IR Monitor – 11th January 2023

This week’s news

EY cautious outlook for 2023 listings

IR Magazine reports on the latest research from EY, which finds that the global IPO market slumped considerably in 2022 compared to the previous year, and identifies the key issues inhibiting market recovery. Geopolitical tensions, inflation and high interest rates have all contributed to the dip in IPO activity, notes EY’s global IPO leader Paul Go, whilst declining stock markets, valuations and post-IPO performance have weakened investor’s appetite for IPO activity further. But what’s needed for the IPO market to recover? According to EY, we need to see an uptick in stock market performance, falling inflation and peak interest rates, as well as an improvement in geopolitical relations and the impact of covid, before the IPO market will recover to 2021 levels

Shareholder engagement over tax transparency grows, says PIRC

IR Magazine also reports that one in four (27%) of Cisco and Microsoft shareholders have voted in favour of greater tax transparency, according to Pensions & Investment Research Consultants (PIRC). PIRC has noted that the result of these votes requires a response from the boards of both large-cap technology companies. Investor support for tax transparency measures has been gaining global traction, highlights PIRC, with Australia moving to mandate public country-by-country reporting (CbCR), the OECD implementing a minimum corporation tax agreement, and the SEC calling for CbCR to be implemented in the US. Indeed, the SEC upheld Amazon shareholders’ resolution on tax transparency, even though the vote did not have the support of management. PIRC hopes to continue its work with the Centre for International Corporate Tax Accountability and Research and develop a globally standardised tax framework which prioritises transparency for shareholders.

Slack goes to SCOTUS

The U.S. Supreme Court has agreed to take up an appeal by workplace chat company Slack against a lawsuit, over its 2019 direct listing which alleges that the company made false statements in its prospectus. Axios suggests that the decision may have ripple effects on other public listings and how unregistered (and registered) shares get marketed and sold, with the court tasked to determine whether to allow purchasers of unregistered stock to also sue issuers under the Securities Act of 1933. The plaintiff purchased Slack stock shortly after it went public on the New York Stock Exchange in June 2019. After the stock price dropped, the plaintiff sued the company, as well as some if its executives and board members, claiming that Slack’s registration statement was misleading.

Shareholders criticise serial directors

Company directors are stretching themselves too thin. Or at least that’s according to Twitter shareholders who decided that Egon Durban, chief executive of Silver Lake, was juggling too many directorships on top of his day job. “Overboarding” is readily becoming a feared term amongst UK business leaders, with some reportedly refusing additional board opportunities to avoid potential backlash, regardless of whether they have the capacity. The UK Corporate Governance Code mandates that top executives should only take on one FTSE 100 non-executive directorship, but there is no set limit for chairs or other non-executive directors. However, in the US, the ISS largely recommends voting against (or withholding votes from) directors who sit on more than five listed company boards. In the UK the ISS has a five-mandate limit where a non-executive directorship counts as one mandate, a non-executive chair counts as two, and a position as executive director is counted as three. Yet, most directors believe that numerical limits are arbitrary and do not account for an individual’s own ability to manage time. So, what next? There is certainly no easy maths on “overboarding”, argues the FT, advocating for a more nuanced conversation on executive roles rather than being guided by arbitrary rules.

Activists: no-holds-barred in 2023

As once-hot companies lost market value, investors did lots of wrestling with management in 2022. Even more is to come, according to Lazard’s Chris Couvelier, who joins The Exchange Podcast to explain how corporate giants’ strategic woes and tempting cash piles will shape activism in the new year. Activism happened at a record clip over 2022, and the first quarter ended up being a record for the single busiest quarter of new activity, according to Lazard’s data. Even as the macroenvironment changed, every single quarter saw a material increase relative to 2021. Activists appear to be weathering macroeconomic conditions relatively well, as most activists know this environment and have lots of dry powder to put to use. This year, activists are keeping their eyes peeled on tech and O&G, with Lazard foreshadowing a host of new activist campaigns. Furthermore, the relationship between the M&A backdrop and activism is worth closer inspection – the logical hypothesis is that M&A activism would ebb and flow according to the broader M&A backdrop, but this isn’t what was seen in 2022. Campaigns with an M&A related objective, according to Lazard’s data, accounted for 40% of all activist campaigns in 2022 – a slight tick downwards from historical levels, notwithstanding that the M&A market materially slowed down over the course of 2022. Lazard predicts that even with the M&A market where it is, M&A activism is going to remain the one of the most popular forms of activism in 2023.

And finally… what will be the dreaded business buzz words of 2023?

‘Mutuality’ is the predicted business word of the year according to research by language consultancy Schwa. The company writes hundreds of thousands of words a year for corporate clients like Zurich, Disney and PepsiCo. Its founder Neil Taylor says the word “captures a shift in the dynamics of the workplace, especially, post-Covid, where a good work relationship is supposed to be a win-win for the employer and the employee, rather than it all being in the company’s favour”. “Mutuality” was closely followed by “hypergrowth” and “sustainovation”, with Taylor predicting their popularity going into 2023 as the words “sound cool” and provide a “thrill”. However, the IR Monitor editorial team suggest that no serious conversation between a company and its investor should contain these words.

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