What does communication mean to South African corporations? By the looks of it, very little. There is no sense that communication is paramount to doing business these days, especially in the age of social media – Twitter, Facebook, YouTube, and so on.
These platforms have turned the world of disseminating information upside down, and in that context companies have to raise their game in how they communicate, or they are going to pay a heavy price.
Even though we are now in the age of hashtags, trending and sound bites, the old habits that inhibit proper and effective communication or disclosure persist.
The old-school way of hiding behind “we cannot provide further information” won’t cut it and those who ignore this do so at their own peril. And this is what Telkom learnt this past week.
Telkom’s handling of its suspension of its chief financial officer (CFO) showed once more how painfully deficient South African corporations are at communicating. The same thing was apparent in how MTN and Sasol communicated the abrupt departures of their own chief financial officers recently.
A while ago I had the privilege of being at the heart of the Wall Street corporate disclosure mill when I was part of a team that trawled through hundreds of press releases that US companies put out 24/7 – be it executive departures, financial results or performance updates, and so on.
Not once did I find any ambivalence on the part of these companies about the need to keep all their constituencies – staff, investors, customers, and so on – adequately informed and in a timely manner. Telkom, much like MTN and Sasol, had ample opportunity to get its message right the first time, but it failed.
An investor relations and communications practitioner, who consulted for blue chip companies in the US, once told me that what corporate communicators – including the chief executives – must understand, is that, in the case of a publicly traded company, whenever there is a communication breakdown, investors will sell and only ask questions later.
And that is exactly what happened to Telkom on Thursday. The company put out a press release about the suspension of a top executive, in the middle of a trading day, yet the release failed the basic test of providing the “what, when, how and why” – which basically left investors in the dark and resulted in more than half a billion rand being wiped off the company’s market value as the stock tanked.
Ordinarily, it is a reaction that should have been forestalled by not letting legalese stand in the way of communicating the fact that the suspension of Jacques Schindehütte will have no impact on Telkom’s financial performance and that it has nothing to do with an insider trading inquiry.
All this basic information only came a day later, when Telkom put out a second release entitled “Clarification relating to suspension of Telkom CFO”.
Had Telkom communicators, lawyers, and everyone involved in crafting its initial press release done their homework, the company would have been spared the embarrassment of having to “react” to speculation that Schindehütte’s suspension was tied to something financially sinister.
In theory, major corporations like Telkom allocate resources towards their communication function, yet, in practice, there is little to suggest they take the need for “proactive” communication seriously. I now wonder how many South African companies sit with depressed stock valuations because they cannot think creatively about how to communicate.
Anytime a company puts out a half-cooked press release it must understand that there will potentially be fallout because to leave key constituencies – especially the media – in the dark merely invites problems, which in the case of investors and the company involved can be costly.
I remember when Citigroup, the US banking giant, was beset with problems in 2008 and it became clear that it would need a bailout. It told the market, and the market was reassured, sending its shares higher even on a bad day. The lesson here is that it pays to get the bad news out of the way, decisively and openly.
To entrench good practices on corporate disclosure and communication, US authorities devised a system whereby companies not only put out a press release on an important development, but the rules of the Securities and Exchange Commission (SEC) also require them to file a regulatory filing called a Form 8K with the SEC, detailing the important information.
What this has done is institutionalise the way companies communicate important information.
But, so far in South Africa, the practice seems to be that of playing hide-and-seek, especially with the media. Companies must try to communicate as much as possible in the best possible way and time frame. They should not create an information vacuum that makes out as though the business has something to hide.
* Ellis Mnyandu is the editor of Business Report. Follow him on Twitter: @Ellis_Mnyandu