IR Monitor – 27th April 2022

This week’s news

Quarterly capitalism isn’t ruining the world 

Whilst stock market short-termism is widely decried, a review in the Wall Street Journal of a new book by Harvard Law School Professor Mark Roe has suggested that it might not be as big an evil as some claim. Those on all sides of the political spectrum have long believed (albeit for different reasons) that short-term gains at the expense of long-term strategy and profitability have negative consequences – whether for the environment and employees or for investment and growth. Roe refutes this, however, looking at R&D spending, buybacks and borrowing. Through a review of 60 studies, he concludes that short-termism is no more than a small problem for many companies, and any policy billed as a ‘solution’ is likely to simply cause more problems especially since so many of the supposed solutions would give more power to executives.

Adapting to market turbulence 

In a new whitepaper, Nasdaq IR Intelligence has touted the importance and increasing visibility of the Investor Relations Officer during turbulent times. This also means that expectations for buy-side engagement have risen, and thus the ability to proactively gauge market sentiment is essential. Key recommendations from Nasdaq’s analysis include: maintaining a strong connection with the financial community, being mindful of the needs of generalist investors, and thinking twice before pulling away from the market. Amidst growing demand, IR professionals can maximise efficiency through tailoring their messaging and knowing when IR-only rather than C-suite meetings are appropriate.

Why London was the right place to take Darktrace public 

The London Stock Exchange may not have been on the receiving end of much praise, but there are signs that recent efforts to revitalise the marketplace may be working. In an interview with The Times, Poppy Gustafsson, CEO of cybersecurity firm Darktrace, has explained why London was the right place for her listing. She highlights the importance of innovative tech companies engaging in a long-term education process, to earn investor buy-in. Gustafsson also shares the advice that executive teams should focus on business performance in the days immediately after an IPO – and not on the stock-market reaction. Darktrace’s IPO has been one of the most successful technology IPOs in the UK and has so far enabled them to invest heavily in their R&D team, as well as to make an acquisition.

SEC cyber-rule could increase risks 

Critics have warned about a new rule requiring US asset managers to disclose more information about cyber-attacks, IR Magazine has reported. The proposed regulation will require investment firms to report any significant cyber security incidents to the SEC within 48 hours, and promptly inform clients. What may initially sound like a move in the right direction, critics claim could expose compromised firms to further attacks where they are already at their most vulnerable.

Elon Musk blazes trail for new-model investor activism 

Shareholder activism is on the rise and Elon Musk is its new protagonist, the FT has suggested. Following Musk’s much discussed investment into Twitter, which was reflected in a 9 percent stake in the social media platform, he was offered (and subsequently accepted) a position on the app’s board. But, in traditional Musk fashion, he soon changed his mind, opting instead to launch a $43bn bid for the app.  With a deal now close, the case has highlighted that underperforming companies are vulnerable to activists, whether traditional or Musk-ish. As current economic pressures continue to be felt, investors are starting to become more interventionist in their efforts to outperform the potential downward trends in average share prices. Additionally, it could be argued that mainstream investors are turning more activist to distinguish themselves from cheap index-hugging passive funds. The tides are changing, and Musk is surfing the first wave.

And finally… Also at the SEC

In last week’s Money Stuff newsletter, Matt Levine has reminded us (with perhaps some tongue in cheek) of the critical work the SEC’s heroic public servants do to crack down on fraud, following an announcement ordering Rollins Inc. to pay more than $8 million. The order finds that the nationwide provider of pest controls engaged in improper accounting practices to boost its publicly reported quarterly earnings per share (EPS) to meet research analysts’ consensus estimates. The pest control firm was caught as result of the SEC’s EPS initiative which uses data analytics to uncover hard-to-detect accounting and disclosure violations. In this particular case, the boosting allowed the company to round up reported EPS to the nearest penny. Let this be a lesson to IROs everywhere! It may be a little zealous but Levine suggests that the SEC having algorithms to find earnings fraud is both cool and a good deterrent to fraud.

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