IR Monitor – 19th October 2022

This week’s news

How companies can prepare for cyber-security regulations 

In a webinar last week, IR Magazine discussed the Securities and Exchange Commission’s new proposed rule on cybersecurity risk management. At a glance, the rule looks to be a positive step in dealing with the increasing number of cyber security incidents coming from trends like digitisation, remote working and digital assets. However, issues arise with the requirement that companies should have to report an incident within four business days. Interpretative definitions are a significant issue, with comment letters on the proposed rule offering consensus that, should the regulation come into force, it would need to provide more guidance on what a ‘material’ cyber incident is, and exactly how and when reporting should take place. The idea of specially nominated director experts also causes controversy, with the webinar concluding that whilst investors are expecting to see greater board oversight of cybersecurity, a specialised committee or director is not always necessary.

Regulations and recession fears are making managers rethink ESG

According to a recent report flagged by Institutional Investor, 48% of CEOs in the asset management industry plan to pause or reconsider their ESG strategies over the next six months, with 31% percent already having done so. The outlook comes as ESG managers face increasing scrutiny over misleading ESG fund marketing and, as a result, a push for increased levels of disclosure of ESG factors. In addition to regulatory uncertainty, asset managers are also facing pressures from deteriorating macroeconomic conditions, with apprehension that there will be a recession in the next 12 months forcing the removal of ESG from strategic priorities.

Making the most of the moment when your IPO gets delayed

Whilst being forced to delay an IPO may be disappointing, it is a perfect opportunity to make the process as smooth as possible, says Carl Stegman from Fidelity Investments. In an article in Forbes last week, the vice president outlines three ways to use this time as wisely as possible. Firstly, a delayed IPO should not stop companies from continuing due diligence to select a vendor for equity administration. Secondly, companies should look to provide education and financial well-being support for their employees, as extra time can allow for a robust and relatable education programme. Finally, a delayed IPO provides time to finalise a compensation strategy. Equity, which is likely to have the most radical changes, should be a major focus. In short, whilst delays to IPOs may be out of a company’s control, exactly what they do with this time isn’t, and can be a useful opportunity to ensure the future listing can be as successful as possible.

A surprising disconnect between growing earnings estimates and pessimistic macro-expectations

As the Q3 earnings season has started, the FT discusses analysts’ future earnings estimates for S&P 500 companies. Future earnings estimates, which result from a bottom-up analytical process, currently show an increasing – and sometimes steeply increasing – trend for a sample of established and robust US companies. The article notes that this is in contradiction with most top-down macroeconomic forecasts for 2023, and that the stock performance of most S&P 500 companies has been significantly negative so far in 2022. The article focuses on paint manufacturer Sherwin Williams, whose EPS is expected to grow by 21% in 2023 and 13% in 2024, which is in stark contrast with the gloomy prospects of the US housing market. Building on this example and a couple others, the article suggests a worrying disconnect between analyst future expectations on the one hand and current market valuations and macroeconomic forecasts on the other. Is the market listening to analysts? Should IROs do more to talk them down?

Simple writing pays off (literally)

An article published by the Harvard Business Review takes aim at financial writing and argues that it is full of jargon and complexity. A research experiment suggests that investors are drawn to simple, clear writing with short sentences. The simple reason is that complex writing is off-putting — people tune out and find it dull, a fact confirmed by neuroscience research. Studies on the cost of bad writing suggest it is to with the way the brain works. Science shows that if you don’t give the mind an appealing stimulus — a piece of good writing in this case — it fails to respond with pleasing neurochemicals that motivate people to read further. If you do appeal, you trigger a release of dopamine and other chemicals that hook readers — and keep them reading.

And finally… Influencing the influencer

Social media is an emerging arena for retail investors – as financial influencers have been gaining popularity across platforms. Garnet Roach highlights some of the individuals who most influence retail investors. Just over half of investors aged 18-34 currently follow a financial influencer – or ‘finfluencer’ – online, with 40 per cent identifying Elon Musk as someone they trust to offer good financial advice. And when it comes to making investment decisions, 69 per cent are swayed by the influencers they follow. But these finfluencers don’t need Musk’s 100 million plus Twitter followers to gain influence. In fact, ‘micro-influencers – those with 1,000 to 50,000 followers – tend to be somewhat better trusted than mega-influencers,’ argues Virginia Brailey, CEO of Xemoto. What they have, she says, is the ability to create a community and start a dialogue.

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