Boards should communicate regularly to reduce stakeholder uncertainty

BY MOST accounts, 2023 will be a difficult year for most countries. The head of the International Monetary Fund (IMF), Kristalina Georgieva, warned recently of tough going because the main engines of global growth, namely the United States, Europe and China, will all experience weakening activity. The new year is going to be “tougher than the year we leave behind’’ she said.

The US Federal Reserve and other major central banks have been aggressively raising interest rates to combat spiking inflation that has been aggravated by the war in Ukraine and supply chain constraints from the Covid-19 pandemic. On top of these worries there are US-China trade tensions to contend with. A synchronised slowdown is all but certain, the only question being the extent. In Singapore, the official growth forecast for 2023 has been progressively lowered and now stands at 0.5-2.5 per cent, though a recession is not expected – at least not yet.

Borrowing costs have thus risen sharply and the uncertainty over where interest rates are headed has brought the prices of risk assets, mainly stocks, down sharply. Apart from banks for whom rising interest rates are likely to be beneficial, most other sectors are expected to face profit headwinds. As economic uncertainty rises, so will anxiety levels among corporate stakeholders – both holders of debt and equity.

As such, companies would be well-advised to maintain strong channels of open and honest communication with their stakeholders to keep all investors updated on the status of their investments. The months ahead will therefore be a test of how boards respond to this challenge.

To be sure, most companies are usually hesitant, if not resistant, to embark on any formal stakeholder engagement in troubled times – managements would be reluctant to commit to, for instance, meeting with their investors face-to-face if they themselves do not know what the future holds with any degree of certainty. But, for investors, even some insights into whatever plans are being considered to tackle a coming downturn would be some reassurance that their interests are being looked after.

Boards have to understand that proper investor outreach is mutually beneficial. Investors who are updated regularly on business proceedings have a greater sense of connection to their investment. When investments continue to perform, investors are less likely to consider pulling their money from the venture and may even opt to invest further.

The question then arises – how should stakeholder engagements be undertaken? One way is through e-newsletters posted on company websites and regularly updated. Another is by issuing regular profit guidance notices, and ideally the best would be to have stakeholder townhall meetings or stakeholder days, to facilitate face-to-face meetings.

Rather than just the financial outlook or performance, boards should consider expanding the discussion to include strategy, risk assessments, crisis management, succession planning, board renewal policies and other topics that are important to investors. Such discussions offer investors a higher level of transparency, which would engender a greater level of confidence and trust. The initiatives should be implemented from when times are good, so that stakeholders can grow accustomed to visiting the company’s website or meeting managements for updates. Whatever the case, given the cloudy outlook for 2023 and beyond, the sooner such engagements are institutionalised, the better.