IR Monitor – 19th October 2020
Investor Relations News
This week we begin by discussing Tesco chairman John Allan’s decision to defend ‘to the death’ the dividend despite a large tax break for the retail giant. We then examine different angles of the current push from investors for diversity across companies’ boardrooms. We also explore how the rivalrous “Big Four” are working together to bring companies up to scratch on ESG more broadly. We look at the importance of Non-Deal Roadshows (when companies engage with investors outside of earnings season) before looking at the extent to which working in the office is being readopted around the world. Finally, we look at how the odds are changing for companies who have prospered throughout the pandemic as the hedge-fund community bets that their luck will not last.
This week’s news
Defending dividends to the death
Tesco chairman John Allan said he would defend ‘to the death’ the board’s decision to pay a dividend after receiving a large tax break. This is Money reported that the company declared a £315m six-month dividend on Wednesday following a board meeting earlier in the week. The dividend has caused controversy, with critics claiming it was subsidised by hard-pressed taxpayers. Chancellor Rishi Sunak’s business rates holiday for the entire retail sector meant Tesco escaped paying £249m in the period. Allan said the company would more than likely have made the same decision even without the tax break – because it has a ‘strong balance sheet’ and its performance is improving, despite the massive costs of coping with the crisis. Insisting the rates holiday was a blanket decision and Tesco had not accepted any discretionary help, including the furlough scheme and VAT holiday, Allan added: ‘I don’t remotely feel any sort of guilt over it.’
Diversity across the board
Investors are speaking the language of money to drive companies towards improving diversity within their boardrooms. The Financial Times reported on the increased pressure from investors on companies to do more against racial injustice in the wake of the Black Lives Matter movement. It cited the example of Procter & Gamble who will this month face a shareholder resolution calling for diversity disclosure. In a similar vein, Oliver Shah wrote in The Sunday Times that investors must avoid “woke-washing” and make long-term commitments to improving ethnic diversity across their portfolio companies. Praising Legal & General’s decision to vote against FTSE100 and S&P 500 companies with all-white boards unless they hire an ethnic-minority director before 2022, he nonetheless noted that focusing on boardroom hires could turn ethnic diversity into a box-ticking exercise. Next year it seems likely that companies will be under pressure to do more than voice support for racial equality, with several asset managers poised to call for greater disclosure of their staff’s racial mix.
Off-season engagement
IR Magazine reported that 52% of US companies say their off-season engagement activities translate into increased support when it comes to the proxy vote. The magazine’s Off-Season Governance report shows that almost two thirds of IR teams have a programme of activities relating to governance issues outside of the proxy season, with a majority of companies globally saying this strengthens the investor relationship, and a notable minority of 43% globally saying it results in greater support come the proxy vote. The report finds that governance roadshows and shareholder forums are the most common governance-related activities undertaken by companies outside of proxy season.
“Big Four” collaborate on EG
Financial Times reported that the usually rivalrous “Big Four” accounting firms have collaborated in the hope that new benchmarks will bring companies up to scratch on ESG. The World Economic Forum convened a meeting of the leaders during the UN General Assembly week, where they thrashed out a common accounting framework for environmental, social and corporate governance. To summarise: there are 21 core metrics, or 34 supplemental ones, split into four buckets (prosperity, people, planet and governance). The idea behind this initiative by the WEF International Business Council is clear. For the first time, the Big Four will harness their collective muscle to create long-awaited consistency in how companies inform investors (and themselves) about their behaviour in relation to ESG norms. While accountants are not usually seen as the source of ethical or environmental revolutions, the hope is that this move by the number-crunchers will create a ripple effect.
Don’t bother going to New York
Reuters explored how different places and professions around the world are returning to the office through the lens of Financial Traders. Traders on Wall Street make a living by taking risks. But measures to control the ongoing pandemic are taking some decisions out of their hands – like whether to risk catching Covid-19. Offices are much fuller in China and even Tokyo than in New York. What sounds like “safety first” for some, spells frustration for others. Even in the case of Goldman Sachs only around a fifth of its staff are back in the Big Apple according to people familiar with the firm. In China, everyone is back in their cubicles. In Japan, around 70% and in Hong Kong 50%. Even in London, where new restrictions could follow the imposition of a tiered system of localized rules, nearly a third of employees are no longer working from home.
And finally: betting life will go back to normal
The earnings boosts for companies that rode lockdown best may fade faster than many anticipate reported the Financial Times. Shares linked to home computing and gym equipment, grocery retail and healthcare soared when the pandemic forced countries into lockdown earlier this year. Many were lifted by hopes that changing behaviour and shopping patterns (as a result of Covid-19) would feed through into stronger, longer-term earnings growth. Companies whose business has boomed due to the pandemic lifestyle include Hello Fresh, whose stock has risen by 150% this year, and pharmaceutical companies Moderna and Inovio, which are both up 280%. But some hedge fund managers are now betting against those stocks, in the belief that the boost to company earnings will fade away faster than many investors anticipate.
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