholder communication is not just a regulatory requirement but a strategic imperative. Companies that excel in this area understand the value of transparency, consistency and engagement. They recognize that shareholders are not just passive investors but key stakeholders who deserve to be kept informed and involved in the company’s journey. By fostering an open and honest dialogue with shareholders, companies can enhance their reputation, support their strategic goals and aid in their long-term success.
Conversely, neglecting this critical aspect of corporate governance can lead to less than ideal outcomes. The recent crisis management communication strategies associated with the hacking of Medibank Private and Optus are examples of how poor shareholder and broader stakeholder communication can have adverse effects on the company’s management, stock market performance and market perceptions. These examples underscore the importance of getting shareholder/ stakeholder communication right.
Unlisted companies can gain significantly from better communication with their stakeholders, including shareholders, employees, customers, suppliers and even potential investors. While they may not face the same regulatory requirements for disclosure as publicly traded companies, the benefits of clear, consistent and transparent communication are equally important, if not more so, for unlisted companies.
One of the primary advantages of better communication for unlisted companies is the ability to build stronger relationships with their shareholders and other key stakeholders. Unlike public companies, where shares are widely distributed and often traded without much interaction between shareholders and management, unlisted companies typically have a smaller, more concentrated group of shareholders. These shareholders often include founders, family members, private equity investors, or venture capitalists. Effective communication helps in aligning these stakeholders with the company’s strategic goals, ensuring that everyone is on the same page regarding the company’s direction and performance.
For unlisted companies, maintaining investor confidence is crucial, especially when it comes to securing additional funding or navigating through challenging times. Regular and transparent updates on the company’s financial performance, strategic initiatives and market conditions can reassure investors that the business is being managed effectively. This is particularly important when a company is going through a growth phase, considering a sale, or preparing for an eventual public offering. By keeping investors well-informed, unlisted companies can more easily attract additional well priced capital when needed, negotiate better terms for financing and avoid conflicts that could arise from misunderstandings or unmet expectations.
Another key benefit is the enhancement of the company’s reputation and credibility. Private companies often rely heavily on relationships with customers, suppliers and other business partners. By communicating effectively, a company can build trust with these external stakeholders, which can lead to more favourable terms in negotiations, stronger customer loyalty and better supplier relationships. For example, if a company is transparent about its strategic plans, product development or market expansion, it can engender confidence among its customers and suppliers, who may then be more willing to support the company’s growth initiatives.
Employee engagement and retention are also critical areas where unlisted companies can benefit from better communication. Employees are more likely to be committed and motivated if they understand the company’s vision, goals and performance. Regular communication from leadership, whether through town halls, newsletters, or informal meetings, can help in building a strong company culture and ensuring that employees feel valued and informed. This is particularly important for unlisted companies that may not be able to offer the same financial incentives as public companies, such as stock options or other equity-based compensation. In these cases, clear communication about the company’s growth prospects and their role in it can be a powerful tool for retaining top talent.
Finally, better communication can also help unlisted companies in crisis management. In times of difficulty, whether due to economic downturns, operational challenges, or other unforeseen events, having established channels of communication with stakeholders can make it easier to manage the situation. By providing timely and accurate information, companies can mitigate rumours, reduce uncertainty and maintain trust, which is often the most valuable asset during a crisis.
Unlisted companies can gain significantly from better communication by fostering stronger relationships with shareholders and stakeholders, maintaining investor confidence, enhancing their reputation, improving employee engagement and effectively managing crises. While the audience and the scope of communication might differ from that of publicly traded companies, the underlying principles of transparency, consistency and engagement are equally applicable and beneficial for unlisted companies.
One Australian company that specialises in shareholder communications for unlisted companies is Diolog. Utilising state of the art technology, Diolog enables companies to streamline and aggregate communication with investors at scale, measure real-time sentiment and provide a more accessible touchpoint for investors. For investors: The Diolog mobile app provides a direct channel to communicate and engage with all the companies they invest in or are looking to invest in. Download the app here.
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