Capital Markets & Investor Relations

IR Monitor – 11th January 2021

Investor Relations News

We begin looking back to the rise in activist attacks in 2020, which promises to continue this year. We then examine the case for increased shareholder democracy, before exploring the effect of the most recent wave of Covid-19 on companies reporting financial results. Then, we turn our attention to indexes, focusing on the performance of passive fund managers in 2020. Next, we discuss proposed reforms to make the LSE more attractive to fast-growing companies. Finally, we look at the most-used words in what was an “unprecedented” year for the corporate world.

This week’s news

UK firms under attack

UK companies saw a 25% increase in the number of activist investor attacks in 2020, according to data published in the Telegraph. A lull in activism in the middle of the Covid-19 crisis, with just two campaigns recorded between April and June, was followed by 11 attacks on UK companies in H2. Research by Lazard found that around 70% of activist attacks focused on M&A, whilst around half demanded a boardroom shake-up. The prevalence of activist investors is likely to continue in 2021, as funds take advantage of the weak stock market and economy. Notably, the Financial Times highlighted a study which found that UK firms and those with poor records on ESG would be top targets. A “golden age” for activist investors is approaching, with institutional investors accepting and often supportive of their campaigns.

BlackRock stretch goal: real shareholder democracy

BlackRock CEO Larry Fink has been vocal on all sorts of contentious issues, from diversity to gun control and stakeholder capitalism. Critics have made the point that BlackRock cannot speak for its millions of small investors, with Breakingviews suggesting that it could rectify this by giving them a role in company votes. Known for occasionally making some questionable decisions in terms of sustainability and governance, the company would avoid miscommunication by handing voting decisions to end investors. Whilst such pass-through voting was deemed unworkable by the SEC back in the 1970s, technology has advanced considerably since then. Real shareholder democracy has the potential to be a huge selling point for BlackRock, and could be Fink’s next contribution to finance.

City on alert as Covid forces companies to delay key results

City watchdogs are in talks over mounting concerns that a wave of listed companies may have to delay their results because of the disruption caused by the latest Covid-19 lockdowns. In peak auditing season, bosses and auditors are scrambling to work out whether they can publish final results for 2020 amid a huge backlog of work and pressure on staff from school closures. The crucial question for auditors is whether they can give investors and customers confidence that their businesses are viable through “going concern” statements. The Times has reported that a joint announcement from several regulators is expected within days urging the finance executives and external auditors to communicate swiftly if they have any difficulties in publishing results on time.

2020: When the Index beat the Index 

Passive fund managers were among the surprise losers of 2020 according to Bloomberg. (That’s not to say that it was a good year for active funds; in fact, the dominance of internet platform stocks made it surprising that they did not lag by more.) The S&P 500 went through almost the entirety of 2020 without including the stocks that would be considered the biggest winners of the year: Zoom, Moderna and Tesla, with the latter’s omission due to the index’s tendency to exclude volatile and speculative stocks. This proved to be a problem for the S&P 500, which lagged behind the Russell indexes which are based solely on market cap. These events show that nothing is ever truly “passive”, and the halt in the switch from active to passive highlights a growing understanding of this.

LSE urges listing rules reform for fast growth companies 

According to the Financial Times, the London Stock Exchange has joined City and business groups in urging the government to overhaul the rules for company listings in the UK in order to attract fast growth companies. Many city executives are pushing for more fundamental reforms to attract such companies to the UK that might otherwise choose exchanges in the US, Asia or Europe that offer more relaxed regimes. Similarly, Sky News reported that the Investment Association (IA), whose members collectively manage £8.5trn in assets, will argue that the City watchdog should consider “rebranding” the London Stock Exchange’s ‘standard’ listing category to remove any reputational disincentive for companies to use it.

And finally … The things our bosses said a lot in 2020

Leaving nothing unchanged in its path, the Covid-19 pandemic can even be felt in the changing language of the corporate world. Here, it will come as a surprise to absolutely no one who has been on Microsoft Teams or Zoom for work since last March, that the phrase “You’re on mute” was uttered over 1000% more than the year before. Based on an analysis of more than 20,000 corporate presentations between executives and investors, the New York Times reported on the choice set of words and phrases to describe the so called “unprecedented events” of the last year. This particular phrase was used over 70,800% more than in the previous year. Other popular terms included “work from home”, which saw an increase of 26,820%, as well as the “new normal” which saw a rise of 530%. Executives swore just as much as last year.

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