Digital age creates need for universal laws
In the age of instant news and rapid social media, protecting a brand from negative perception and publicity has evolved into a fundamental business challenge. The viral nature of social media posts means a company’s brand is always one faulty Tweet away from a publicity crisis.
The problem with social media is that they operate in a regulatory vacuum where the proliferation of fake and unauthenticated stories can prevail long before the affected companies have a chance to respond. A classic example of this phenomenon relates to Viceroy, which came to prominence following the Steinhoff saga.
Since then, Viceroy has garnered an ability to send capital markets into a tailspin simply by releasing a report on a company. This was exhibited in the Capitec matter, where the Viceroy report caused dramatic shifts in the Capitec share price.
As a short seller, Viceroy operates in one of the less regulated avenues of financial markets. This regulatory vacuum has the potential to cause more harm than good. In an instance where a short seller like Viceroy takes a position on a stock and then publishes an adverse report, there is a significant financial upside to the short seller. Due to the paucity of information in financial markets, the instinctive reaction — as we saw with Capitec — is for market participants to react first then corroborate later.
If the views of the short seller turn out to be less than accurate, a sense of scepticism against the market at large creeps in.
Recently, Intellidex published a report about short sellers in general and about Viceroy specifically. One of the Intellidex recommendations is that there ought to be some regulation of the short seller market that would aid transparency and boost the integrity of capital markets. While market participants in any sector abhor regulations, it serves to protect the same market participants and society at large. Given the critical role played by business in society, there is a need to implement regulation that does not inhibit business activity.
The traditional model of creating regulation has focused on each country’s own considerations rather than universal ones. Given the rise of the sharing economy, as exhibited by Uber, Facebook, Netflix and similar businesses, the reality is that jurisdictionspecific regulations may no longer be fit for purpose.
MultiChoice has called for the introduction of regulations for companies such as Netflix, which, due to the advent of superior technologies that make the sharing economy more universal each day, are able to provide services in jurisdictions where they do not have a physical presence. Crucially, this also enables them to exist outside the tax net of countries with lax tax laws created and implemented on the basis that a company has to be located in the country to operate.
European regulators recently mooted a digital tax aimed at taxing the key players in the sharing economy like Facebook. Additionally, Airbnb will now be required to comply with EU regulations regarding consumer protection and transparency. These are the first tentative steps towards creating rules that are more suited to the evolving nature of business across the world. Given the financial muscle enjoyed by the EU, regulations mooted in Brussels have a strong chance of being implemented. SA, on the other hand, does not possess the same influence and also suffers from a regulatory lethargy that makes it unlikely that regulation will come to the aid of MultiChoice anytime soon.
And, given MultiChoice’s own history of frustrating policy implementation with regard to encryption, for example, I don’t predict much sympathy will flow in its direction.