The Distillery: Trust deficit

An internal investigation into Newcrest’s disclosure has been slammed by one business commentator, who argues it was a waste of time, at best. For investors it’s about trust and one jotter notes Newcrest is a long way from rebuilding that in the eyes of the market. Nevertheless, look deeper and there are at least some worthy points raised on disclosure worth pursuing.

Elsewhere, an analysis of Coalition costings finds a few positives, but the country is still likely to stare down medium-term deficit problems.

We start with Newcrest and The Australian’s John Durie isn’t holding back, taking the gold miner, and specifically report author Maurice Newman, to task for blaming ASIC. 

“Put to one side the fact Newcrest has already made clear it believes it has done nothing wrong, and that the material in question was in the market because it was the same as that presented at a US conference. That being the case, one wonders why it needed to haul in Dr Newman. But that aside, Newman has turned the defence into an extraordinary attack on ASIC... This column is the first to say ASIC makes myriad mistakes… but Dr Newman’s pleas are a bit like a drunk driver complaining the cops should have told him or her the booze bus was going to be outside his home after the party.”

Tell us what you really think.

The Australian Financial Review’s Chanticleer columnist, Tony Boyd, was more forgiving, turning attention to the big issue for Newcrest: trust.

“Newman, who is destined for big things if the Coalition wins Saturday’s election as chairman of Tony Abbott’s Business Advisory Council, has done the best he could in trying circumstances… His verdict that Newcrest did not do anything wrong was hardly unexpected and the gold miner clearly believes it has behaved appropriately, although many investors disagree. The main issue now is the outcome of an ongoing ASIC investigation and whether the threatened shareholder class actions against the company get any traction.”

The AFR’s Matthew Stevens notes Newman was upfront about the limitations he faced due to the concurrent ASIC investigation and inability to speak with analysts at the centre of the scandal. Indeed, despite these barriers, the document offers a benchmark of best practice moving forward.

“Newman’s review then is not yet the definitive narrative on the circumstances that preceded June’s calamity. But that does not mean that it is not a very, very useful little document. The recommendations offered to Newcrest on future management of disclosure obligations offers a benchmark of best practice that will be circulated to disclosure committees Australia-wide. Just as importantly, the discretely fierce criticisms offered of ASIC and the state of professional analysis will resound and are deserving of some serious reflection.”

Likewise, Fairfax’s Malcolm Maiden contends the report doesn’t exonerate Newcrest, but at least provides listed companies – and analysts – plenty of food for thought.

“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.”

Business Spectator’s Stephen Bartholomeusz also mulls the merits of the report, spotlighting an apparent market failure at play.

“The Newman review might be reassuring for Newcrest’s directors and management but, self-evidently, the events leading up to June 7 remain under a cloud until ASIC completes its investigation. It does, however, highlight that the market appeared to miss the implications of the steep decline in the gold price, which by itself is puzzling, and also failed to appreciate the import of what Newcrest itself was broadcasting in its public statements and presentations. Continuous disclosure only works as intended if the market understands what’s being disclosed. That’s an apparent market failure that would cause not only Newcrest to review how that could happen, but other listed companies within volatile sectors and the research departments of the broking firms themselves.”

To broader economic news, and the release of Coalition costings received attention, but the widely held view that the election is over kept analysis relatively light. The AFR’s economics editor Alan Mitchell takes the time to find the good and the bad and outlines two warnings on Abbott’s fiscal strategy:

“First, the strategy is only as good as the quality of the infrastructure investment decisions and the care with which the government has cut recurrent spending… The second warning is that Abbott’s days of fiscal engineering are far from over. Like Rudd, he is working on the basis of highly artificial long-term revenue and spending projections. When those projections are adjusted for political reality, it is clear that Australia has a medium-term budget deficit problem.”

Meanwhile, The Age’s economics editor Tim Colebatch keeps the focus on growth, explaining a shift away from WA as the country’s main growth centre.

And finally, the Herald Sun’s Terry McCrann says there’s no room for complacency on the country’s debt despite it currently being low by world standards.