Financial Communication

Earlier this year, Samantha Seewoosurrun, Chair of CIPR International was interviewed about financial communication which appeared in French in L’Annuaire de la Com in Mauritius. This is an English translation of that article.

What are the specific features of financial communication?

The term financial communication describes the communication of an organisation’s financial and performance data to its target stakeholders, which supports its wider financial and business strategy. Financial communication is mandatory in the case of public listed companies, where specific financial disclosures must be made at regular intervals set by regulators.

Target stakeholders can include regulators, existing and potential investors, shareholders, analysts, rating agencies, employees and media. Financial communication is important as it can have a significant impact on a company’s stock prices (for better or worse) and market reputation.

The purposes of financial communication vary, from capital raising and announcing listings, to meeting wider regulatory requirements or maintaining investor confidence. It can take many forms, from financial statements and accounts to market announcements regarding M&A or a new private equity partner, for example. Depending on the situation, the documentation to be prepared may include an Investment Memorandum, prospectus or Private Placement Memorandum to potential investors, or an open letter to existing investors which could also be shared with the media.

There is some overlap between the PR disciplines of financial communication and investor relations, where the latter applies in the case of publicly traded companies, and which may cover investor relations strategies and preparations for investor roadshows, for example.

It is also notable that in the run up to a major piece of financial communication, such as the announcement of an IPO, the financial communication strategy may include creating a calendar of ‘good news’ announcements in the months preceding the IPO announcement, which may not contain financial data, but which present the company in a positive light and which make the company more attractive for potential investors.

In recent years, companies have shifted their focus from merely fulfilling legal requirements to strategically implementing their publications. This shift signifies a significant evolution towards greater transparency in financial communication. Can we assert that financial communication has now emerged as a critical concern?

Financial communication has a vital role to play in ensuring the survival and growth of a company.

A perceived lack of transparency can sow rumours and market speculation, in the worst case leading to a crisis. A transparent approach can be characterised as one where clear, accurate, timely and comprehensive information about the situation of the company and its prospects is provided to target stakeholders. It should encompass details of the company’s business model and strategy, risks and opportunities. This can help a company to obtain access to funding from investors or, in the case of public listed companies, attract new shareholders and increase the share price.

In your experience, are the impacts of financial communication often underestimated by local companies?

While public listed companies are required to ensure financial communication, management of other types of company might not appreciate the benefits it can bring, if done properly. It is not enough to simply release financial data, but it is essential to highlight the key messages that the organisation wishes to convey in a clear, simple and concise fashion, with the use of graphics or charts if appropriate. The audience is therefore guided to draw a positive conclusion from the information being shared and should not be left to interpret the raw financial data in isolation.

The experts are urging companies to communicate better on their strategy and their positive contribution to society. Have social responsibility issues become a major aspect of corporate financial communications?

I believe that the traditional CSR agenda has now been overtaken by the global Environmental, Social and Governance (ESG) agenda which relies upon non-financial metrics which promote greater openness and transparency. At international level, more companies are now including adherence to ESG principles within financial communications, which shows the extent to which it is becoming a crucial barometer of performance beyond profits. Mauritius is following this trend, with an ESG framework for investments into Africa under preparation. ESG measures which can be well assessed and quantified are likely to feature more strongly in financial communication strategies in the future.

Social networks have profoundly disrupted the marketing and corporate communications of companies and institutions. What about financial communications?

Financial communication is being shaken up in the social media age. While in the past, financial communication was mainly about making proper disclosures to investors and stakeholders, today the investor audience cannot be segregated from other stakeholders or customers. Investors how have access to a wide variety of information sources on a company, including what customers are saying about it on Facebook. Financial communication needs to factor in issues of reputation management and corporate governance, and it should be an integrated part of a company’s overarching communication strategy.

According to some experts, providing the right figures is all very well, but it's even better to enrich the message with storytelling. Should a company comment on its financial reports to tell its story through its figures?

Investors do not invest in businesses that they cannot understand or where they cannot see where it is headed. Raw financial data does not tell the story of a company and must be put into context. Storytelling has a vital role to play in explaining the company’s history and plans for future expansion. If the results are shaky, financial communication must explain the strategy and actions being taken by management to rectify the situation, such as restructuring or bringing in new investors.

Do small and medium-sized companies also need to have a good financial communications strategy?

While a major company might seek funding from institutional investors or private equity firms, a small or medium-sized company, or even a start-up, might seek raise capital through contacts with business angels, venture capitalists or crowdfunding ventures.

The principle of financial communication to any potential investor always remains the same. The company would need to explain through their communication collaterals who is behind the venture and their track record, what is the business activity, what type of involvement is sought from investors (which might not be purely financial) and what are the predicted returns. Bearing in mind that a potential investor will surely conduct their own due diligence on the management and the entity, there is a cross-over with traditional corporate PR and even Google/SEO positioning to make sure, as far as possible, that what the investor will find online is appealing and increases their interest in knowing more.

How is financial communication reinventing itself?

I believe that financial communication is being reinvented through a global move to integrated reporting, which has a greater emphasis on value creation than traditional annual reports. Integrated reporting is based on the IIRC’s <IR> framework which refers to stocks of capital, which comprise financial, manufactured, intellectual, human, social and relationship, and natural, which can all be increased, decreased or transformed through the activities and outputs of the organisation. Under this approach, financial communication may in future contain more non-financial data.

Methods of financial communication are also changing in the digital era, with a greater proliferation of webinars, videos and podcasts, allowing for greater immediacy in interactions between the organisation and its stakeholders.