IR Monitor – 14 February 2024

In this week’s newsletter:

In this week’s newsletter:

• “Some senior fund managers think the stock market will be dead in the next ten years anyway such is the direction of travel” – Prescient or cynical? The Telegraph considers the issues facing the LSE and its future.
• Global investors are warning that a proposed overhaul of listing rules to attract more growth companies to the UK market will erode shareholder value, writes the Financial Times.
• The fight against DEI continues but so does pushback against the naysayers, notes Dealbook. 
• The Evening Standard’s City Spy chart of the week shows UK M&A could very well be having a comeback.
• To dividend or not dividend? WSJ asks the question. And here’s another – how much is too much? 
• And finally…less is more when it comes to CEO compensation and shareholder suits, according to Fortune.

This week’s news

The London Stock market’s decline is starting to look terminal

Give the Nasdaq a hand and they’ll take the whole Arm… The Telegraph analyses the waning appeal of the London Stock Exchange as its US counterpart looks to snap up more British companies. Karen Snow, Nasdaq’s global head of listings, expressed her intention to continue conversations with UK businesses following the highly successful US listing of British tech giant Arm. This sets a worrying precedent, especially given the recent dearth of activity on the LSE. The Telegraph’s Ben Marlow blames British cynicism. Whilst corporate America’s ‘general enthusiasm’ helps drum up buzz around new listings, English pessimism creates an off-putting environment for companies looking to list. He notes fund managers’ warning that if things don’t change soon we could see the death of the London Stock market within a decade. 

Global investors warn UK on overhaul of listing rules

Though the London Stock Exchange may be in dire straits, efforts are being made to revive it, the Financial Times reports. Namely, the Financial Conduct Authority’s proposed new listing rules. The FCA hopes to attract more UK listings by changing a number of regulations around corporate governance, reducing shareholder voting power in favour of founders. Unsurprisingly, shareholders are not happy. The International Corporate Governance Network, a group of global institutional investors with $77tn of assets under management, has written a letter to Jeremy Hunt warning that the changes could damage the UK stock market’s reputation for high standards of corporate governance and reduce investor interest in UK-listed companies. However, Bim Afolami, economic secretary to the Treasury, contends that there is ‘no point in having the safest graveyard’ and states that the government is in full support of the regulator’s proposals.

Fighting DEI pushback

The New York Times’ Dealbook takes a look at the recent conversation around diversity, equity and inclusion. Despite facing plenty of criticism, evidence suggests that DEI is here to stay. A dozen trade groups representing minority communities outlined the proven benefits of DEI in a letter to Fortune 500 CEOs. According to the letter, companies that champion DEI consistently outperform those that do not. Despite the mixed opinions online, not to mention the Supreme Court’s rejection of affirmative action programmes in colleges, surveys show that the vast majority of senior company executives do support DEI. 

A love affair for the ages: Companies ‘coupling up’ on the rise in 2024

M&A activity in London seems to be rearing its head again, according to the Evening Standard’s ‘City Spy’ newsletter. By simply counting the number of firms called ‘Bidco’ that have been registered on Companies House, the Standard has determined that there were just shy of 60 companies registered in Q4 2023 versus 61 companies registered in Q2 2022, suggesting the City has seemingly rebounded from the dip in 2022-2023.

Can dividend investing rise from the dead?

Ever since the 2008-09 financial crisis, dividends have been deemed ‘unsexy’ by investors and the numbers follow: companies that don’t pay dividends have returned nearly 1,200%. Now, Meta Platforms, a staunch no-dividend winner, said it will start quarterly payouts at 50 cents a share to try to win back investor confidence during a period of instability due to wanton Metaverse investments. Paying an income can still be a useful way for executives to prove they aren’t wasting money but, for some, reinvesting cash flow draws attention to their growth prospects. The Wall Street Journal recommends a compromise: focus on companies that can increase dividends sustainably (affectionately nicknamed “dividend aristocrats”). 

And finally… Apples and Oranges: how did Tim Cook’s compensation hold fast against litigation and Elon Musk’s fall so flat?

Just a week after Elon Musk’s $55bn Tesla payday was struck down by a Delaware judge, a New York court dismissed a challenge to Apple CEO Tim Cook’s compensation package, sitting at just under $100m, Fortune reports. Plaintiff Richard Tornetta, prosecuting Elon Musk, argued that Musk maintains close relationships with his board members, so the supposedly independent board of directors’ vote approving his eye-watering pay scheme was clearly biased. However, Cook’s litigation stemmed from a concern that the company misled investors by downplaying the value of his equity, which is his primary form of compensation. Ultimately, the courts disagreed that Cook’s pay was disproportionate and found that the company had not misled investors (negating claims that Apple had hidden Cook’s pay in boring grey tables). One key difference is the monetary value: Musk’s would have been the largest compensation plan in corporate history whereas Cook’s was in line with his peers. Moral of the story: the conservative turtle wins against the hasty hare.

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