While the methodology of the Beaton survey is far from rigorous, and the report states that its findings should be regarded as ‘indicative’ rather than necessarily ‘representative’, the headline results are nonetheless an indictment of listed firms’ efforts to communicate the nature and implications of their changes in ownership and corporate structure. I have been saying for some time – not only on this blog, but privately to anyone who will listen – that perceptions are important, irrespective of the commercial reality, and that firms within the listed groups have not done enough to address concerns not only of the market, but of their professional employees who are understandably uncertain of what the changes mean for their future career paths. Yet even I was surprised by the extremity of some of the findings of the Beaton report.
For example, fewer than half of respondents who have used the services of Australia’s longest-standing listed firm, Spruson & Ferguson (owned by IPH Ltd), during the previous 12 months were able to correctly identify their service provider as being a member of a listed group, while nearly a fifth wrongly believed the firm to be privately-owned. The overwhelming majority of clients of Shelston IP (owned by Xenith IP Group Ltd) did not know whether the firm was publicly or privately owned.
The news is even worse for listed firms when it comes to client perceptions of the service impacts of public ownership. Nearly 80% of respondents either agreed or strongly agreed that a reduction in the number of privately owned firms is against clients’ interests, while only 2% disagreed or strongly disagreed. Two thirds believe (i.e. either agreed or strongly agreed) that firms owned by ASX-listed companies must put the interests of shareholders above the interests of clients. Only 5% perceive that there is a benefit to public ownership in making an IP firm stronger.
It is important to appreciate that the survey findings reflect client perceptions, which may be different from reality – although it is worth recalling the words of Republican strategist and adviser to Ronald Reagan and George Bush Snr, Lee Atwater, who famously said in the 1980s (long before we had ‘fake news’ and ‘alternative facts’) that ‘perception is reality’. As I recently reported, the Trans-Tasman IP Attorneys Board (TTIPAB) – the regulatory body formerly known as the Professional Standards Board for Patent and Trade Marks Attorneys – has not identified any actual issues of conflict of interest or service standards in the current arrangements implemented by listed groups of IP firms. However, the TTIPAB did express concern that ‘the degree of awareness and understanding of the listed group scenario among some clients, and the stake-holding public more generally, is limited’. The Beaton survey unquestionably bears this out. Indeed, ‘limited’ might be regarded as an understatement in light of some of the survey results.
Survey MethodologyBeaton sent its survey via email to a sample of around 3000 users of Australian IP services, including domestic and international direct clients as well as foreign associates (i.e. overseas IP firms and attorneys acting on behalf of their own clients). The survey was completed and returned by 143 respondents (i.e. a response rate of 4.8%). I am led to understand that this is considered a good response rate in unsolicited research of this type, and that in the case of a rigorously-designed survey it would be a sufficient number of responses potentially to draw statistically significant conclusions.
However, in this case Beaton does not claim to have applied rigorous standards of design. The report concedes that it is unknown whether the sample of users is itself representative. It could be, for example, that persons with a particular antipathy to public listing of professional services firms are over-represented in the sample and/or the respondent group. In my opinion, there is some reason to believe that this might be the case at least for the foreign associates surveyed, since the majority would operate in jurisdictions in which listing is not a legally-available option. They might therefore not have had reason to turn their minds to the practicalities of establishing structures to preserve existing professional, ethical, and regulatory obligations, while at the same time being particularly aware of those obligations.
Even so, the significant negative sentiment reflected in the survey results will necessarily be of concern to Australia’s groups of listed firms.
What the Market Knows About OwnershipTo me, the most telling result of the Beaton survey is the extremely poor level of knowledge of the respondents as to which Australian firms are members of listed groups, and which remain privately-owned. The following chart summarises responses to the question:
Thinking about the firm/s you have used in the past 12 months for IP specialist services, which do you know to be privately owned and operated?
Shockingly, more than 50% of respondents did not know whether the firm they used was publicly-listed or not. Surprisingly, the group that has been most successful overall in educating clients about the changed ownership arrangements appears to be Qantm IP Ltd which, being the most recent, has had the least time to do so. Also unexpected is that the emergence of publicly-listed groups appears to have muddied the waters more generally, with a majority of clients of privately-owned firms being unable, when asked, to positively identify the ownership of their service provider (although at least, with what appears to be one exception in the case of FB Rice, they do not falsely believe their firm to be publicly-listed).
My understanding is that all firms within the listed groups include statements on their web sites, in their email footers, in their terms of engagement, and on their standard letterhead identifying themselves as subsidiaries of their respective listed parent companies. I also understand that all three listed holding companies have obtained legal advice to the effect that this is sufficient to meet their obligations regarding disclosure of ownership. This may well be so, however in practice it does not seem that it is sufficient to clearly communicate the relevant information to clients.
Additionally, in reading the various comments of respondents included in the Beaton report, I am not at all convinced that even those clients who are aware of the public/private status of their service provider really understand the ownership arrangements. I infer from a number of comments that the respondents believe that publicly-listed firms are themselves directly listed on the Australian Securities Exchange (ASX), and/or that firms within the same group are somehow ‘merged’ into a single listed entity. The real situation is considerably more subtle, with all of the operating IP firms remaining as separate private (i.e. proprietary limited) companies, each of which happens presently to be owned by a publicly-listed holding company.
Conclusion – Challenges Ahead for Listed Groups?As the Captain (played by Strother Martin) said to Luke (Paul Newman) in Cool Hand Luke, ‘what we've got here is failure to communicate’. It is a failure that results in business risk for firms within the listed groups, and for the listed holding companies themselves. Respondents to the Beaton survey are overwhelmingly negative about the consequences of Australian firms’ experiment with raising capital via public markets. They see it as compromising the cost, quality, value, and integrity of service provision, while failing to provide any compensating benefits to firms or their clients. The fact that this may be, in large part, the result of ignorance is not the clients’ fault. It is entirely down to the firms within the listed groups, which bear the bulk of the responsibility of informing and educating their clients, and the market more generally, about the public ownership arrangements and their advantages.
At the same time, there is an opportunity for privately-held firms to capitalise on the mistrust and misunderstanding reflected in the survey results. To date, there has been a tendency for some private firms and individual attorneys to take the low road of spreading fear, uncertainty, and doubt, i.e. to try and scare clients away from firms in listed groups, rather than marketing the positives of independence. This is not only unseemly, particularly in such a small profession, but the Beaton survey results indicate that it is also unnecessary. The concerns are already present in the market, and a positive approach is likely to be a far more effective strategy in the longer term than opportunistically denigrating the competition.
One advantage the listed groups ought to have in this contest is capital – they have access to funds that most private firms could only dream of (this was, after all, a major reason for listing in the first place). But all the money in the world is no good at all if it is not spent effectively. Those people responsible for marketing and communications within the listed firms will need to take a hard look at their strategies, because if Beaton’s respondents are at all indicative then what they are currently doing is not working.
Full Disclosure & Accessing the Beaton ReportBeaton’s special report on IP firms listing on the ASX is not freely available. I was provided with a copy in return for publishing this review. Otherwise, however, Beaton has had no editorial input to this article.
The full report is now available from Beaton Research + Consulting. Contact Ben Farrow via email at email@example.com.