Capital Markets & Investor Relations

IR Monitor – 16th November 2020

Investor Relations News

This week we begin by discussing the scrutiny European AGMs are expected to face in 2021. We then look at a recent study that claims a new CEO is likely to be axed from the post quicker if the predecessor was considered a “star”. We also explore the current predictions of what a Democrat-controlled Securities and Exchange Commission (SEC) may look like and what might be its effect on markets. Next, we look at the Government’s latest anti-foreign takeover legislation before looking at the influence of a potential Covid-19 vaccine on the stock market. Finally, we discuss the virtues of free enterprise for scientific innovation and the profits this can reap.

This week’s news

Increased scrutiny expected at 2021 European AGMs 

This year’s European AGM voting season has been quiet. Advisory firm Morrow Sodali’s new report suggests that, despite the pandemic, shareholder participation has remained consistent thanks to the switch to virtual events. The pandemic and the implementation of the Shareholder Rights Directive II, have been pivotal in getting investors to show their support. However, the report highlights that another outcome of SRD II has been a trend that has seen investors registering higher dissent against the renumeration report. The IR Magazine warns that in 2021, boards should be prepared to be scrutinised. Executive compensation will face the brunt of this as companies attempt to strike a balance between rewarding management for good performance and taking into consideration the experience of the workforce, which may have suffered pay cuts and job losses.

New CEOs really do have big shoes to fill 

According to The Times, a recent study has revealed that newly appointed chief executive officers really do have big shoes to fill. Researchers from the University of Miami Business School conducted a study that comprised over 2,000 CEO handovers at 1,500 U.S. corporations between 1993-2017. They concluded that there was an inverse correlation between the former CEO’s performance and the newly appointed CEO’s length of tenure. Bosses whose predecessors were regarded as stars are more likely to be let go for underperformance, in comparison to their counterparts who take over from bosses deemed ordinary. The bigger the perception of stardom, the quicker the successor is likely to be axed.

Predictions continue over Democrat-controlled SEC and effect on markets 

Although early days, speculations over the shape of a Democrat-controlled Securities and Exchange Commission (SEC) are gathering momentum on Wall Street. According to CNBC, a main contender for the position of SEC Commissioner is Gary Gensler. He is currently leading Biden’s financial transition policy team. Preet Bharara and Maxine Waters are also two potential candidates for the role. It is expected that the SEC’s priorities will heavily feature climate and ESG-related policies. Democrats may also attempt to reverse the current trends in favour of private equity and pull companies, particularly larger private ones, into public markets.

A covert excuse for protectionism?

On Wednesday, The Times reported on the National Security and Investment Bill, which aims to give the Government powers to ban foreign takeovers and investments that threaten national security and to help in the fight back against ill-intentioned investments by Beijing and Moscow.  Foreign investors will be obliged to report attempted takeovers of UK companies in sectors including energy, defence, communications and computing hardware. Companies that fail to do so will face harsh criminal penalties, with potential fines equivalent to 5% of global company turnover. However, caution is urged to ensure greater bureaucracy does not dull the UK’s economic dynamism or encourage protectionism. It is likely that over 1,000 foreign investments will now be subject to ministerial approval, which has the potential to make Britain a less attractive place to do business.

Vaccine booster for equity capital markets – but why?

Reuters reported the news on Monday of a potential Covid vaccine which caused shares to make dramatic gains, with particular stocks such as US cinema operator AMC Entertainment jumping by 70% and cruise-ship owner Carnival up by almost 40%. With the end of year looming, smaller equity issues and instruments such as convertible bonds may go down better than larger, drawn-out offerings. Reuters also noted that the rush to raise capital looks perverse; an effective vaccine should let companies return to business as usual thereby reducing their need for emergency cash. Listed firms have raised a record $853 billion so far this year, according to Refinitiv data. Asking for more could appear greedy or indicative of poor financial planning.

And finally… never take money from the government.

The Pfizer vaccine is a victory for the free market, according to the Spectator. The vaccine was developed with private money after the drugs giant decided to refuse US government funding. Chief executive Dr Albert Bourla stated that he wanted to “liberate” Pfizer’s scientists from bureaucracy and allow them to focus solely on scientific challenges, not political ones. Government programmes always entail targets, demands, quotas and scrutiny which naturally inhibits innovation and new ways of manufacturing product at scale. It looks like this approach will pay off, as Morgan Stanley has projected the vaccine will be worth £7.5bn a year. It is easy to forget the virtues of free enterprise, but in this case, it has gone a long way to fixing the Covid crisis with a minimum of fuss in less than a year.

Conferences

November 17: New Street Research/BCG 5G Conference (Virtual)

November 23 – 25: Credit Suisse 2020 European Financials Disruption – Expert Views (Virtual)

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