IR Monitor – 12 June 2024

In this week’s newsletter:

• According to BBG, activists have a simple message for London firms: list elsewhere
• Alternatively: Want to avoid woke stockmarket rules? List in Texas. The Lone Star State is ready to take on New York, reports The Economist
• The unsustainable hype around ESG: several months of fund outflows mark the decline of ESG as a marketing tool, in the view of the Financial Times editorial board
• The Capital Market Authority (CMA) is seeking public input on amendment to the rules regulating share buybacks in the Kingdom of Saudi Arabia
• Investor Relations gains strategic ground amid economic and geopolitical shifts, according to the latest survey from the London Stock Exchange. However, fewer practitioners than before feel that the IR function gets its deserved recognition
• And finally … the proxies. We continue our occasional series on how not to conduct Investor Relations with a celebration from Alphaville of those truly substantial corporate perks that shareholders should perhaps never have agreed to

This week’s news

Activists have a simple message for London firms: list elsewhere

Activist scepticism over the London stock market has turned to disdain, according to Bloomberg. Individual company performance is not to blame for underwhelming valuations, as activists focus on political uncertainty, a weak currency, complicated listing rules, and flat economic growth in the UK. For context, UK stocks remain sharply undervalued in comparison to counterparts in the US and elsewhere. Publisher Pearson and building materials supplier CRH have all recently felt the transatlantic pressure from major institutional investors. CRH’s relisting announcement triggered a $17 billion gain in market cap, to the benefit of activist shareholder Cevian Capital AB. However, while institutional investors often stress the more hospitable US investment environment (including higher valuations, deeper liquidity, generous executive pay, and looser restrictions) grass is not always greener elsewhere: the absence of a large market capitalisation is for instance often seen as a passport to oblivion in the US. Re-listers, beware.

Want to avoid woke stockmarket rules? Then list in Texas

Alternatively, companies seeking a fruitful listing should consider…Texas, according to The Economist. The Texas Stock Exchange (TXSE) looks primed to rival New York after receiving £120 million in funding from BlackRock and Citadel Securities. The appeal of the new electronic exchange seems to lie in its relaxed approach compared to its northern counterparts’ so-called “woke” listing requirements, which include for instance Nasdaq’s rule requiring two “diverse” directors on many firms’ boards. While America used to have many regional exchanges, a concentration happened in the wake of the opening of the Erie Canal in 1825, turning New York into the deepest and most liquid US market. In a world where significant trading activity now takes place electronically and out of market hours, purely electronic exchanges like TXSE seem to offer a compelling alternative. 

The unsustainable hype around ESG

This week, the FT’s editorial board dug into the “hype” surrounding ESG funds, likening them to infamously trendy Japanese stocks in the 1980s, dotcom stocks in the 1990s, and AI stocks in the 2020s – in other words, bubbles. Asset management, the board writes, is not immune to its own bubbles, and one may be bursting now. ESG funds performed poorly in 2022 and 2023, impacted heavily by interest rates, repeated right-wing derision and high oil prices after Russia invaded Ukraine. $40 billion has flowed out of so called ESG funds thus far this year, one more sign that investors have lost confidence in this “Frankenstein’s monster of buzzwords” to meaningfully represent a firm’s positive social or environmental performance. And yet, there are still $7 trillion of assets under management in ESG funds. Good environmental practices are increasingly also good business, as the IRA drives green investment in the US. The concept of ESG will not go away but it may just stop being used as a marketing hook. 

CMA seeks public input on amended buybacks rules in Saudi Arabia

The Capital Market Authority (CMA) in the Kingdom of Saudi Arabia has launched an industry consultation to assess the opinions of capital market participants on proposed updates to share buyback rules in the Kingdom, reports local publication, Argaam. The draft amendments are intended to increase the flexibility around buybacks and the sale of shares of listed companies, in an effort to bring the Saudi market in line with global standard practice. The new rules would dictate that share buybacks or sales may not exceed more than 25% of the average daily trading volume of a company’s shares in a single trading day. The consultation opened the 6th June and will remain open until 6th July if you wish to share your thoughts.

IR gains strategic ground amid economic and geopolitical shifts

The strategic significance of IR is on the up, according to a recent survey by the LSE. Nearly one third of respondents agreed that the increase in the importance of IR over the last 12 months had been significant, particularly at smaller firms. The growing reliance on IR is due to economic and geopolitical uncertainty, and IR strategies must adapt accordingly, argues IR Magazine. Survey respondents highlighted inflation and central bank policies, energy prices and availability, as well as technological advancements as key drivers of this uncertainty. Whilst most of these factors are unlikely to wind down any time soon, a Senior VP of IR at NYSE-listed marketing technology firms Zeta Global strongly recommends to maintain effective IR both in uncertain and stable times and avoid switching it on-and-off. In that context, companies are advised to keep addressing the following key questions: “what are your competitors doing? Where is the industry headed? How are you positioned in this evolving landscape?”

And finally… the proxies. 

Proxy season means awards season at the FT Alphaville, which is celebrating the best-of-the-best corporate perks. First up is NeoGenomics with a stellar entry to the ‘Relocation Costs’ category courtesy of Chris Smith, CEO, who managed to wrangle $2.2mn in compensation when he joined the cancer drug company in 2019. Another impressive submission, this time to the ‘Let’s Get the Shareholders to Pay for That’ category, is multinational chemicals manufacturer, Huntsman Corporation. The company’s Vice President of EMEA, Peter Huntsman Jr. (clue’s in the name), successfully assigned a total of $208,232 in child education expenses to the organisation. Whether these awards make you chuckle or grimace, we can all agree that these benefits would be hard to turn your nose up at, given half the chance.

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