IR Monitor – 11 December 2024

In this week’s newsletter:

• For most companies, figuring out what to do with their excess cash is relatively easy. However,  Saudi Aramco faces difficult dividend choices – Bloomberg CFO Briefing
• Revolut boss says listing on London stock market is ‘not rational’; stamp duty on shares means Britain ‘can’t compete’ with the US – The Telegraph
• Real shareholder democracy is the answer to ESG: three academics propose “investor assemblies” as a response to the crisis in corporate governance
• Investor Relations use of AI shifts up a gear thanks to tailored tools, trusted data and a little help from friends. IR Magazine has the full story
• Toxic shareholder relations are a red flag for company performance. Disputes between company boards and their biggest investors can drag on and on, warns the FT
• And finally … UnitedHealth executive shot dead in New York City on Investor Day. The shooting has prompted a corporate security rethink: “Could this happen to us?”

This week’s news

Saudi Aramco’s dividend problem

Not knowing what to do with extra cash is not a common situation for a company to find itself in, especially when in the energy sector, which is prone to frequent share buy backs. For Saudi Aramco, however, it isn’t so straightforward – Aramco is largely state-owned, with less than 3% of its shares trading freely on the stock exchange. This limits the room for buybacks and, instead, it has decided to focus on dividends. Ziad Al-Murshed, Aramco’s CFO, explained to Bloomberg that the company wants to have a dividend that is “not only sustainable but progressive” (having raised the dividend by 4% for the last two years).  However, Aramco’s dividend payments have been described as “unsustainable” by Bloomberg Intelligence, and they are in a net debt position in Q3 – their first since 2022. Whilst the payouts are a key source of funding for the Saudi kingdom, there are questions around how long these dividends can continue.  

Listing on the LSE ‘not rational’

Nickolay Storonsky, chief executive at the online bank Revolut, has long been a critic of the London stock market.  Previously, he’s taken issue with “extreme bureaucracy” leading to a three-year wait for a UK banking licence for his business. This week, he has described listing in London as “not rational” and simply uncompetitive compared to the US. He attributed London’s recent exodus of tech companies in favour of the US to two simple factors: more liquidity and free trading.  In the UK, every trade incurs a 0.5% stamp duty tax, making trading more expensive. In his speech on Monday, The Lord Mayor of The City of London, Alistair King, agreed, saying it was illogical that an international vehicle can be purchased without paying tax, but an investment in a British stock like Aston Martin would be taxed.  

Could investor assemblies solve the corporate governance crisis?

In a climate of ever-growing tensions, long gone are the days of asset managers being driven solely by maximum financial gain. Demands from stakeholders to instill an increasingly complicated set of values into the financial decision making process, whilst also being criticised for not maximising financial return in the name of other values has created  a corporate governance crisis. Whilst the different camps continue to battle it out, most corporate votes are concentrated in the hands of a few intermediaries who engage with companies on shareholders’ behalf. Three academics have proposed a solution: investor assemblies. Similar to a jury, these assemblies would be made up of a shareholder sample, which in theory, will act and vote in a way that the actual investor base would, if given the time and information to do so. The idea has been successfully trialled in the Netherlands, where a “mini-public” set the voting guidelines for all investors at a pension fund. The idea is to reduce potential political interference with asset managers, allowing them to focus on maximising financial returns while staying within investors’ ethical constraints. 

The impact of AI in the world of IR

The AI wave doesn’t seem to be slowing – at least not in Investor Relations. IR Magazine hosted an AI and Technology Forum in New York last week, involving a demonstration of the interest in AI’s impacts on capital markets and how IR teams can use it to be more efficient. A series of workshops enabled attendees to experiment firsthand with different AI tools. One workshop showed how to use Google NotebookLM, a virtual research assistant, to compare competitor sustainability reports/anticipate investor questions. The assistant can even generate a podcast briefing – presented as a chat between two people – to get you up to speed on a topic during your commute. The event demonstrated how the use of AI has grown since the launch of ChatGPT two years ago, and how it’s been implemented across the industry. There were three key takeaways from the forum: use trusted data and a tool that shows what sources have been accessed, bring in subject matter experts to review the final output, and finally, sometimes, the older route might be the best – AI is not always the answer.  

Disputing with shareholders is never a good look – The Financial Times

Activist shareholders are hardly news to anyone anymore, with nearly 1000 activist campaigns recorded this year. However, Topps Tiles and Boohoo have found themselves in a slightly less usual situation – in disputes with their largest shareholders. Last week, Austrian investment group, MS Galleon, which has nearly a 30% stake in Topps Tiles, accused its leadership team of failing to adapt to the changing retail landscape. At the other end of the FTSE, Boohoo’s largest shareholder Mike Ashley, who has a 28% stake in the company, has demanded a shareholder vote to install himself as a director following continued poor financial results from the fast fashion giant. These types of disputes are really bad news for businesses – history proves that when relations break down, such disputes can drag on and on. There are limited ways out of these – the FT rather unhelpfully suggests that the best defence is to “simply” improve performance.

And finally… a security reset for top execs?

The shooting of a UnitedHealth executive in New York City last week during an Investor Day has prompted a security rethink. The world’s biggest companies are scrambling to assess whether their top employees have enough protection after Brian Thompson, a senior executive at the US insurance company, was killed last week. Allied Universal, a security company firm, said that it received hundreds of calls from prospective & existing clients after the shooting. The fatal shooting last week is by far the most high-profile attack against a corporate executive in recent years. According to experts, it was not ‘unusual’ that Thompson didn’t have security with him, as many top executives frequently go unprotected. Security is typically only adopted for businesses that attract public scrutiny or those with a public stance on geopolitical issues such as the tensions in the Middle East. Mark Zuckerberg, chief executive of Meta, is thought to be the one biggest recipient of security spending, with over $9m allocated to his personal security last year.  

For further information on the dedicated investor relations team at FTI Consulting, please contact [email protected].