Newcrest review puts focus on investment industry
Despite his terms of reference guiding him to focus on Newcrest's internal processes, Dr Newman launched a long and withering account of the analyst and broking community, and advised Newcrest to consider abandoning its proactive relationship with analysts in favour of a reactive approach. Analysts are typically employed by big investment banks to provide impartial and in-depth analysis of companies, and the publication of four analyst notes in the days before Newcrest's gloomy June 7 corporate restructure has been at the heart of claims that Newcrest selectively briefed certain individuals before the rest of the market.
But in Newcrest's case, Dr Newman said analysts were slow to adjust to the gold price slump in April, and he blamed some of that malaise on a recent trend for cost-cutting across the industry.
"Due to cost cutting, analysts have to cover more companies and so have to spread their time more thinly," he said.
"Despite the fact that the investor relations function [inside Newcrest] understands well its obligations under the law, it seems some market analysts fail to fully understand the relevance of the information that the company releases ... this can lead to misunderstandings, a sense that others have privileged access.
"Given the changes noted within the broker community and the associated risks to the company, consideration should be given to changing the emphasis from proactive to reactive contact."
Australian Investor Relations Association chief executive Ian Matheson said Dr Newman's report contained some valuable insights into how the industry had evolved in recent years. "The recommendations support our view that investor relations is a business-critical function that needs to be adequately resourced and staffed by professionally trained executives," he said.
Mr Matheson said AIRA would consider Dr Newman's recommendations as it continued updating its "best practice guidelines" for the investor relations industry.
Frequently Asked Questions about this Article…
Dr Maurice Newman's review of Newcrest Mining put the health of Australia's investment industry in the spotlight. He described the analyst and broking community as short-staffed, inexperienced and slow to comprehend significant market changes, and he launched a critical account of how that community has evolved.
Dr Newman advised Newcrest to consider moving from a proactive to a reactive approach to analyst contact because changes and cost-cutting in the broker community create risks. He argued that stretched analyst resources and other industry changes can lead to misunderstandings and perceptions of privileged access.
The review said cost-cutting has forced analysts to cover more companies, spreading their time more thinly. That pressure can make analysts slower to adjust to market moves — for example, Dr Newman noted they were slow to respond to the April gold price slump.
The article notes that four analyst notes were published in the days before Newcrest's gloomy June 7 corporate restructure, and that publication has been at the heart of claims the company selectively briefed certain individuals before the rest of the market.
No. The review said Newcrest's investor relations function understands its legal obligations, but it also observed some market analysts may fail to fully understand the relevance of company-released information, which can lead to misunderstandings and a sense that others have privileged access.
AIRA chief executive Ian Matheson said Dr Newman's report contains valuable insights into how the industry has evolved. He said the recommendations back AIRA's view that investor relations is a business-critical function that needs adequate resourcing and professionally trained executives, and AIRA will consider the recommendations when updating its best-practice guidelines.
The review highlights that analyst reports can be affected by industry cost-cutting and heavy workloads, which may make some analysts slower to react to market changes or to interpret company disclosures fully. That dynamic can contribute to mixed signals in the market and perceptions of unequal access to information.
Key takeaways are that analyst coverage quality can be weakened by cost pressures and heavier coverage loads, that misunderstandings can arise when analysts don't fully grasp the relevance of company disclosures, and that companies may rethink how they engage with the broker community — all of which can affect how market information is interpreted.
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