IR Monitor – 14 August 2024

In this week’s newsletter:

• Some advice from the FT that Investor Relations Officers may find strange: Why you should sell shares in your company immediately
• An activist perspective: Why I look to the Board first, by Louise Curran
• FTSE 100 chief executive pay reaches highest level on record. Some investors object, reports The Guardian
• Nasdaq has hundreds of penny stocks. Now it’s trying to purge them, suggests the Wall Street Journal
• Saudi Cabinet approves updated investment law: among other things, the law confers equal rights on local and foreign investors, reports The National
• And finally … The appointment of robo-directors to corporate boards is discussed by FTI’s Arnaud Cave

This week’s news

Why you should sell shares in your company immediately

On the face of it, vested shares might seem like a great idea: employees are rewarded for their hard work with a piece of the pie, decision makers are encouraged to think long-term and avoid unnecessary risks, and employers enjoy better employee retention. Win, win, win? Decidedly not, says FT’s Robert Buckland, who recommends that anyone in reception of vested shares sell them immediately, unless they can think of no better investment strategy than buying them right back. If things go wrong, he argues, employees can lose their job and a large chunk of their personal wealth in company stock simultaneously. Diversification is crucial, and besides, employees that sell will still retain exposure to their company via their unvested stock. Whilst it might make sense for CEO pay to hinge on share price, the risk might outweigh the reward for the rest of us.

An activist perspective: Why I look to the Board first

As a shareholder analysing a company, where do you look first? The balance sheet? The investor relations page? The CEO’s X account? Well, according to Louise Curran in Finews, we should be looking to the board first. For a start, the board covers the ‘boring bits’ of running a company – regulatory compliance. It’s the board that ensures a company is fulfilling its legal and regulatory responsibilities. Not the most glamorous job but a crucial one, nonetheless. The board also sets the strategic direction of the company, determining its trajectory and, ultimately, the value of your shares. Most profoundly, though, the board is a ‘snapshot of the DNA’ of a company. The make-up of the board and the values, competencies, and diversity therein is perhaps the most revealing investment case that a shareholder could hope to find, argues Curran. 

FTSE 100 chief executive pay reaches highest level on record

When it comes to CEO pay, ‘how much is too much?’ seems to be the all-important question. The Guardian notes that 120 times the average UK salary is, in all likelihood, too much. The High Pay Centre campaign group recently showed that the median pay for a FTSE 100 Chief Executive increased from £4.1m in 2022 to £4.19m in 2023, with the average chief executive paid more than 100 times the average full-time worker in Britain. The finding comes after the chief of the London Stock Exchange called last year for UK bosses to be paid more in order to match US rivals and prevent any cross-Atlantic fledging. Luke Hildyard, the director of the High Pay Centre, said: “Higher executive pay has been a key demand of business lobbyists in recent years. These figures indicate that this campaign has had some success”. However, such high pay packets can stoke public anger, especially given the significance of recent hits to households’ disposable income. As Hilyard continued: “These developments have been very good for those at the top, but it is more questionable whether they are in the interests of the country as a whole.”

Nasdaq has hundreds of penny stocks. Now it’s trying to purge them

Following criticism that its exchange has become an unwilling shelter to hundreds of risky penny stocks, Nasdaq has proposed rule changes that may accelerate the delisting of particularly small and risky companies, reports the Wall Street Journal. The two proposed changes posit that 1) companies that reach the end of their second 180-day grace period would no longer be able to postpone delisting by seeking an appeal, capping the amount of time that sub-$1 stocks can be listed on Nasdaq to a year, and 2) a company undergoing a reverse split to support its share price who finds its stock falling below $1 within a year will immediately be issued a delisting notice, subject to appeal. Nasdaq claims that the proposed changes are intended to protect investors, and that repeated reverse splits are “indicative of deep financial or operational distress” within a company, “rendering them inappropriate for trading on Nasdaq for investor protection reasons.”

Saudi Cabinet approves updated investment law

The Saudi Arabian Council of Ministers has approved an updated investment law intended to provide investors with greater transparency, flexibility and confidence, according to The National. As part of the country’s Vision 2030 policy, which seeks to attract foreign investment and reduce the nation’s reliance on oil, Saudi Arabia is positioning itself as a stable alternative to other markets which are “experiencing considerable volatility.” The updated investment law, which comes into effect from the beginning of 2025, will bring the rights and duties of domestic and foreign investors in line with international practices and replace foreign investor licensing requirements with a simplified registration process, as well as promoting “equal treatment between the domestic and foreign investors under similar circumstances”. 

And finally… robo-directors on corporate boards

One small step for robots, one giant leap for robotkind. As FTI’s Arnaud Cave noted, Robots have taken a step forward in their mission to become our overlords, with Abu Dhabi-based International Holding Company (IHC) appointing one as a non-voting director to its board back in February. “Aiden”, as this potential future-Skynet is nicknamed, is a virtual entity with sophisticated AI capabilities, and its first board meeting seems to have been a resounding success: IHC claimed that Aiden’s contributions “enabled the IHC Board to make well-informed decisions, effectively manage risks, and pinpoint emerging opportunities.” Jokes about robo-conquest aside, it will be interesting to see how AI’s ability to recognise trends and propose solutions will impact board decisions going forward – perhaps robo-directors will at some point chair board meetings?

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