Predictability builds trust

With all the talk of recession and volatile stock markets around the world and locally, corporate and individual shareholders are somewhat nervous. They all know investing in the stock market is a risk, but even when taking a chance, these investors want some assurance that their money is not going to vanish when some unexpected bit of information is leaked to the market.

Even if the markets were booming, many investors are still concerned their investments may turn out to be another Enron, a seemingly solid and stable company that destroyed billions of dollars in value almost overnight. Moreover, nowadays the public at large is also wary of listed companies that seem to be more inclined to talk about retrenchments and cutbacks than expansion and hiring.

What pervades the market in uncertain times is a lack of trust, and many companies have felt the pain of seeing irresponsible rumours cause a sell-off, which results in a depressed share price. Even worse, these rumours always give rise to another cycle of rumours that result in more negative sentiment, unless the company is able to act quickly and restore trust.

“To avoid panicking and rumour mongering, companies need to build a solid reputation based on trust,” says Marc Scheepbouwer, MD of Intellient. “This trust is not based on good PR and marketing, but on transparency.”

When a company chooses a consistent reporting methodology that is trusted and transparent, shareholders are able to see at a glance what the real status of the company is. There will be no suspicion of creative accounting being used and unpleasant facts being hidden away by altering how reporting is handled every three, six or 12 months.

“More than the reporting methodologies, the procedures governing how data is collected and processed must also be standardised and transparent,” adds Scheepbouwer. “Shareholders need to know that their reports are populated by reliable information that was also collected in a standardised, managed process.”

The only way to create the level of standardisation required to engender long-term trust is to adopt the right platform for the reporting and consolidation of financial information. This is not a question of technology, but consistency and the capability of the listed company to offer more than a nebulous list of figures every six or 12 months.

“Standards can, of course, be implemented as home-grown solutions instead of via a recognised financial platform,” notes Scheepbouwer. “However, when a system recognised for its integrity, flexibility and transparency is used to collect, collate and present information in a fashion that is accepted globally, any suspicion of wrongdoing can quickly and easily be disproved. In-house systems may not garner that much trust that easily.”

A recognised platform will empower the company to use standardised views and methods in their reporting, whether they are year-end, interim or even ad-hoc reports, as well as offer the flexibility to drill down into the history of the information if required. This transparency will in turn engender trust and goodwill towards the company, which will stand it in good stead in conditions that might otherwise start a panic simply because shareholders have more insight into the real status of the company.