The health of Australia's investment industry has been put in the spotlight by Dr Maurice Newman's review of Newcrest Mining, with the former ASX boss describing the analyst community as short-staffed, inexperienced and slow to comprehend significant changes in the market.
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.