Capital Markets & Investor Relations

IR Monitor – Monday 9th March

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Welcome to FTI Consulting’s weekly IR Monitor.

Amid a global markets sell-off, in this week’s monitor FTI’s Senior Managing Director Joanne Wong provides practical advice for communications and IR professionals communicating coronavirus impact to internal and external audiences. With rows over executive pay packages hitting the headlines ahead of AGM season, FTI and CGLytics have published a research paper on regulation and investor expectations ahead of this year’s meetings. We note the passing of GE’s ‘Neutron Jack’ Welch who was famed in the corporate world for his tough approach to management: the FT reports that he demonstrated how much investors appreciate the companies that hit their numbers. On that theme we note IR Magazine’s coverage of BCG research showing a ‘communications gap’ between companies and their investors. CapX’s Tim Worstall tackles an upcoming report into the merits of ‘cooperative’ business models. And finally, are ESG metrics nonsense? We highlight concern within the investor community for contradictory company scores.

This week’s news

Coronavirus communications

In the light of the unprecedented turmoil caused by the spread of the coronavirus, FTI’s Joanne Wong provides practical advice for communications and IR professionals in IR Magazine. With corporate earnings season on the horizon, Joanne heralds the importance of transparency and providing as much certainty as possible to the financial community. She argues that internal communications must be prioritised, risks must be addressed and above all else, the key is to strike a balance between an accurate assessment of the impact and inspiring long-term confidence in the company.

Regulation and investor expectations: what to expect ahead of the 2020 AGM season

FTI Consulting and CGLytics have published a research paper outlining what to expect ahead of the 2020 AGM season. Since the financial crash of 2008, scrutiny on Boards of Directors and companies has grown, particularly with respect to corporate governance. The 2018 iteration of the new UK Code included several substantive changes, of which key areas have been analysed to determine the extent of the impact on UK and Irish companies. While the embedding of workforce engagement practices and disclosure has been subject to slower developments, guidance on pensions and Chair tenure have immediately influenced company and investor thinking – the result of which has been significant reductions in pensions for executive Directors in the FTSE and a sharp drop in average Chair tenure on both the FTSE and the ISEQ. However, despite the extent of change among Chairs, the level of gender diversity in those positions remains very low. The paper also includes wider potential risks for companies as the 2020 AGM season approaches.

Former CEO of General Electric ‘Neutron Jack’ Welch dies aged 84

The Financial Times reports on the death of former General Electric chief executive ‘Neutron’ Jack Welch, infamous for his aggressive approach to cost-cutting. Welch was viewed by many as the embodiment of corporate America’s transformation under President Ronald Reagan and fired 10 per cent of his workforce on an annual basis. He earned a reputation for producing uncannily predictable earnings and dividends for General Electric’s shareholders, training a generation of managers who went on to hold leadership positions across corporate America. Following his retirement from General Electric, Welch brought self-help back to the forefront of the management arena with such aphorisms as “control your destiny, or someone else will”.

Benefits of employee-owned companies

CapX reports that a new report by Stefan Stern, formerly of the High Pay Centre and a regular contributor to the Guardian, will say that co-operatives – businesses which are collectively owned and managed by the workers – should be encouraged and financed more. This sounds good on paper, but it does not mean that more companies should be set up in such a way, according to Tim Worstall of CapX. It is easy to look around, as Stern does in his report, and pinpoint employee-owned companies doing well and negate the ones that have failed: “if workers owning the shop really made for a better shop, surely we would have dispensed with capitalist-owned chains by now”. The biggest downfall of the co-operative model, and the biggest benefit of capitalism, is the ability to have large scale economic adventures. If an organisation is limited to the financing abilities of those in that organisation, then nothing above a certain capital requirement can be done. However, this is not to say that one form of ownership is inherently worthier than the other, the capital-providing method should correspond to the task at hand. What is right for the specifics is what survives.

Communications gap leaves room for activists

New research from BCG has highlighted a ‘communications gap’ between companies and their investors, IR Magazine reports. Only 55 per cent of investors surveyed described their engagement style as “active” and two thirds of ‘passive’ investors said that they would support an activist campaign if they had issues with the business. The authors of the report conclude that companies must improve their communications with shareholders if they are to prevent activists from gaining support of their investors and suggest that strong disclosure practices may help businesses to open the channels of communications. A regular investor audit represents another way to close the communications gap.

And finally…Do we actually know what ESG is?

Anthony Hilton of the Evening Standard writes on the rapid and, to some, concerning rise of ESG ratings. The Global Sustainable Investment Alliance reported that in 2018 global investment products linked to ESG were worth $31 trillion, and industry projections are that they will top $40 trillion this year. Consequently, the 2020 Credit Suisse Global Investment Returns Yearbook attempts to answer a fundamental question: do we actually know what ESG is? The biggest index providers and rating agencies don’t always agree. For example, Tesla is ranked at the top of MSCI for sustainability, but FTSE ranks it as the worst global car producer. The former focuses on the car itself and its lack of emissions while the latter looks at the factories and what goes into the batteries. Similarly, MSCI rates JP Morgan Chase, Wells Fargo and Pfizer as being extremely poor on governance but Sustainalytics rates them as very high. The issue, Hilton argues, is not that they are wrong but rather that they look at different data. They also have different weightings. MSCI places a varied weighting on ESG (5% on environmental, 74% on social and 21% on governance) whereas Sustainalytics places equal weight on all three. The conclusion is that all of this makes the benchmark “interesting” so anyone looking to invest in a fund should find out what it contains. Some ESG metrics are better than others, so be careful what you ask for.

Conferences

UBS, Technology One-to-One Conference (10-11 March)

Berenberg, European Opportunities Conference (10-12 March)

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