Capital Markets & Investor Relations

IR Monitor – 13th October 2021

Investor Relations News

This week starts with the news that the world’s largest asset manager is set to allow proxy voting at its AGMs. Then, we look at four ways to address the concerns of shareholders over a material disconnect between executive pay and performance. From here, we dive into the results of a McKinsey survey which suggests that amid economic recovery from the pandemic there is a growing opportunity for the role of the CFO to shift from crisis-manager to strategic director. Next, we look at the Fair Play for Small Investors campaign which hopes to level the playing field for retail investors. Moving on from there, we look at the possibility of stock markets with shorter hours; while individual investors might prefer round-the-clock access, shorter hours could work better for professional traders. Finally, we look at the curious case of Rent the Runway, a high-end fashion company which doesn’t think buying clothes is a cost.

This week’s news

Proxy voting

The FT has reported that BlackRock is set to allow big pension funds and other sophisticated institutional clients to directly vote on issues at annual meetings. The move will apply to nearly half of the $4.8tn of index equity assets it currently manages. The decision will kick in next year and is the first step by a major asset manager to provide the ultimate owner of votes in a company the right to use them. The shift by BlackRock illustrates how large investors want a direct say on contentious issues that include corporate board and director votes, auditing standards and pay. As an interesting aside, this move will also loosen the grip of the proxy advisory firms: BlackRock will allow clients to use its voting process to select from a menu of third-party proxy voting policies.

Pay and performance

Pay for performance is a mantra of investors: the issue of a material disconnect between the two has always been at the heart of executive compensation and a real area of contention. This year’s proxy season saw a slight erosion of investor support for executive compensation. In isolation this may not seem too concerning but investor confidence in pay for performance has been on the slide for years. IR Magazine has suggested four ways to effectively address this: early communication surrounding concerns, transparency of remuneration policies, active engagement with ESG considerations and use of compensation committees to benchmark executive pay.

Evolving role of the CFO

The results of a recent McKinsey survey are the subject of CFO Dive’s most recent exploration into the evolving role of the CFO. Over the past 18 months, it recognises that the CFO focus has remained on crisis management rather than on longer-term responsibilities. But, amid imminent economic recovery, CFOs now have the opportunity to create greater impact at the top and in the business areas most susceptible to change. Digital and Investor Relations are two good examples of these areas; between 2016 and 2021 the share of CFOs responsible for their companies’ digital activities has more than tripled, McKinsey said, and the share reporting responsibility for IR has grown 44%.

Levelling up for small investors

Feel like a small fish in a big pond? ThisisMoney’s Fair Play for Small Investors campaign hopes to ‘level the playing field’ so that companies listing shares in the UK via an IPO would be forced to offer a slice to smaller retail investors. According to the campaign, most companies that list their shares on the London Stock Exchange exclude small investors from participating in the initial public offering thereby creating an uneven playing field which allows big institutional investors to make financial gains at the expense of small retail investors. According to Chris Hill, CEO of Hargreaves Lansdown, “retail investors boost the efficiency of markets, helping to build deeper and more liquid pools of money”. The government is investigating measures to make IPOs more inclusive; a consultation on the subject concluded last month.

Shorter trading hours

While individual investors may prefer round-the-clock access, professional traders arguably prefer shorter trading hours as they have access to as much liquidity as necessary when they do trade. A recent Bloomberg op-ed has contended that having long stock market trading hours serves no purpose at all for professional traders. Perhaps stock markets with much shorter hours (i.e. only 15 or 30 minutes per day) could suffice for brokers looking for liquidity while traders could spend the rest of their days researching companies, writing market analyses, or even spending time with their families.

And finally… Rent the Runway doesn’t think buying clothes is a cost

Looking for a new, high-end outfit but know you’ll only wear it once? Well, it appears that these days, there’s very little that a well-tailored subscription can’t provide. Rent the Runway is a high-end company that allows customers to rent items from a large closet of styles and high-fashion brand names. However, the cost of depreciating clothing is a bone of huge contention. Excluding depreciation from underlying measures of profitability is nothing new. But, as the Financial Times has observed, clothing rarely keeps its value once worn – still less high-end clothing worn several times by several people. Eventually such items will need replacing at the same cost or even a higher cost. For RtR to exclude what is arguably its core cost from its EBITDA is “the most egregious adjusted ebitda definition since WeWork’s infamous bond prospectus” according to the FT.

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The views expressed in this article are those of the author(s) and not necessarily the views of FTI Consulting, its management, its subsidiaries, its affiliates, or its other professionals.

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