IR Monitor – 08 November 2023

In this week’s newsletter:

• Europe feels the pain as firms scrap stock market floats, warns The Times. It’s not just the LSE struggling to attract companies to float, but its European competitors, too.
• UK investors pull more than half a billion from ESG funds in September, reports IR Magazine. September saw the largest outflow of investment from ESG funds on record.
• Investors continue to push for direct access to management. And JPMorgan is best at providing it, according to Institutional Investor. Since the pandemic, investors have been increasingly keen to hear about corporate strategy straight from the horse’s mouth.
• Warnings on weak demand are piling up this earnings season. We are now well into the Q3 reporting period: ‘weak demand’ is among top trending phrases on earnings calls.
• It’s time for boards to take AI seriously, suggests Harvard Business School. The job of a board is to protect shareholders’ interests. But because AI is so fundamentally disruptive, the board has an obligation to its shareholders to drive and oversee the change.
• And finally … When you’ve fecked up, try to be funny about it. Advice from Alphaville.

This week’s news

Europe feels the pain as firms scrap stock market floats – The Times

Though London may be facing criticism for failing to attract IPOs, its European competitors aren’t faring much better, according to The Times. The private equity company CVC pulled the plug on its Amsterdam IPO last week, becoming the latest in a string of European companies to get cold feet at the stock exchange. For CVC it was the second time, having backed out of a float once already in the wake of Russia’s invasion of Ukraine. This time renewed geopolitical uncertainty was cited as the reason. Germany is also among the countries facing IPO stagnation. Defence company Renk and toll payment services provider DKV Mobility recently cancelled their Frankfurt Stock Exchange floats. And over in France, software provider Planisware cancelled a planned £1 billion listing on Euronext Paris, blaming a recently deteriorated market environment and cautious investors. 

UK investors pull more than half a billion from ESG funds in September

In September, investors pulled £544 million form ESG funds, following the general trend of decreased shareholder interest in ethical investing. IR Magazine reports that this is consistent with recent events as large asset managers, including BlackRock and Vanguard, have lost their appetite for ESG investing and supported fewer ESG proposals recently. Vanguard supported a meagre 2% of ESG proposals this year, compared to 12% in 2022, attributing this decline to the nature of the shareholder proposals rather than to a change in their investment approach, and insisting that it assesses each opportunity on its own merits. Chris Cummings, CEO of the Investment Association, noted that inflationary pressures have contributed to the second quarter in a row of declining net fund inflows.

Investors continue to push for direct access to management in the US

…and JPMorgan is best at providing it, according to Institutional Investor. Since the pandemic, investors have been increasingly keen to hear about corporate strategy straight from the horse’s mouth. Last year, buy-side demand for corporate access reached new highs in the US, following a trend begun during the pandemic when shareholders had ‘what felt like unlimited access’ to corporate executives in the words of Jennifer Fink, head of corporate access at Bank of America. Charles Wardell, head of U.S. investor access at JPMorgan, said that investors are now hoping to hear first-hand how companies are adapting to ‘shifting macroeconomic conditions.’ Growth on the buy-side has also contributed to the trend, with more investment professionals added and new funds created – including new hedge fund launches. II’s 2023 rankings of America’s Top Corporate Access providers placed Wells Fargo Securities as runners up to JPMorgan, with Morgan Stanley in third and BoA Securities in fourth position.

Warnings on weak demand are piling up this earnings season – Bloomberg 

As we are now well into the Q3 reporting period, ‘weak demand’ is among the top trending phrases on earnings calls. Half-time is a great chance to look back at this earning season’s scorecard – but we seem to be in for a ‘wince and avert your eyes’ type of review. According to Bloomberg, if mentions of ‘weak demand’ in earnings calls keep pace it’ll be the most since transcripts began in 2000. Contributing factors include the impact of inflation and high interest rates, and while this trend is visible across industries, weak PMI data has made the situation more pronounced in Europe. Barclays strategists led by Emmanuel Cau noted that ‘corporate sentiment on economy and outlook is downbeat’, and BoA’s Andreas Bruckner was equally cheerful when he wrote ‘sales beats are near a decade low, while sales surprises are at a record low.’ Good news all around, then. 

It’s time for boards to take AI seriously – Harvard Business School 

The job of a board is to protect shareholders’ interests. But because AI is so fundamentally disruptive (strategically, operationally, and competitively) the board has an obligation to its shareholders to drive and oversee the change. Harvard Business School has weighed in on the never-ending debate around AI, and co-operation is key. Warning that boards have a fiduciary duty to ensure alignment between a company’s operations and their strategy, David Edelman, a senior lecturer at Harvard Business School, posits that AI is now – and will continue to be – disruptive enough that boards should challenge management about how they adjust their strategic direction to cope with AI. He also lists five fundamental principles which he has observed as central to leading boards already tackling AI, which include everything from pushing for a bigger AI impact to positioning data and data management as a fundamental competitive asset. One thing is clear: according to this business boffin, boards need to get their AI act together. 

And finally … When you’ve fecked up, try to be funny about it. Advice from Alphaville

One must never miss a chance to force colleagues to endure one’s terrible jokes – and this time, it’s scientifically-backed! Robin Wigglesworth highlights a paper in the Review of Accounting Studies which used machine learning to look for the occurrence, trigger, and effect of laughter on almost 12,000 earnings calls. The results show a two-way benefit: CEOs who make their audience laugh (one hopes with them, not at them) in earnings calls can somewhat soften the impact of bad news, and analysts whose jokes hit the right note with the room are ‘allowed to ask longer questions, receive longer responses, and have more opportunities to interact with management later in the Q&A session’. Perhaps it’s time to dust off that old book of dad jokes?   

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