Walking disclosure's grey paths with a Newcrest lamp

Newcrest Mining’s decision to appoint former ASX and ABC chairman Maurice Newman to conduct a review of the group’s disclosure and investor relations is a sensible way to get onto the front foot in response to the damaging speculation about what it did or didn’t tell analysts in the lead up to its announcement of major writedowns and changes to its business strategy earlier this month.

While the Australian Securities and Investment Commission is conducting its own investigation into the spate of broker downgrades that followed meetings with the company, ASIC investigations tend to be protracted affairs because they may lead to legal proceedings and therefore any evidence needs to be very robust and collected under procedures that will withstand any challenge.

By commissioning its own independent review the Newcrest board will presumably get a far more timely insight into what happened in the days leading up to the announcement of the outcomes of its review of its operations as well as an assessment of the quality of its investor relations policies and processes. It may also give it the opportunity to take any action it believes is required (and to get credit for acting) rather than waiting passively to respond to whatever action, if any, that ASIC might take.

It also demonstrates to the outside world that the board takes its disclosure obligations seriously, although that probably shouldn’t be necessary. Boards are acutely aware that most of the legal actions in recent years, whether brought by ASIC or class action lawyers, have been based on alleged breaches of the continuous disclosure laws.

Newcrest is a very large and conservative company with an experienced and highly-credentialed board chaired by former ANZ chief executive Don Mercer. It wouldn’t be expected to take its disclosure obligations anything but seriously.

Dr Newman will also review compliance with the group’s internal policies and procedures, which might be where the risk lies, although the company itself appears to believe that its investor relations staff didn’t breach its policies.

Investor relations programs, because of the continuous disclosure regime, are fraught with risk. Companies can’t give analysts any material information not generally available to the market but they do have discussions with analysts in order to help them understand both the company and the context in which it is operating.

There is a very fine and sometimes vague line between highlighting to analysts matters that are in the public domain or that could be inferred from generally available information and passing on information or insights that could be regarded as information that hasn’t been previously disclosed.

Within the disclosure regime there is also a positive obligation on companies to ensure that the market consensus in relation to its position and prospects isn’t materially different to its own assessments and expectations – even if there ought to be sufficient information in the public arena for analysts to have reached the right conclusions without having to be steered towards them. That adds to the grey areas in the dealings with analysts and investors.

Newcrest, in its original response to an ASX query after its share price dived on the back of the downgrades, made the point that the recommendations of the business review and management’s 2013-14 budget, and the writedowns that flowed from them, weren’t accepted and endorsed by the board until its board meeting on June 7, several days after the downgrades began flowing.

Until the board signed off on management’s plan there was, as Newcrest has said, no certainty that it would be approved or that aspects of it wouldn’t change materially.

As discussed previously, the major influences on Newcrest’s performance that shaped the plan – a tumbling gold price, strong dollar and the elevated costs that have affected the entire resource sector – ought not to have shocked anyone. Neither should Newcrest’s response to them; cutting costs, pulling back on investment, suspending mining of higher cost ounces – and announcing writedowns.

Whatever the analysts were told in the lead-up to the June 7 announcement, however, does appear to have surprised and galvanised the analysts. After the Newman review, Newcrest and – given that Mercer has said any action taken in response to it will be made public – the market-at-large, will have a better understanding as to whether that was the analysts’ fault, or Newcrest’s.