IR Monitor – Monday 16th March
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Welcome to FTI Consulting’s weekly IR Monitor
Amid the shifting tectonic plates of the current markets, this week we look at a range of subjects that highlight the importance of good relations in difficult times. We open by considering research by FTI Consulting into the value of helping investors understand the process behind transactions. We follow this by reporting on the added-value that active fund managers can demonstrate in these testing times and how coronavirus is leading more and more firms to consider digital interactions as part of their daily operations, and the opportunity this presents. We also examine the growing interest in ESG ratings, and the commensurate growing scrutiny such ratings face. Finally, we look at the latest episode of Lipton vs. Lucian, as the two governance titans have gone head-to-head once again – this time over the subject of stakeholder capitalism.
This week’s news
Detailed disclosure gets deals across the line
Recent research by FTI Consulting reveals that thoroughly communicating the process behind a transaction can help to get investors on board. Author Rodolfo Araujo, former Vice President at Institutional Shareholder Services, cites two contrasting examples to demonstrate their point. When Detour Gold’s board first presented to shareholders the proposed acquisition of the company by Kirkland Lake Gold, shareholders had concerns about the valuation and insisted on waiting for a better offer. Once the board outlined the comprehensive review process in the proxy statement, 86% of shareholder votes supported the transaction including several vocal shareholders who were initially opposed. By contrast, the lack of disclosure from Rowan Companies in their initial proxy statement almost derailed their proposed merger with Ensco. Both of these cases highlight that disclosing as many pertinent details as possible in the proxy statement can alleviate any shareholder concerns and make the approval process more efficient.
Stock pickers vs index funds
According to the Financial Times, the crash in global stock markets presents active managers with a unique opportunity to demonstrate their value, faced with the increasing popularity of passively managed funds. As stock markets tumble, passive fund managers can do little else than watch as shares of ETFs plunge and hope to dump poor-performing stocks when a quarterly reshuffle occurs. By contrast, active managers can withdraw money from procyclical stocks and seek safety in government bonds, gold and defensive equities like utilities and tobacco. Active managers need to capitalise on this performance advantage.
Covid-19 prompting a move to digital
The continued spread of coronavirus across the globe is forcing many companies and investors to reconsider how they interact. While many investors dislike conference calls and believe face-toface meetings are critical to understanding a business, travel bans are leaving them with no other option. Charlie Combe of Edison Investment Research argues in a LinkedIn post that there are in fact several advantages to digital roadshows. First, investors cannot claim to be concerned about ESG while simultaneously demanding companies fly out to meet them and likewise for companies trying to tout their ESG credentials. Secondly, digital roadshows are less likely to be disrupted by bad weather, flight cancellations and sudden board meetings. Finally, companies can increase their reach by presenting to investors from across the globe all in one day.
Agencies take note, companies are not happy with their ESG ratings
It won’t come as a shock to hear that IR teams are paying more attentions to ESG ratings, but IR Magazine reports on new research from BNY Mellon that finds that many IR professionals are dissatisfied with how they perform. 62% of all surveyed IR professionals say they monitor their ESG ratings, which rises above 80% among mega-cap respondents. Only 12% of respondents say they agree with the analysis of their company by ESG ratings providers. Companies are not taking the poor quality outputs lying down either, with 52% of teams saying they’ve communicated with ESG ratings agencies over the past year.
And finally…It’s heating up in Cambridge, MA
The gloves are off in an old rivalry at Harvard Law School. Professor Lucian Bebchuk, Director of the Program on Corporate Governance, and veteran lawyer Martin Lipton have clashed in the Law School Forum over the future of corporate governance. This is no back-alley brawl, drawing the attention of Breakingviews and the Financial Times, among others. Lipton was a vocal supporter of the Business Roundtable’s push for boardrooms to run companies for the benefit of all stakeholders, not just shareholders – declaring 2019 a “watershed year” in corporate governance. In response, Bebchuk called stakeholder governance “illusory”, arguing that anything that benefits shareholders benefits all stakeholders, and that making leaders accountable to more people makes accountability more difficult, which actually weakens corporate governance. Lipton is the inventor of the poison pill defence against raiders that Bebchuk has dismantled on multiple occasions, and tussles between the two tend to attract the attention of boardrooms across the market.
J.P.Morgan Pan European Small/Mid-Cap Conference (17-19 March)
UBS London Oil & Gas Conference (18-19 March)