IR Monitor – 15 November 2023

In this week’s newsletter:

• Oliver Shah writes in The Sunday Times on our golden age of boardroom misjudgment, as scandals show we need a new kind of boardroom diversity A.K.A dissenting thought 
• The IR Society held a Masterclass on Data & AI: your FTI correspondents attended. Companies need to have a strategic plan which implements AI and maximises its benefits 
• This digital plan will trample all over shareholder rights, in the opinion of the Investors’ Chronicle. Is a paperless system really the best way forwards for sharedealing? 
• Sanofi probed for market manipulation by French authorities, reports Bloomberg. The stock dropped last week as prosecutors questioned financial communication. 
• Is ESG on its way to the graveyard? A Bloomberg podcast says no. The buzzword of business seemed to have lost its rose-tinted shine, but it seems ESG data is here to stay.
• And finally … a challenge for anyone in the IR/PR industry: Investors use AI to glean the truth behind executives’ soothing words, writes the FT. There’s nowhere for execs to hide; AI can now analyse audio tone, pitch & even filler words to determine emotion and cut through an overly positive façade. 

This week’s news

Scandals show we need a new kind of boardroom diversity – dissent

Oliver Shah penned an opinion piece for The Sunday Times on the ‘golden age of boardroom misjudgement’ as the boundaries between the corporate world and real-life get increasingly blurry. Shah acknowledges that progress has been made to improve Board diversity and that the ‘most obvious diversity requirement’ has been met, with 40% of board seats at FTSE 350 companies occupied by women. According to data from Sir John Parker’s Review, 96% of the FTSE 100 had at least one ethnic-minority board member. Shah points out that ‘diversity’ is not truly being addressed as class is not being considered. Adding that having too many Directors from similar academic backgrounds is likely to increase group think, Shah goes on to conclude that without broader representation of people from all types of social backgrounds and, more importantly, without dissenting people to challenge the norm, the status quo will not change any time soon. 

Masterclass on Data & AI – IR Society

The UK IR Society recently held a masterclass on Data & AI and potential use cases for IR. The event covered topics ranging from effective implementation; applications; but also safety and compliance. The panel talked extensively on how companies were adapting AI into their workflows in order to, for instance, respond to inefficiencies in research, synthesize analyst notes, generate summaries or analyse the tone of an earnings call. The overwhelming consensus was that AI encompassed a suite of tools that could improve efficiency, synthesize workflows and streamline operations. The panel also gave helpful insights into the best way to explain AI and garner support for its adoption. Businesses were advised to run a series of focused AI sessions, teaching people how the technology could be used and utilising day-to-day examples of AI already in our lives, in order to help people familiarise themselves with the technology.  

A digital plan which will trample all over shareholder rights

Sir Douglas Flint, chair of abrdn, is leading a taskforce that aims to fully digitise share dealing and remove paper as an option. However, cracks have already started to appear in this seemingly long overdue transition, according to the Investors’ Chronicle. Concerns were raised by retail investor group ShareSoc, who warned that retail investors would most likely permanently lose certain rights under the recommended digitisation model, which would undermine their ability to challenge management teams. If the transition goes ahead, investors would be forced ‘to move into a nominee account [which] would make everyone become invisible.’ Whilst the final report is set to be released in spring next year, investor groups have been advocating for different systems to be put into place e.g. Sweden’s segregated nominee accounts. Steve Banfield, a director at Equiniti, believes ‘the best way to deliver a paperless system fast, fairly & efficiently is to digitise what currently exists and then work with new technology as it becomes more robust to encourage all retail investors into digital channels.’

Sanofi probed for market manipulation by French authorities

According to French media sources mentioned by Bloomberg, French prosecutors have opened a preliminary investigation into Sanofi, the pharmaceutical group, over the launch of its best-selling drug Dupxient in 2017. Dupxient, used to treat asthma and eczema, saw sales surpass $10 billion this year; prompting investors to worry about the company’s overdependence on the product, according to the Financial Times. Sanofi said it was not aware of the investigation and maintains that the financial information it provided was “accurate, precise and sincere”. This is not the first blow that Sanofi has dealt with this year. Last month, shares fell by almost 20 per cent in one day, following Sanofi’s profit warning announced on the same day as the spin-off of its consumer care division. 

Is ESG on its way to the graveyard? 

In Bloomberg Trillions podcast episode Is ESG on Its Way to the Graveyard?, hosts and guests debate the future of ESG and how we have arrived at today’s crossroads. There was agreement on the value of ESG data and that active management using ESG data will stay. However, as ESG has captured mainstream attention, the lack of understanding of what it means in a professional investing sense has caused confusion that’s resulted in reputational damage to ESG. For example, due to the multi-dimensional nature of ESG, a product alone does not qualify a company for ESG (the case of Tesla). Philanthropy itself is also not ESG (the case of Berkshire Hathaway). Investors could also use a reminder that ESG investing, by definition, is active management favouring certain sectors over others and therefore will have periods of underperformance.

And finally…Investors use AI to glean signals behind executives’ soothing words

Audio recordings seem to be the new kryptonite for chief execs, at least they were for Illumina’s CEO Francis deSouza, reports the Financial Times. In an earnings call, AI noticed that deSouza’s pitch, volume and speech rate all shifted when asked uncomfortable questions about a recent takeover within the business. It also noted an increase in filler words and even a gulp, both not captured on the transcript. DeSouza resigned less than two months ago. Robeco, which manages over $80 billion in algorithmically driven funds, began adding audio signals picked up through AI into its strategies this year to combat a trend of increasingly positive presentations. Good news for management, the technology is still very expensive and very few companies have the capabilities needed to implement this analysis. Chief executives can sleep a little easier tonight!

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