Miner still has questions to answer
His report does suggest, however, that if there were disclosure sins, they were ones of omission rather than commission. It also comes up with 17 recommendations that all companies should consider if they want to avoid the disclosure morass that Newcrest is mired in.
With ASIC's investigation running, compliance officers inside broking firms and investment banks held sway. Newman says he spoke to only a few broking firms, and none of the analysts who attended meetings with Newcrest.
But he says he had access to everyone inside Newcrest, is confident relevant information was not withheld, and believes that meetings Newcrest held with analysts ahead of the June 7 announcement could not have been the source of inside information.
The investor relations executive who conducted the briefings "was not in a position to be informed about asset impairment issues or dividend payment deliberations ... this information had been quarantined from him," he says.
It's always possible that information leaked along some other conduit. ASIC will deliver the comprehensive verdict.
Newman's finding that information contained in the June 7 announcement was not in the hands of the officer who briefed analysts does suggest that rather than selectively briefing about something that was not announced, the gold miner attempted to correct an overly optimistic reading of information that was already announced: it's a crucial difference.
He believes that analysts were slow to understand the import of statements Newcrest had already made about the falling gold price, and its response.
Listed companies aren't required to set analysts straight when something like that happens. It is a matter of judgment, among other things, of how many analysts are off-beam, and how far off-beam they are.
Like many financial companies in the post-crisis environment, brokers and investment banks are bearing down on staff numbers.
Newman says analysts are being stretched to cover more companies, and that compliance red tape makes it more difficult for them to publish research that deviates from the status quo.
The failure of Newcrest's share price to more rapidly reflect a falling gold price may have reflected those factors, he says.
His analysis won't be welcomed by the broking industry. As a former boss of Deutsche Bank's investment banking business in Australia and a former chairman of the ASX, he is well placed to hold an opinion, however, and while his conclusions and recommendations are addressed to Newcrest, they apply to all companies.
Newman argues in effect that analyst error makes proactive communication more risky, and reactive, remedial action more important: and that when companies do react, they should bypass analyst briefings and use the ASX's unfiltered announcements system - to issue guidance, and to publish all briefings and presentations.
Many companies do that already, but a mid-May speech in Barcelona by Newcrest chief executive Greg Robinson that made it clear that the group was battening down the hatches was only published on Newcrest's website.
He also says, among other things, that Newcrest (read: all companies) should have more robust internal systems for producing information and reviewing its impact, should consider more extensive communications blackouts ahead of important events, have at least two executives present at analyst meetings (Newcrest had one) and work out when and how to either bring the investor relations team in on key announcements, or quarantine it.
Those are good contributions to the debate about the imperfect art of continuous disclosure. Newman's report doesn't exonerate Newcrest, but it gives all companies something to chew on.
mmaiden@fairfaxmedia.com.au
Frequently Asked Questions about this Article…
Newman’s report does not clear Newcrest of all questions. He found that if there were disclosure problems they appeared to be omissions rather than deliberate revelations, and he concluded the investor-relations officer who briefed analysts was not in a position to have been informed about asset-impairment issues or dividend deliberations. However, Newman also notes he spoke to only a few broking firms and no analysts who attended the briefings, and he acknowledges other leakage routes are possible.
Yes. ASIC is conducting an investigation into what happened around Newcrest’s announcement of multi-billion dollar write-downs on June 7. Newman’s report is independent commentary, but ASIC will deliver the comprehensive legal verdict.
Newman set out 17 recommendations for all companies, including using the ASX unfiltered announcements system to issue guidance and publish all briefings, strengthening internal systems for producing and reviewing information, considering communications blackouts ahead of important events, having at least two executives at analyst meetings, and deciding when to involve or quarantine the investor-relations team.
No. Newman believes the officer who conducted analyst briefings did not have the inside information about impairments or dividend decisions, suggesting the briefings were unlikely to have been the source of inside information. He does not rule out other channels for leaks, and ASIC will ultimately determine any wrongdoing.
Newman argues analysts were slow to interpret Newcrest’s earlier public statements about the falling gold price and the company’s response. He also points to industry-wide pressures — brokers and investment banks cutting staff, analysts stretched to cover more companies, and compliance constraints that make contrarian research harder — which may have delayed the market’s reaction.
Newman recommends that when companies need to react or correct the market, they should bypass selective analyst briefings and use the ASX’s announcement system to issue guidance and publish full briefings and presentations. This approach provides an unfiltered and equal channel for all investors.
The report contributes to the debate on the imperfect art of continuous disclosure by urging more robust internal controls, clearer decisions about who can receive sensitive information, stronger publication practices (via ASX), and better governance of investor-relations interactions. Newman says these steps would help companies manage disclosure risk more effectively.
No. While the report offers explanations and 17 recommendations for improving disclosure practices, it does not fully exonerate Newcrest. Newman’s findings give companies and investors points to consider, but the definitive judgment rests with ASIC’s ongoing investigation.
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