Capital Markets & Investor Relations

IR Monitor – 28th June 2021

Investor Relations News

This week, we begin by looking at the biggest ever flotation on London’s junior market. We move on to discuss a directive changing the role of IR professionals, and speculate about what other changes the IR industry can expect to experience. We then explore inconsistencies surrounding ESG reporting and the problems this creates for global investors. Next, an in depth consideration of the written and unwritten rules of executive share trading. After which we assess the prospect of a post-Brexit, post-pandemic “golden age of activism” which will see increased investor activism across the UK. And finally… a list of the best CEOs is all well and good, but wouldn’t a list of the worst be more telling for potential employees and investors?

This week’s news

Biggest debut on London’s junior market (proud advisor alert!)

Investors rushed to welcome the biggest ever flotation on London’s junior market – Victorian Plumbing Group plc. The bathroom products group’s shares made their debut at 262p on the Alternative Investment Market (AIM) market, and ended the day at 330p, valuing the company at over £1bn. The Financial Times has reported that, like other home improvement companies, the Liverpool-based company has received a boost from the Covid-19 pandemic as consumers are spending cash that might once have gone on holidays or entertainment on enhancing their homes. Notably, The Times added context [from advisers] that, “Victorian Plumbing was in a league apart from the recent rash of loss-making online retailers which have floated at punchy premiums based on growth during the pandemic because the business has consistently made a profit since it was founded by [Founder and Chief Executive] Mark Radcliffe in 2000”.  It was welcome news for investment bankers, too. According to The Times, the first day “pop” is an encouraging sign that there is still life in the market amid concerns that investor fatigue has been causing listings to be pulled or be priced at the bottom of their range.

SRD II changing the IR role

The Shareholder Rights Directive II (SRD II) was introduced in September 2020 and, despite requests for a postponement, the EU ruled that the importance of delivering transparency, automation and better investor participation in corporate governance was sufficiently important to proceed. The directive aims to increase transparency between issuers and their shareholders and to encourage investors to engage more frequently in corporate governance, specifically in voting activities. According to IR Magazine, SRD II’s introduction has reshaped the relationship between companies and their investors, affecting areas from pay to shareholder ID and proxy advisers. But this isn’t the only change IR professionals should monitor. IR Magazine warns that further regulatory changes in the industry are inevitable; adoption of digital agendas is accelerating – reflected in the industry’s use of virtual shareholder meetings – and digital communication will remain a primary area of focus for financial intermediaries. IR professionals should work with their technology teams to be ready to cater for these requests when they prevail as industry norms.

Inconsistent green goals leave investors flailing

ESG is the word on everyone’s lips but as an investment approach it’s new, fragmented, complicated and inconsistent. That’s according to the Telegraph, which took a global snapshot of 150 researchers and companies they follow finding that huge variations exist in how firms view sustainability and in how investors are attempting to measure it. The absence of common standards is glaring, with some key issues emerging from the survey. First, there is a gap between geographies where the environmental challenge is well understood and factored into long-term business plans and the geographies where it is not. For example, more than 70% of analysts in Europe think companies have the right plans in place to decarbonise by 2050. In Latin America, Eastern Europe, the Middle East and Africa that proportion falls to zero. Second, companies have been slow to link executive pay to real achievement in cutting emissions. Only a third of firms do this and only half expect their boards to provide a focus on ESG more generally. Without financial incentives, sufficient progress is unlikely. Lastly, while companies are increasingly keen to talk about ESG and sustainability, there remains a lack of internationally agreed standards that would enable investors and consumers alike to scrutinise their claims. There’s no shortage of regional standards being developed but none has yet gained any traction on a global scale. Until Europe, Asia and the US implement the same criteria to decide what is and what isn’t sustainable, investors will struggle to make sense of different reporting frameworks.

On Executive Trading

Off the back of the Lordstown Executives trading controversy, Bloomberg has attempted to explain the problem of executive trading, exploring the ways in which executives can sell stock from their companies without insider trading. The article explores two basic ways which public companies and their executives have developed to deal with this problem. One way for executives is the 10b5-1 plan: That same SEC rule says that executives can set up an automatic plan when they don’t have any material non-public information, and then that plan can automatically sell stock for them even if they later come into possession of inside information. If an executive makes a decision to sell far enough in advance, it’s unlikely that she is trading on any inside information. The other way for executives is to do all their trading right after earnings – after the press release has technically informed the public of all information, meaning executives have an “open window” to sell stock. These are counterbalanced by “blackout periods” that start near the end of the quarter and run until around the earnings announcement, where executives should not trade. If executives sell stock during a blackout period, they have probably broken a corporate rule but they have not necessarily broken the law.

UK boards braced for new ‘golden age of activism’ 

With restrictions easing and the vaccine roll-out ramping up, activist investors are looking to fire up activity and begin targeting companies that have been left in weak positions. Financial News has reported that Britain is now ‘ideal territory’ for activist investors, with the pent-up demand for change that has been dormant for the past year finally starting to be unleashed. Malcolm McKenzie, managing director and head of European corporate transformation services at Alvarez & Marsal, said UK companies are at the top of activists’ hit lists. “There are clear signs of pent-up demand starting to be unleashed after activity slowed during the pandemic,” said McKenzie. Though there is a cultural difference between the UK and the US, the traditional hostile attitudes towards activism are changing, with a growing acceptance from the wider shareholder base as well as corporate boards of what activist investors are trying to achieve.

And finally … Lists of top bosses are fine but what about the worst?

The Financial Times has mused on the “top CEOs” annual list, and how interesting a “worst CEOs” list would be. Glassdoor, the career site, released last week the “top CEOs” list where employees can post anonymous reviews of their companies; the list ranked bosses in the US, UK, Canada, France and Germany over the 12 troubled months up to May this year, using an internal rating system that measures the quality, quantity and consistency of reviews. Among its more notable findings: Microsoft’s Satya Nadella made it on to every country’s list except France; Facebook’s Mark Zuckerberg failed to make it to the list of top 100 US chief executives for the first time since the rankings started in 2013 (when he was rated number one). Ratings are predicated not just on decent pay, good benefits and career progression; many bosses also got points for offering flexible or remote working. The FT has gone further and suggested that it might also be good to have a reliable list of the worst CEOs. This would arguably offer a far more useful guide for potential employees, customers and investors, especially when it comes to smaller, less scrutinised companies.

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