IR Monitor – 15th June 2022

This week’s news

Blackrock gives more investors a choice about voting 

The Times reports on Blackrock, the world’s largest asset manager, expanding the opportunity for clients invested in its index funds to participate in the shareholder votes of companies amid increasing industry interest in governance issues. Its eligible institutional pooled fund ranges will now be expanding in the UK and launching in Canada, meaning that shareholders speaking for 47% of its $4.9 trillion index equity assets will be able to participate in its ‘voting choice’ initiative. Already looking forward, Blackrock is next exploring the potential to expand the initiative to include individual investors in funds.

How SEC rule change may impact engagement with activists

A pair of regulatory changes affecting activist investors, and the US companies they target, are looming – but, rather than creating a fundamental power shift, the reforms are likely to underscore the importance of both advisors and activist investors having effective engagement, reports Corporate Secretary. The changes, first proposed in February, relate to accelerating the filing deadlines for schedule 13D beneficial ownership reports. The National Investor Relations Institute has welcomed the change, highlighting that it would bring more transparency to the marketplace and close certain 13D loopholes that have allowed investors to amass large positions in company stock without adequate public disclosure. Regardless of the rule changes, the best strategy for companies remains to know who their investors are, and how they behave by regularly communicating with them at roadshows, around proxy season and beyond.

How ESG investing came to a reckoning 

The ESG acronym, a phrase that gets mentioned in over a fifth of earnings calls, continues to be brought into sharp focus by critics over its flexibility and ambiguity. With recent shifts in macro-economic factors such as the impact of the Russia/Ukraine conflict, companies, investors and governments are struggling with “ESG” policies that often pit the E, S and G against each other. For example, by trying to reduce dependence on Russian gas (an ethical goal of some governments in Europe), they are accused of backtracking on environmental goals by turning to fossil fuels. Although there have been huge benefits that have arisen from bundling together ESG, particularly raising awareness of issues surrounding climate change, diversity and the impact of corporations on communities, the acronym is itself a confused concept, according to the Financial Times. The challenge is compounded by the fact that there is no universal, objective framework for ESG investing and regulation. Some say ESG needs revising, but has its 20-year life span already come to an end?

Target joins the growing bad forecasters’ club

American retail giant Target slashed its forecast operating margin last week by more than half, due to an excess of unsold goods. Like many companies, who have struggled to forecast correctly since the start of the COVID-19 pandemic, Target has failed to interpret its customers’ changing shopping habits with the result that its inventory is up 43% year-on-year. BreakingViews explains that shoppers are opting for lower-margin groceries, including private label brands, forcing retailers like Target and competitor Walmart to reduce their profit outlooks for the year ahead. Major investments are being made, now, to collect serious data on costumers’ shopping habits so as to avoid such poor forecasting in the future; but Target is still facing the wrath of investors as they roll out additional actions, including cutting prices and cancelling orders. Target now expects its second-quarter operating profit margin to be in the range of 2%, down from the 5% it forecast on 18 May.

Cazoo car crash should spell an end to companies’ American dreams

Since listing stateside 9 months ago, with an $8bn valuation via a Spac deal, the UK-focused online car seller Cazoo has shed more than 80% of its value. Although not good news for Cazoo, it is good news for the London Stock Market, according to the Financial Times. Many UK companies, who saw London as an unattractive IPO option, instead listed in the US believing it was a guaranteed way of securing a high valuation. Cazoo’s flop highlights nicely that faltering valuations are not the fault of London’s “old fashioned, short-sighted equity market,” but, rather, a product of difficult macro-economic conditions and of an unconvincing economic performance. London was rather lucky that Cazoo didn’t choose a domestic IPO, as its poor performance after listing would have tarnished the LSE’s already struggling reputation since Deliveroo’s disaster. Maybe this development will alter British founders’ perceptions that an American listing is the golden ticket to a successful IPO.

And finally … Once more with feeling: connecting with investors on an emotional level

IR Magazine gave insight this week into the importance of connecting with investors on an emotional level. Investors are still human (for the most part, not considering the growing army of algo funds). As a result, emotions cannot be removed from the decision making process when it comes to investing. The Investor Relations department sometimes overlooks the importance of appealing to the emotional side of investors even though many of them want to understand more than just company numbers. Many want an understanding of the culture, depth and quality of management, and how people think at all levels of the organisation. If IROs want to portray the human side of a company, they cannot do that without connecting to investors on an emotional level just as much as on an analytical level.

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