IR Monitor – 14th September 2022

This week’s news

FTI’s Q2 report on Activism Vulnerability in the US

FTI recently published the eleventh edition of our Activism and Vulnerability Report which covers the results of our Activism Vulnerability Screener in the US, plus other notable trends and themes in the world of shareholder activism. It has been a time of considerable volatility for US stock markets, with rising inflation and the second consecutive 75 basis point interest rate increase from the Fed in July 2022 – as well as an increase in activist campaigns. A total of 321 activist campaigns involving US-based companies were launched in the first half, comprised of 164 in the first quarter and 157 in the second. This was an increase of 23% compared to the first half of 2021. Campaigns were also more successful – activists managed to gain 31 of the 77 board seats (40%) sought in the second quarter of 2022, versus 14 of 43 seats (33%) sought in the second quarter of 2021. TMT was the most targeted sector (out of 10 sectors analysed), representing 25% of all US campaigns. Large-cap companies are also being targeted at an increasing rate and were the targets of 55% of new campaigns.

Asset managers must invest in IR as due diligence requests rocket

According to IR Magazine, asset managers looking to grow need to invest in their investor relations function. A survey by DiligenceVault, a digital due diligence platform for the asset management industry, found that nearly 70% of investors request custom due diligence questionnaires (DDQs) and requests for information (RIFs) and/or send follow ups. Given that more than three quarters of firms have seen an increase in ESG DDQs this year, it is clear that ESG data collection is a top priority for all firms.  DiligenceVault pointed to the fact that technology adoption is a growing priority for larger companies to help facilitate complex fundraising. The founder and CEO of DiligenceVault, Monel Amin, said that the insights “serve as an industry benchmark for formulating IR technology strategies in response to this rising complexity.”

BlackRock pushes back against directors serving on too many boards

BlackRock is taking on company directors who sit on too many boards as chief executive Larry Fink ramps up the Group’s scrutiny on corporate governance. This comes after the asset manager disclosed, in regulatory filings at the end of August, that it had voted against the reappointment of Sanford Robertson to the board of Salesforce. According to BlackRock, Robertson was “responsible for a lack of independence” on Salesforce’s board. The Company also voted against Twitter’s Director Egon Durban, as he also sat on seven other public company boards. Speaking to the FT Luigi Zingales, a professor at the University of Chicago Booth School of Business, suggested BlackRock had positioned itself as “changing the world for the better” and had distinguished itself from rival manager Vanguard which voted in favour of both Robertson and Durban.

Dividends on AIM expected to grow faster than on the UK main market

Morningstar writes that, with so much attention on the share price appreciation potential of AIM listed companies in the UK, investors have underestimated their cash return potential. Regular dividends are anticipated to reach £1.09 billion for 2022 as a whole (a gain of 13% on 2021, compared with an expected gain of 12.5% for the whole UK market). In the first half of 2022, financial stocks were the greatest contributors to the 20% increase in dividends on the AIM versus 2021, returning pay-outs to pre-pandemic levels. Other notable sectors include industrials, building materials and food and drink stocks. However, whilst investors should keep in mind that AIM companies tend to pay lower dividends than companies in the FTSE 100 and All Share, growth remains the real challenge for AIM market companies, as suggested by a dramatic decline in market valuations over the last twelve months and whilst current macro challenges continue to cloud the outlook.

Passive attack

It is a difficult task to calculate how much of the stock market is owned by passive investors but new research cited in Alphaville suggests that it may be a much larger proportion than originally thought, perhaps by a factor of two. The ‘official’ number most often used is the amount of money in index funds, and Morningstar estimates that was $8.6tn in ETFs and $6.4tn in index mutual funds at the end of July. However, the reality is that a lot of investors invest passively, but do so outside the public universe of index funds and ETFs that can be easily followed. A paper, looking at the proportion of passive investments in the US, estimates that passive investors held at least 37.8% of the US stock market in 2020 – more than twice previous estimates. The study authors, from Harvard Business School, reckon that this may even be a lowball estimate. Whilst some have concerns that stratospheric rise of passive investing could endanger capitalism in the long run, the author stresses that markets are actually getting more efficient overall, since it is increasingly harder to beat the benchmarks. And as active asset managers struggle to outperform indices, the author questions the long-term viability of their economic model.

Chief Executives are weirder than ever

According to The Economist, the set of traits required to climb the ladder and become a CEO are becoming ever stranger as bosses are required to balance talent, competition and aggression with empathy, listening and charisma. Whilst some characteristics (hard work, impatience, self-confidence and extraversion) have always been prerequisites, others (such as strong interpersonal skills) are now becoming more important. An analysis of role descriptions for the top job has shown that, over the past two decades, more emphasis has been placed on CEO’s social skills (which matter more when bosses need to persuade as much as instruct). Further research suggests that CEOs who score more highly on narcissism-linked traits are more likely to head up firms which perform strongly on ESG measures. What better way for an egomaniac to come across as empathetic than to save the planet?

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