Why should Gulf investors want to copy a system that has produced the global financial crisis, it is increasingly asked?
Investor relations a crucial concept for Gulf shareholders
When you next have a spare 10 minutes at your laptop, go to emaar.com, click on the section that deals with share price information, and reset the start date to the beginning of 2005. There you will see in full detail the story of the rise and fall of the Middle East's leading property company. In a silhouette uncannily like that of the Burj Dubai, the shares peak at an incredible Dh38.61 in June of 2005, before falling to Dh17 later that summer, and then bumping downwards for the rest of the time towards the all-time low of Dh1.87 hit earlier this year. Yesterday, they closed just around Dh4.
Slide your curser along the Emaar graph and you get a daily record of the share price and volume of shares traded on any given day. As you might expect, the big price moves, whether up or down, were accompanied by large trading volumes. Manoeuvre further around the website and you can see the events - results, deals, corporate announcements - that caused these price movements. The website is not perfect. There is little information on the impending merger with Dubai Holding's property divisions that arguably will determine the share price trend for the next few years, for instance. But I reckon it is as close as you get in the Gulf region to a proper, functioning investor relations presence on the internet.
Investor relations (IR) is a comparatively recent discipline that in the West grew out of the broader public relations brief in the 1980s, when notions of "shareholder democracy" first surfaced. It deals specifically with the corporate-shareholder relationship, as opposed to public relations, which I reckon deals with all the other stakeholders in the company: employees, customers, clients and the media covering the affairs of the corporation. This distinction is not clear cut - factors that affect employees and the rest will often determine share price movements, too - but broadly speaking IR equals shareholders, public relations equals the rest.
In the Gulf, and the UAE in particular, it is a problematic concept. Vast swathes of the economy are dominated either by government-related enterprises - where there is only one shareholder that matters - or by family-owned businesses - where there are no public shareholders - and you might think IR was superfluous and irrelevant. I think that conclusion is wrong. Another objection might be that it is inappropriate to take a concept such as "shareholder democracy" and graft it on to the indigenous business models of the Gulf, which developed without these populist influences. You could argue that the chaos of the past year on the world's financial markets has shown that the western model is itself far from perfect.
Why should Gulf investors want to copy a system that has produced the global financial crisis, it is increasingly asked? I believe that line of reasoning is also flawed. Even the most committed apologists for the western system would now recognise that there are serious defects in the model that produced the credit crunch. The drive for short-term profits, the lack of transparency that meant investors were being offered products even the originators did not understand, and the culture of leverage all made for an intrinsically unstable financial system.
But for the Gulf to ditch or dilute the basic tenets of investor relations would be an extreme over-reaction. What was needed in the West was more transparency and accountability, not less. If Gulf markets turned their backs on IR now it would be to abandon the ambition of matching international best practice that has been the motivator of all public policy in financial markets. It would certainly make the region a less hospitable environment for crucial direct foreign investment.
Gulf protectionists would argue that there is plenty of indigenous investment in the region in the form of energy revenue, and that foreign investment is not needed. But if that sentiment were taken to its logical conclusion, the great trading ports of the Gulf coast - Kuwait, Bahrain, Doha, Abu Dhabi and Dubai - would cease to function as commercial hubs. Certainly Dubai, with little energy revenue, would lose its whole raison d'être.
Investor relations is still in its infancy in the region, but it has its own professional organisation, the Middle East Investor Relations Society. And there is a chance coming up to gauge its progress against international benchmarks. Hallvarsson and Halvarsson, the Swedish consultants who have been rating online IR standards in Europe for the past 13 years, are about to publish their first analysis of the GCC. It will be fascinating to see which countries, and which corporations, are leading the way.