Capital Markets & Investor Relations

IR Monitor – 20th September 2021

Investor Relations News

This week we begin by looking at the City optimism backing London’s status as a global financial centre. Then, we take a look at clarity and complexity in financial communications. Moving on, we look at the current state of the share register as the IR Society brings together expects across the field to discuss a period in which many have stayed still. From here, we look at whether boards could do a better job at the negotiating table when selling up before finally investigating the trend of absent disclosures. Finally, we hear why ESG might not be the fix-all that it is thought to be.

This week’s news

City confidence surges on hopes Britain will rip up Brussels rules

The results of a survey by Lloyds have shown that there is growing optimism in the City with regards to the UK’s post-Brexit regulatory freedom. As reported by The Telegraph, this year the annual survey of City bosses from asset management firms, banks and insurers shows faith in London’s position as a global trade and financial hub, with almost half of respondents confident that financial services’ competitiveness will improve as Britain develops its own model for financial regulation and two thirds doubtful that London will be toppled as a result of leaving the EU. The UK capital seems likely to remain the destination of choice for IR roadshows in Europe.

Cut the waffle

According to new research by Nomura, simpler is better when it comes to company earnings calls. This week’s Points of Return from Bloomberg Opinion outlined the results of the study, which analysed the language used by executives in calls held by the Russell 1000 large-cap companies. What is most striking is that the 100 companies whose officers used the most complex language averaged a return of 9.5% per year; meanwhile, the companies which used the simplest language returned an average of 15.4%. The potential explanation behind this is that people tend to speak in a more complex and convoluted way when they have more to hide, while people with a clearer vision are able to translate this vision into speech with greater clarity. Nomura’s research cites the Gunning Fog index which produces a number, based on a given piece of text, that indicates how many years of formal education a person requires to be able to understand said text. When tested against the Gunning Fog index, the 100 most digestible earnings calls corresponded to the level of readability expected of a 16 year old. Companies should take heed – if executives want to communicate a strong business case to investors, they should avoid the waffle.

Effective targeting and the state of the share register

Holding a webinar on ‘The Changing Share Register’  last week, the IR Society assembled a stellar cast of experts to give their perspectives on targeting as well as share registers more broadly during this ongoing period of uncertainty. Providing insight into what the standard share register looks like today, panellists were united in their stance that very little has actually changed in the past 18 months with institutional investors keen to perhaps play it safe during the pandemic. This may not be the case for long, however, with Charlotte Ares, part of the IR team at Serco, predicting an upcoming period of change as actors take stock of where they stand following the pandemic. In the likely event that share registers are set to undergo some upheaval in the future, it is important that IR teams ensure their targeting lists and surrounding framework are up to the mark. Dwelling on what makes a successful targeting campaign, panellists were keen to highlight the value of a good CRM system, ensuring wires remain firmly uncrossed throughout and that time is not wasted on unlikely investors. Other things to be mindful of include the importance of shareholder analysis as you can only know who to target when you know who you already have. This, on top of the basics – time management, clear communication and of course, patience – hold the key to good targeting and fluid registers.

Selling yourself short

Companies should look to readdress the balance when negotiating with potential private equity buyers BreakingViews suggested last week, in light of a number of deals that have seen sweetened offers agreed after an initial lower offer from elsewhere was recommended to be accepted. The haggling skills of companies has come into question recently, with numerous listed companies, including that of household name WM Morrison Supermarkets, switching to new and improved higher offers for their shares. While the flurry of sweetened deals have ensured shareholders aren’t missing out, it lays bare the potential to negotiate higher as recommended takeovers can most certainly discourage rival and perhaps more generous bidders. Posing a potential solution that would see offers emerge regardless of other buyers, BreakingViews has looked at the American model where companies must formally announce that they are up for sale. While such an announcement and the potential ensuing bidding war may create destabilising uncertainty in the short-term, if it comes good, shareholders may receive a yet better outcome in the longer-term.

Full disclosure (there isn’t any)

Pressure may slowly be starting to build on those companies offering very little by the way of detailed disclosure. Writing for Tomorrow’s Business, Simon English, Senior City Correspondent for the Evening Standard, has lamented the growing trend of companies declining to share even the most basic of information. Taking the example of S4 Capital, a company that has shot to a market value of £4.5 billion from nothing in rapid time, English draws attention to the sheer lack of disclosure from its leader Sir Martin Sorrell. With companies of all sizes deciding against disclosures with respect to deals (and sometimes even with respect to their IPOs) English calls on journalists to toughen up and begin to refuse stories if the disclosure isn’t up to it.

And finally … ESG as the “goodness” gravy train 

While many view ESG as the golden egg for companies, investors and society, some ESG-sceptics see it as having the potential to do more harm than good. In his blog, Professor Aswath Damodaran has argued that ESG is a flawed concept. ESG cons people into believing that they can have it all, in terms of both morality and money. In practice, the people who benefit most from selling ESG as a concept are disclosure advocates, measurement services, investment funds and consultants. With regard to why CEOs are so quick to get behind ESG, it is important to remember that it gives them an excuse to bypass shareholders and avoid responsibility. To remedy this flaw in ESG’s design, Damodaran outlines a more personalised approach for supporters of ESG. He suggests that advocates should take a personalised approach to their moral code, rather than seeking value judgements from ESG measurement services. It is also vital to be clear how being ‘good’ will affect growth, margins and risk, as upholding personal values will likely cost money. Additionally, investors should accept that, in order to make ethical investments, they will have to accept lower returns than if they didn’t make morally-minded investments. Finally, consumers’ decisions around what they choose to consume and support perhaps has the greatest impact of all; investing in a sustainable stock portfolio does little to counteract poor consumption habits.

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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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