IR Monitor – 1 May 2024

In this week’s newsletter:

In this week’s newsletter:

• Another great idea from New York: NYSE tests views on round-the-clock trading
• Bankers lose hope of London IPO revival for another year, warns Reuters, while Zurich and Frankfurt lead a strong start to 2024 in mainland Europe
• Diversity goals are disappearing from companies’ annual reports, according to the Wall Street Journal. Dozens of firms are changing what and how they report diversity initiatives, thereby deleting the word ‘diverse’ or cutting whole sections
• A letter: Dear board directors, please don’t shoot the proxy messenger. Diligent advisers and engaged investors are vital for a well-functioning shareholder democracy
• Preparing for conflict: IR Magazine reports on activism in North America, Europe and Asia
• And finally … Worst corporate jargon of the week: the “mission”

This week’s news

NYSE tests views on 24/7 trading

24/7 trading of crypto and the rise in retail investor activity initially spurred by pandemic lockdowns has prompted the New York Stock Exchange to poll market participants on the possibility of moving to an around-the-clock model for stock trading. According to the FT, this poll has emerged while start-up 24 Exchange is currently seeking SEC approval to launch the first round-the clock exchange. As it turns out, the perspective from institutional brokers is that, whilst there is demand for 24-hour trading, this pressure is not necessarily coming from the entire marketplace, highlighting the tapered institutional interest due to the relatively poor liquidity on offer, concerns around settlement risk, and issues with basic staffing. The committee overseeing the consolidated tape has already begun meeting to examine the issues involved and determine who should carry the costs.

Bankers lose hope of London IPO revival for another year – Reuters

With stock exchanges in the EU and Switzerland proving more attractive, London-based bankers have already given up on a revival of UK IPOs in 2024, reports Reuters. The sluggishness of Britain’s economic recovery and perceptions that its stock market is undervalued, particularly in comparison to the larger US market, are the key drivers behind a reticence from companies to list on the LSE. The widening gap between UK & US company valuations is an enduring cause for concern, as the cost of capital across UK equity markets is higher. A number of British businesses have recently preferred the NYSE in search of greater valuations and deeper liquidity. However, all hope is not lost, as the industry now looks towards 2025, expecting more PE-owned companies to mature into potential listings and global stock prices to rise, as central bankers start lowering interest rates. 

Diversity goals are disappearing from companies’ annual report – WSJ

Whilst 93% of employers claim they have increased or made no changes to their diversity, equity, and inclusion (DE&I) initiatives in 2023 compared to 2022, references to these programs are notably absent in the latest round of annual reports. The WSJ reports that these changes come in the face of mounting political and legal pressure, particularly in the US, where Republican attorneys general have written to Fortune 100 companies warning them against race-based preferences in hiring and promotion. In response, the Democratic attorneys general wrote to say that corporate diversity efforts are an essential cornerstone of combating discrimination. The primary concern for many companies is simply abiding by DE&I laws, and many are reticent to engage on any ideological agendas. With so much uncertainty in the air in the run up to elections, who can blame them.

Dear board directors, please don’t shoot the proxy messenger – FT

“Proxy advisers are used to being caught in the crossfire between boards and shareholders,” writes Andrew Hill in the FT, regardless of whether their advice is heeded by those listening. Investors are not sheep, and despite attempts to equate proxy advisors to shepherds (there is solid evidence in the US that ISS at least influences voting outcomes), it is simple enough for an investor to go against the metaphorical herd, says the article. Critics of proxy advisors, especially in America, have added a “culture-war layer” to their traditional concerns around “lazy investors,” using their criticism of proxy advisors as a literal proxy for their fight against what Hill terms “woke capitalism.” However, a 2022 UK study revealed that in two-thirds of cases that year, when ISS recommended a vote against a resolution, Glass Lewis suggested a vote in favour. Nearly a third of investors use more than one advisor, and interest peaks in cases where agency views clash. In that sense, proxy advisors might actually encourage more engagement from investors. Regardless, board members are encouraged to focus their ire on asset owners and managers themselves, rather than the agencies they hire.

Preparing for conflict – IR Magazine

Nearly a quarter of Russell 3000 companies disclosed the potential for shareholder activism in their 10K reporting, and IR Magazine has commented on activism trends around the world in response. North America has seen new SEC climate disclosure rules and a record 263 “climate-related” shareholder resolutions filed this year, with regulatory changes such as the universal proxy card also lending itself to greater ESG activism. 98% of executives predict a resurgence in visible, public disputes in Europe, with particularly low tolerance for large executive pay deals. Asia seems to be shrugging off its traditional aversion to activism, with Korea seeing a nine-fold increase in boardroom battles since 2019 while Japan and Singapore are seemingly primed to follow suit. Common themes include governance reform, with mounting pressure to align shareholder and corporate interests e.g. by discouraging cross-shareholdings. In that context, IR Magazine recommends engaging with expert advice.

And finally… City AM’s worst corporate jargon of the week: the “mission”

City AM is bravely taking a stand against the worst City jargon, and this week has its sight set on the mysterious “mission.” Used by “frustrated adventure-seekers who have convinced themselves the thrills of the 9-5 aren’t so different from those of MI5,” the term seeks to clear up common misconceptions about the purpose of companies. Think IKEA’s goal is to sell more flatpack furniture which takes way longer than expected to put together and fills you with crippling self-doubt about your DIY skills? Think again: IKEA’s mission is to “create a better everyday life for the many.” City AM gives the term a corporate ick rating of 8/10.

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