IR Monitor – 13 December 2023

In this week’s newsletter:

In this week’s newsletter:

• The buy-side view on AI: ‘Nothing replaces the ability to talk to management’
• Navigating a remuneration policy consultation – an IR Society webinar
• The $900,000 tomes that no one really wants to read: companies lavish time and money on IPO prospectuses that are going the way of the dodo bird
• Wall Street quants join chatbot boom: new language models are changing sentiment analysis and companies are now deliberately incorporating positive tones and words
• A closer look at companies’ statement of cash flows: the U.S. securities regulator is focusing more on how companies determine whether errors made in the overlooked financial statement are material to investors, reports the Wall Street Journal
• And finally … Barbie, banks and Beyoncé: The words that defined 2023’s conf calls

This week’s news

The buy-side view on artificial intelligence: ‘Nothing replaces the ability to talk to management’

Speaking at IR Magazine’s AI for IR Forum, Grant Bartucci, a former representative of Point72 Asset Management, describes AI and tech more generally as ubiquitous in the buy side industry today. It is seen as a great tool to elevate the interaction between IR departments, analysts & investors to a more strategic level. Needless to say, AI tools provide extra time for strategic relationship-building, allowing IR professionals to focus on more value accretive activities. Bartucci emphasized that AI’s presence shouldn’t intimidate IR professionals; instead, they should recognize the potential efficiency it brings. While AI is prevalent in analyzing data, he cautioned against tailoring messages for machines, emphasizing the irreplaceable value of human interaction in investor meetings. The forum covered various topics around AI, including ethics, compliance, and collaborative opportunities for IR teams. In summary, talking to a management team remains an imperative for critical thinking, understanding the market outlook, and getting to the nitty-gritty of the business.

Navigating a remuneration policy consultation – IR Society

Last week, FTI attended a panel discussion, hosted by the IR society, on the remuneration policy consultation process for companies. Although executive remuneration is consistently a topic of shareholder scrutiny, changes to remuneration in 2023 were reviewed in the context of wider employee pay levels and the cost-of-living crisis in the UK. During the panel discussion, industry experts discussed engagement strategies, evolving expectations around ESG, regional challenges, and proxy advisors . The panel highlighted the importance of an effective communication strategy, through regular in person and hybrid engagement. The speakers talked about the importance of understanding how proxy voting is carried at different organisations to ensure companies are engaging with the right people. Amid all the cynicism, redlines and regional differences between the U.S. and the UK are increasingly viewed as a challenge to the competitiveness of the UK market. And when it comes to proxy advisors, investors have their own guidelines, and can chose to follow (or not) recommendations. Ultimately, robust reporting and engagement are essential requirements for companies, whereas investors should also ensure transparent stewardship reporting, combined with honest engagement with investee companies – as set out in the Stewardship Code.

The $900,000 tomes that no one really wants to read – Wall Street Journal

Corrie Driebusch from the Wall Street Journal reports on the eye-watering sums of money spent by companies on drafting and printing IPO prospectuses, despite a limited number of people actually reading them. This is partly because prospectuses, initially intended to offer a balanced view of the risk and return profile of an IPO candidate, are now perceived as corporate catalogues with many images as sophisticated design. This extensive and laborious task has, however, been an excellent moneymaker for Donnelley Financial Solutions, who handle the printing of prospectuses and have claimed to have worked on around 70% of all sizable IPOs over the past six years in the US. However, IPO prospectuses will evolve, as new AI language models are expected to streamline the process. Leading investors like Jonathan Curtis, director of portfolio management at Franklin Equity Group, recently stated his belief that the prospectus process is “going the way of the dodo bird” and that language learning models will be used in the future to make lengthy risk factor sections more palatable. 

Wall Street quants join chatbot boom

Developments in AI language models have unlocked an array of new sentiment analysis techniques used by quants to generate new trading ideas and assist their market predictions. Bloomberg reports that data scientists at AllianceBernstein are now using chatbots to enhance their understanding of the sentiment behind corporate spiel. These tools go beyond text analysis, as AI models can now comprehend tone, interpret facial expressions, and read between the lines. So much so that a 2020 academic paper found that companies are now deliberately incorporating positive tones and words into their presentations to fool the bots. Yet, some still doubt the effectiveness of these new tools and the trading ideas that have stemmed from them. Much of these insights drawn by chatbots have already been drawn by investors and analysts, who themselves spend hours scrutinising such micro factors. Some of the sentiment techniques have also proved to be meaningless. Despite the potential and excitement around these new tools, it is unlikely they will replace humans anytime soon.

The SEC is taking a closer look at the statement of cash flows 

Cash flow statements are coming under more scrutiny from US regulators following the observations from the SEC that some companies are not dedicating the “same level of rigor and attention” to their cash flow statements than they are to the P&L or balance sheet. Mark Maurer from the Wall Street Journal reports that companies are making a lot of “little r” revisions, which concern minor problems in financial statements that are corrected in future statements. A “big R” revision, on the other hand, involves the company reissuing their financial statement to amend their mistake. However, the SEC are finding themselves disagreeing with what companies deem material for restatements. To provide more details to investors, the FASB are now debating whether to mandate financial firms to report the amount of cash interest income they receive in a given period and expand their cash flow statements. The SEC has asked stakeholders for their opinion on the FASB proposed reforms, stating that feedback would help the FASB enhance the “decision-usefulness of the statement of cashflows”.  

And finally … Barbie, banks and Beyoncé: The words that defined 2023’s conf calls

Market intelligence platform AlphaSense analyzed 2023 conference call transcripts, and the FT reveals the results and most defining words of the year. The Q3 2023 earnings season has seen many cultural influences on corporate discussions; notable mentions included Barbie, Taylor Swift and Beyoncé. Diet drugs, moats, regional banks, price pack architecture, and nicotine pouches have also emerged as trends and have hit a new high in 2023. One word that which became less used was “double click”, although it still seems that analysts want to “double-click” on something, whether a churned customer or an excel spreadsheet. Some call it impact journalism, but what this compilation provides is the shape of conference calls. In essence, the most important words and phrases of the year range from consumer trends to industry strategies, something to be aware of when anticipating the direction of future conversations. 

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